Section 112A – Income Tax on Long Term Capital Gain

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 

     LTCG realized after 31.3.2018 by an individual will remain tax exempt up to Rs 1 lakh per annum i.e. the new LTCG tax of 10% would be levied only on LTCG of an individual  exceeding Rs 1 lakh in one year.
      
      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

The computation mechanism has been further explained by way of the following examples :

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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

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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)

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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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Changes in IT Return for AY 2019-20

 Changes in Income Tax Rules:

1.         No Change in Income Tax Slabs

2.       1% additional health cess taking total cess on income tax to 4% (2% education cess& 1% higher education cess continues). This will marginally increase income tax for every tax payer.

3.     Standard Deduction of Rs 40,000 to Salaried and Pensioners. However transport allowance (Rs 19,200 per annum) and medical reimbursement of Rs 15,000 has been abolished. So the net benefit for salaried would be Rs 5,800 only bringing marginal relief. However Pensioners would gain as they did not have transport & medical allowance.

4.    10% Long Term Capital Gains Tax on Equity and Equity based Mutual Funds introduced.

5.        Medical Insurance premium exemption for senior citizen increased from Rs 30,000 to Rs 50,000 u/s 80D

6.       Medical expenses will see increased tax benefits for senior citizens. 100,000 on critical illness u/s 80DDB

7.       Rs 50,000 exemption for interest income from Bank or Post Office Fixed/Recurring Deposits for Senior Citizens

Deduction u/s 80C to 80U:

Assessment year 2019-20 and subsequent assessment years.

Particulars	Old Provision of section 80TTA	New Provision of Section 80TTB
Deduction  for senior citizens in respect of Interest income	Deduction Allowed upto Rs.10000/- for Saving Account Interest u/s 80TTA	Deduction allowed upto Rs.50,000/- for FDR and Saving Interest u/s 80TTB

Section 194A also been amended by Budget 2018 so as to raise the threshold for deduction of tax at source on interest income for senior citizens from Rs 10,000/- to Rs 50,000/-.

This amendment takes effect, from 1st April, 2018.

Section 80D: Income Tax Deduction for F.Y 2018-19/A.Y. 2019-20

Insured	Exemption List
Self & family	25,000
Self & family + Parents	25,000 + 25,000 = 50,000
Self & family + Parents (senior citizens)	25,000 + 50,000 = 75,000
Self (senior citizen) & family + Parents (senior citizens)	50,000 + 50,000 = 1,00,000