My client sold listed equity shares twice in FY 2024-25 — once in June 2024 and once in September 2024. What rate and what exempt threshold apply to each lot?
Two different rates apply inside the same previous year, but only ONE exempt slice. For a transfer BEFORE 23 July 2024 the section 112A rate is ten per cent; for a transfer ON OR AFTER 23 July 2024 it is twelve and a half per cent. The exempt slice is one lakh twenty-five thousand rupees for the whole of the previous year — the proviso to section 112A(2)(i) says in terms that the limit applies on the AGGREGATE of the long-term capital gains under both sub-clauses — so it is not split between the two rate blocks and the pre-23-July lot does not get a separate one lakh rupee slice. The one lakh rupee figure governs transfers up to 31 March 2024 only. Both changes were made by the Finance (No. 2) Act 2024 with effect from 23 July 2024.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2024-07-23, reported as Memorandum explaining the provisions in the Finance (No. 2) Bill, 2024, 'Rationalisation and Simplification of taxation of Capital Gains'; section 112A as inserted by the Finance Act, 2018. It bears on section 112A, section 111A, section 112, section 55(2)(ac), section 2(42A), section 87A, section 48 of the Income Tax Act 1961, in Capital Gains and How Tax Law Is Read matters.
Almost every piece of guidance written before July 2024 states ten per cent and Rs 1,00,000 as the current law, and a computation built on it is wrong on the rate for any sale on or after 23 July 2024 and wrong on the threshold for EVERY sale in FY 2024-25, including one made in June, because the higher Rs 1,25,000 slice applies to the whole year. The date that matters is the date of TRANSFER, not the date of contract note settlement or the year of acquisition, so a single client can carry both regimes in one return. Note also the conditions in section 112A(1)(iii): for an equity share, securities transaction tax must have been paid BOTH on acquisition and on transfer, whereas for a unit of an equity oriented fund or a business trust it need only have been paid on transfer.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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Section 112A was inserted by the Finance Act 2018 to tax long-term capital gains on STT-paid equity shares, units of an equity oriented fund and units of a business trust, which had until then been exempt under section 10(38). As enacted in 2018 it charged tax at ten per cent on such gains exceeding one lakh rupees, with a proviso allowing a resident individual or Hindu undivided family to absorb the unexhausted basic exemption limit against those gains. The Finance (No. 2) Act 2024 changed the rate and the threshold in the middle of the previous year 2024-25, the changes taking effect on 23 July 2024, the date the Bill was introduced.
Section 112A(2)(i), as substituted with effect from 23 July 2024, charges income-tax on the long-term capital gains exceeding one lakh twenty-five thousand rupees, (a) at ten per cent for any transfer which takes place before the 23rd day of July, 2024 and (b) at twelve and one-half per cent for any transfer which takes place on or after that date, and the proviso to that clause provides that the limit of one lakh twenty-five thousand rupees shall apply on the aggregate of the long-term capital gains under sub-clauses (a) and (b). The threshold is therefore a single aggregate figure for the previous year and does not split with the rate; the earlier threshold of one lakh rupees governs transfers up to 31 March 2024 only. Sub-section (5) allows Chapter VI-A deductions only from gross total income as reduced by these gains, and sub-section (6) allows the section 87A rebate from the income-tax on total income as reduced by the tax payable on these gains.
The Memorandum sets out three components of the 2024 rationalisation: two holding periods only (twelve months for listed securities, twenty-four for everything else) by amendment to section 2(42A); an increase in the section 111A short-term rate from fifteen to twenty per cent and a single long-term rate of 12.5 per cent replacing the ten per cent under section 112A and the twenty per cent with indexation under section 112; and removal of indexation under the second proviso to section 48. It records the increase in the section 112A exemption 'upto 1.25 lakh (aggregate)' from the 'previously available exemption which was upto 1 lakh'. Section 112A as enacted in 2018 supplies the conditions that are unchanged: the gain must arise from transfer of a long-term capital asset being an equity share, a unit of an equity oriented fund or a unit of a business trust; STT must have been paid on acquisition AND transfer for an equity share, and on transfer only for a unit; sub-section (3) excludes the STT condition for a transfer on a recognised stock exchange in an International Financial Services Centre where consideration is in foreign currency; and sub-section (4) empowers the Central Government to notify acquisitions to which the acquisition-STT condition does not apply. The enacted section 31 of the Finance (No. 2) Act, 2024 substitutes clause (i) of sub-section (2) — not sub-section (1) — and does so 'with effect from the 23rd day of July, 2024'; sub-section (1), which carries the conditions, is untouched.
(i) the amount of income-tax calculated on such long-term capital gains exceeding one lakh twenty-five thousand rupees–– (a) on long-term capital gains at the rate of ten per cent for any transfer which takes place before the 23rd day of July, 2024; and (b) on long-term capital gains, at the rate of twelve and one-half per cent for any transfer which takes place on or after the 23rd day of July, 2024: Provided that the limit of one lakh twenty-five thousand rupees shall apply on aggregate of the long-term capital gains under sub-clauses (a) and (b);
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Handle my notice → Ask a CA on WhatsAppTwo different rates apply inside the same previous year, but only ONE exempt slice. For a transfer BEFORE 23 July 2024 the section 112A rate is ten per cent; for a transfer ON OR AFTER 23 July 2024 it is twelve and a half per cent. The exempt slice is one lakh twenty-five thousand rupees for the whole of the previous year — the proviso to section 112A(2)(i) says in terms that the limit applies on the AGGREGATE of the long-term capital gains under both sub-clauses — so it is not split between the two rate blocks and the pre-23-July lot does not get a separate one lakh rupee slice. The one lakh rupee figure governs transfers up to 31 March 2024 only. Both changes were made by the Finance (No. 2) Act 2024 with effect from 23 July 2024. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 112A, section 111A, section 112, section 55(2)(ac), section 2(42A), section 87A, section 48 of the Income Tax Act 1961. It is reported as Memorandum explaining the provisions in the Finance (No. 2) Bill, 2024, 'Rationalisation and Simplification of taxation of Capital Gains'; section 112A as inserted by the Finance Act, 2018. Almost every piece of guidance written before July 2024 states ten per cent and Rs 1,00,000 as the current law, and a computation built on it is wrong on the rate for any sale on or after 23 July 2024 and wrong on the threshold for EVERY sale in FY 2024-25, including one made in June, because the higher Rs 1,25,000 slice applies to the whole year. The date that matters is the date of TRANSFER, not the date of contract note settlement or the year of acquisition, so a single client can carry both regimes in one return. Note also the conditions in section 112A(1)(iii): for an equity share, securities transaction tax must have been paid BOTH on acquisition and on transfer, whereas for a unit of an equity oriented fund or a business trust it need only have been paid on transfer. If it applies to you, the first step is this: Split the client's listed-equity transfers for FY 2024-25 into two buckets by transfer date — before 23 July 2024 and on or after — and compute each bucket on its own rate.
Section 112A was inserted by the Finance Act 2018 to tax long-term capital gains on STT-paid equity shares, units of an equity oriented fund and units of a business trust, which had until then been exempt under section 10(38). As enacted in 2018 it charged tax at ten per cent on such gains exceeding one lakh rupees, with a proviso allowing a resident individual or Hindu undivided family to absorb the unexhausted basic exemption limit against those gains. The Finance (No. 2) Act 2024 changed the rate and the threshold in the middle of the previous year 2024-25, the changes taking effect on 23 July 2024, the date the Bill was introduced. The matter was decided on 2024-07-23 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Section 112A(2)(i), as substituted with effect from 23 July 2024, charges income-tax on the long-term capital gains exceeding one lakh twenty-five thousand rupees, (a) at ten per cent for any transfer which takes place before the 23rd day of July, 2024 and (b) at twelve and one-half per cent for any transfer which takes place on or after that date, and the proviso to that clause provides that the limit of one lakh twenty-five thousand rupees shall apply on the aggregate of the long-term capital gains under sub-clauses (a) and (b). The threshold is therefore a single aggregate figure for the previous year and does not split with the rate; the earlier threshold of one lakh rupees governs transfers up to 31 March 2024 only. Sub-section (5) allows Chapter VI-A deductions only from gross total income as reduced by these gains, and sub-section (6) allows the section 87A rebate from the income-tax on total income as reduced by the tax payable on these gains.
The Memorandum sets out three components of the 2024 rationalisation: two holding periods only (twelve months for listed securities, twenty-four for everything else) by amendment to section 2(42A); an increase in the section 111A short-term rate from fifteen to twenty per cent and a single long-term rate of 12.5 per cent replacing the ten per cent under section 112A and the twenty per cent with indexation under section 112; and removal of indexation under the second proviso to section 48. It records the increase in the section 112A exemption 'upto 1.25 lakh (aggregate)' from the 'previously available exemption which was upto 1 lakh'. Section 112A as enacted in 2018 supplies the conditions that are unchanged: the gain must arise from transfer of a long-term capital asset being an equity share, a unit of an equity oriented fund or a unit of a business trust; STT must have been paid on acquisition AND transfer for an equity share, and on transfer only for a unit; sub-section (3) excludes the STT condition for a transfer on a recognised stock exchange in an International Financial Services Centre where consideration is in foreign currency; and sub-section (4) empowers the Central Government to notify acquisitions to which the acquisition-STT condition does not apply. The enacted section 31 of the Finance (No. 2) Act, 2024 substitutes clause (i) of sub-section (2) — not sub-section (1) — and does so 'with effect from the 23rd day of July, 2024'; sub-section (1), which carries the conditions, is untouched. In the words reproduced by the source cited on this page: "(i) the amount of income-tax calculated on such long-term capital gains exceeding one lakh twenty-five thousand rupees–– (a) on long-term capital gains at the rate of ten per cent for any transfer which takes place before the 23rd day of July, 2024; and (b) on long-term capital gains, at the rate of twelve and one-half per cent for any transfer which takes place on or after the 23rd day of July, 2024: Provided that the limit of one lakh twenty-five thousand rupees shall apply on aggregate of the long-term capital gains under sub-clauses (a) and (b);"
It was decided by the CBDT Circulars & Instructions on 2024-07-23 and is reported as Memorandum explaining the provisions in the Finance (No. 2) Bill, 2024, 'Rationalisation and Simplification of taxation of Capital Gains'; section 112A as inserted by the Finance Act, 2018. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 112A, section 111A, section 112, section 55(2)(ac), section 2(42A), section 87A, section 48, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Section 112A(2)(i), as substituted with effect from 23 July 2024, charges income-tax on the long-term capital gains exceeding one lakh twenty-five thousand rupees, (a) at ten per cent for any transfer which takes place before the 23rd day of July, 2024 and (b) at twelve and one-half per cent for any transfer which takes place on or after that date, and the proviso to that clause provides that the limit of one lakh twenty-five thousand rupees shall apply on the aggregate of the long-term capital gains under sub-clauses (a) and (b). The threshold is therefore a single aggregate figure for the previous year and does not split with the rate; the earlier threshold of one lakh rupees governs transfers up to 31 March 2024 only. Sub-section (5) allows Chapter VI-A deductions only from gross total income as reduced by these gains, and sub-section (6) allows the section 87A rebate from the income-tax on total income as reduced by the tax payable on these gains. It arises in Capital Gains and How Tax Law Is Read matters, on section 112A, section 111A, section 112, section 55(2)(ac), section 2(42A), section 87A, section 48 of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Do not split or double the exempt slice. Deduct one aggregate figure of Rs 1,25,000 for the previous year across both rate blocks — the proviso to section 112A(2)(i) says so in terms — and do not apply Rs 1,00,000 to the pre-23-July lot; that figure belongs to transfers up to 31 March 2024. For each equity share check that STT was paid on acquisition as well as on transfer; if it was not, check whether the acquisition falls inside the Central Government notification issued under section 112A(4) before assuming the section applies. Remember section 112A(5) and (6) as enacted: no Chapter VI-A deduction is allowed against these gains, and the section 87A rebate is computed on the income-tax on total income AS REDUCED BY the tax payable on these capital gains. Take the cost of acquisition for any share acquired before 1 February 2018 through section 55(2)(ac) before applying the rate — the grandfathered cost, not the historic cost.
Still good law. Read from the Income Tax Department's current section 112A page, stamped Year 2026, and independently against section 31 of the enacted Finance (No. 2) Act, 2024 (Act 15 of 2024, assented 16 August 2024) in the Gazette. The two agree word for word on sub-section (2), clause (i) and its proviso. No amendment later than the Finance (No. 2) Act 2024 was searched for beyond the departmental page's own stamp. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The Income Tax Department's CURRENT section 112A page is at https://incometaxindia.gov.in/w/section-112a-65 — heading 'Tax on long-term capital gains in certain cases', stamped Year 2026 — and the whole section was read from it. The plain slug /w/section-112a and the suffixed variants -1, -2, -3, -4, -5, -6, -19, -30, -31, -35 and -36 are all archived versions of the OLD section 112A (tax on interest on National Savings Certificates, omitted by the Finance Act 1988) and must not be used; /w/section-112a-64 is not the Income-tax Act at all but section 112A of the Trade Marks Act, 1999, and carries no Year stamp. The enacted amending provision, section 31 of the Finance (No. 2) Act, 2024 (Act 15 of 2024, assented 16 August 2024), was read verbatim from the Gazette at https://egazette.gov.in/WriteReadData/2024/256436.pdf and agrees with the departmental page word for word. The single most misreported point in this area is the exempt slice: the Rs 1,25,000 figure sits in the chapeau of clause (i) above BOTH rate limbs, and the proviso says expressly that it applies on the aggregate of the gains under sub-clauses (a) and (b), so there is one slice for the previous year, not one per block. 'decided_on' is the date from which the substituted clause takes effect, not a decision date. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Section 112A(2)(i), as substituted with effect from 23 July 2024, charges income-tax on the long-term capital gains exceeding one lakh twenty-five thousand rupees, (a) at ten per cent for any transfer which takes place before the 23rd day of July, 2024 and (b) at twelve and one-half per cent for any transfer which takes place on or after that date, and the proviso to that clause provides that the limit of one lakh twenty-five thousand rupees shall apply on the aggregate of the long-term capital gains under sub-clauses (a) and (b). The threshold is therefore a single aggregate figure for the previous year and does not split with the rate; the earlier threshold of one lakh rupees governs transfers up to 31 March 2024 only. Sub-section (5) allows Chapter VI-A deductions only from gross total income as reduced by these gains, and sub-section (6) allows the section 87A rebate from the income-tax on total income as reduced by the tax payable on these gains.
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