Understanding Section 112A: Tax on Long-Term Capital Gains from Shares

Pre-2018 Scenario: Investors enjoyed tax exemption on long-term capital gains from shares and mutual funds under section 10(38) until 2018. Introduction of Section 112A: The 2018 Budget introduced Section 112A, levying a 10% tax on long-term capital gains from specified assets exceeding INR 1 lakh.

Grandfathering Rule: A grandfathering formula exempts capital gains earned until January 31, 2018, providing relief to investors holding shares and mutual funds. Calculation Example: The formula considers the lower of Fair Market Value or Actual Selling Price to determine the cost of acquisition.

Tax Rate and Reporting: Long-term capital gains on shares are taxed at 10%, reported under Schedule 112A of the ITR forms. Set Off & Carry Forward Losses: Losses from shares held for over 12 months qualify as Long Term Capital Loss (LTCL), which can be set off against LTCG or carried forward.

Exemption Options: Taxpayers can avail exemptions under Sections 54 to 54GB by reinvesting proceeds into specified assets, facilitated by the Capital Gains Account Scheme.