Section 111A

Section 111A — the law in short

What the courts have decided on section 111A, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• K2 Family Private Trust v DCIT — the return utility cannot block the set-off order the assessee is entitled to claim High CourtHelps taxpayerNo later treatment found
  The e-filing utility forces my client's STT-paid short-term loss against STT-paid gains first and will not let him claim the sequence he wants. Is his only option to file the return the utility's way and argue later?
  No. The Bombay High Court held that the procedure of filing a return cannot bar an assessee from making a claim under the Act which he feels he is entitled to, and directed the CBDT to modify the utility so that the petitioner could set off the STT-paid short-term capital loss against the non-STT short-term capital gains first, failing which the Assessing Officer was to accept a revised return for AY 2025-26 in paper mode.
• CIT v Rungamatee Trexim — the assessee chooses the order of set-off between STT-paid and non-STT short-term gains High CourtHelps taxpayer
  My client has a short-term capital loss on STT-paid shares and short-term gains of both kinds. The officer set the loss off against the concessionally taxed gains first. Can he insist on that order?
  No. Section 70 prescribes no chronology for set-off, and where the Act gives the assessee an option, the option that favours the assessee is the one to be exercised — so the assessee may set the short-term capital loss off against the gains taxed at the normal rate first and keep the concessionally taxed section 111A gains intact. The Calcutta High Court dismissed the Revenue's appeal against that view, finding no substantial question of law.
• Fidelity Rutland Square Trust II — an FPI may choose the set-off order between its section 115AD and section 111A short-term gains ITATHelps taxpayerNo later treatment found
  My foreign portfolio investor client has non-STT short-term gains taxed under section 115AD and STT-paid short-term gains taxed at the section 111A rate, plus an STT-paid short-term loss. The officer re-sequenced the set-off. Can he?
  No. The Tribunal held that section 70 prescribes no chronology for set-off of losses and that the provisions do not compel an assessee to set the STT-paid short-term loss off against the STT-paid short-term gain first, so the assessee was entitled to exercise the option most beneficial to it. The Assessing Officer was directed to accept the net short-term capital gains as offered in the return and to delete the additional demand.
• Statutory position — section 111A: short-term gains where STT is paid, and what happens where it is not CBDT Circulars & InstructionsCuts both ways
  My client's short-term gains on shares are partly from on-market STT-paid sales and partly from an off-market transfer. Does the concessional rate cover both, and what is the rate now?
  Section 111A covers only a short-term capital asset that is an equity share, a unit of an equity oriented fund or a unit of a business trust where the sale transaction is chargeable to securities transaction tax. Where STT is not chargeable — an off-market sale, unlisted shares, a transfer outside the exchange — section 111A simply does not apply and the short-term gain goes into total income at the assessee's ordinary rate. The concessional rate itself is fifteen per cent for a transfer before 23 July 2024 and twenty per cent for a transfer on or after that date.
• Statutory position — section 112A: the long-term rate and the exempt slice, before and after 23 July 2024 CBDT Circulars & InstructionsCuts both ways
  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.
• Statutory position — section 2(42A): only two holding periods from 23 July 2024 CBDT Circulars & InstructionsCuts both ways
  Is a listed bond still a long-term asset only after three years, and what about units of a listed business trust? My client transferred both in late 2024.
  From 23 July 2024 there are only two holding periods: twelve months for all listed securities and twenty-four months for everything else. The thirty-six month period is gone, so units of a listed business trust move from thirty-six months to twelve, and bonds, debentures and gold move from thirty-six months to twenty-four; unlisted shares and immovable property stay at twenty-four.
• Statutory position — section 115UA: what a REIT or InvIT passes through, what it pays at the maximum marginal rate, and the 2023 carve-out CBDT Circulars & InstructionsCuts both ways
  My client holds units in a listed REIT. Which part of what the trust distributes is taxable in his hands, and what does the trust itself pay tax on?
  Section 115UA(1) makes the distributed income of a business trust retain, in the unit holder's hands, the same nature and proportion it had in the trust's, and section 115UA(3) charges to tax in the unit holder's hands the distributed income which is of the nature referred to in clause (23FC) or clause (23FCA) of section 10 — broadly, interest and dividend from the special purpose vehicle, and rent from directly held property. Everything else forming the trust's own total income is charged in the trust's hands at the maximum marginal rate under section 115UA(2), subject to sections 111A and 112; and since 1 April 2024 sub-section (3A) removes the character-retention rule altogether for a sum charged under section 56(2)(xii).

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.