Section 112A – Income Tax on Long
Term Capital Gain
Introduction :
Vide Finance Bill 2018, the Government has come
up with an insertion to section 112A under the Income Tax Act, 1961. The new
section 112A has been inserted in order to levy long-term capital gain tax on the
transfer of equity share, units of equity oriented funds.
Before Amendment of Section 112A.
Before Assessment Year
2018-2019, long-term capital gain tax on transfer of equity share, units of
equity oriented funds was exempted as per provisions of section 10 (38).
After Amendment of
Section 112A
With effect from 1st
April, 2018, provisions of section 10 (38) will not be applicable to any income
arising from transfer of equity share, units of equity oriented funds.
From 1st April, 2018,
provisions of section 112A shall be applicable to tax income arising from
transfer of equity share, units of equity oriented funds and units of business
trust.
Applicability of Section
112A
If you sell your equity or equity MF units (held for more than one year) before 31.3.2018, you can still claim tax exemption on long term capital gains from these. The new tax regime for LTCG is effective for transactions done from April 1, 2018
For example, if your LTCG is Rs 1,30,000 in FY2018-19 then only
Rs 30,000 will face the new LTCG tax@10%
Section
112A shall be applicable only in case where Securities Transaction Tax (popularly known as STT) has been paid at the time of transfer, and also on an acquisition
in case of equity share / units of equity oriented funds.
Now Next Question is How
LTCG tax on shares, equity MF units will be calculated as per New Rules
How to Compute Capital
Gain as per Section
112A???
For determining the capital gain under sec 112A first we calculate “Revised Cost of Acquisition” of such investment.
A method of determining the “Revised Cost of Acquisition” of such investments has been specifically laid
down according to which the Cost of Acquisition of such investments shall be
deemed to be the Higher of-
The actual Cost of Acquisition of
such investments; and
The lower of-
Fair Market Value (‘FMV’) of such
investments;
And
The Full Value of
Consideration received or accruing as a result of the transfer of the
capital asset i.e. the Sale Price
Further, the FMV would be the
highest price quoted on the recognized stock exchange on 31 January 2018. In
case there is no trading of the said asset in such stock exchange, the highest
price on a day immediately preceding 31 January 2018 shall be considered to be
the FMV.
In effect, the taxpayer can claim the highest
price quoted on the recognized stock exchange on 31 January 2018 as the Cost of
Acquisition and claim the deduction for the same.
After calculating Revised cost of acquisition we
can find actual Capital Gain or Loss from the following formula :
Capital Gain/ Loss = Sale Price – Revised Cost of Acquisition
____________________________________________________
Example 1
Mr Taimur bought equity shares on 15-Dec-2016
for Rs. 10,000. FMV of the shares was Rs. 12,000 as on 31-Jan-18. He sold the
shares on 10-May-2018 for Rs. 15,000. What will be the long-term capital gain/
loss?
Revised Cost of Acquisition (RCOA)
Higher of –
Original COA i.e. Rs.
10,000, and
Lower of –
FMV on 31.1.18 i.e. Rs. 12,000, and
Sale Price i.e. Rs. 15,000
Hence, RCOA = Higher of (Rs. 10,000 or Rs.
12,000) = Rs. 12,000
Capital Gain/ (Loss) = Sale Price – Revised Cost of Acquisition
Rs. 15,000 – Rs. 12,000
Rs. 3,000
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Example 2
Mr. Khan purchased equity shares on 20-Jan-2017
for Rs. 16,000. FMV of the shares was Rs. 11,000 as on 31-Jan-18. He sold the
shares on 26-Apr-2018 for Rs. 26,000. What will be the long-term capital gain/
loss?
Revised Cost of Acquisition (RCOA)
Higher of –
Original COA i.e. Rs.
16,000, and
Lower of –
FMV on 31.1.18 i.e. Rs. 11,000, and
Sale Price i.e. Rs. 26,000
Hence, RCOA = Higher of (Rs. 16,000 or Rs.
11,000) = Rs. 16,000
Capital Gain/ (Loss) = Sale Price – Revised Cost of Acquisition
Rs. 26,000 – Rs. 16,000
Rs. 10,000
____________________________________________________
Example 3
Mr. Kapoor bought equity shares on 11-Nov-2016
for Rs. 19,500. FMV of the shares was Rs. 12,000 as on 31-Jan-18. He sold the
shares on 21-May-2018 for Rs. 9,000. What will be the long-term capital gain/
loss?
Revised Cost of Acquisition (RCOA)
Higher of –
Original COA i.e. Rs.
19,500, and
Lower of –
FMV on 31.1.18 i.e. Rs. 12,000, and
Sale Price i.e. Rs. 9,000
Hence, RCOA = Higher of (Rs. 19,500 or Rs. 9,000)
= Rs. 19,500
Capital Gain/ (Loss) = Sale Price – Revised Cost of Acquisition
Rs. 9,000 – Rs. 19,500
Rs. (10,500)
____________________________________________________
Example 4
Mr. Dhoni bought equity shares on 23-Oct-2016
for Rs. 14,500. FMV of the shares was Rs. 18,000 as on 31-Jan-18. He sold the
shares on 18-May-2018 for Rs. 7,000. What will be the long-term capital gain/
loss?
Cost of Acquisition (COA)
Higher of –
Original RCOA i.e. Rs.
14,500, and
Lower of –
FMV on 31.1.18 i.e. Rs. 18,000, and
Sale Price i.e. Rs. 7,000
Hence, RCOA = Higher of (Rs. 14,500 or Rs. 7,000)
= Rs. 14,500
Capital Gain/ (Loss) = Sale Price – Revised Cost of Acquisition
Rs. 7,000 – Rs. 14,500
Rs. (7,500)
____________________________________________________
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