Section 112 a of Income Tax Act 2018 with Example ||Long Term Capital Gain on Sale of Listed equity share

Long Term Capital Gain on Sale of Listed equity share (Section 112 a of Income Tax Act 2018)

This Article explains with example Tax on Long Term Capital Gain on Sale of Listed equity share and Tax on long term capital gains on Sale of equity oriented fund  of recent amendment proposed in budget 2018. ( Section 112A of the Income Tax Act, 1961)

Insertion of new Section 112A of Income Tax Act In Budget 2018.

After section 112 of the Income-tax Act, This amendment will take effect from 1st April, 2019 and will, accordingly, apply in relation to the A.Y 2019-2020 and subsequent years., namely:—

Tax on long-term capital gains in certain cases (Section 112a of income tax act 1961)

(1). Notwithstanding anything contained in Section 112, the tax payable by an assesses on his total income shall be determined in accordance with the provisions of sub-section (2),   if:—

• (i) the total income includes any income chargeable under the head “Capital gains”;
• (ii) the capital gains arise from the transfer of a long-term capital asset being an equity share in  a company or a unit of an equity oriented fund or a unit of a business trust;
• (iii) securities transaction tax under Chapter VII of the Finance (No.2) Act, 2004 has,—
•       (a) in a case where the long-term capital asset is in the nature of an equity share in a company,  been paid on acquisition and transfer of such capital asset; or
•       (b) in a case where the long-term capital asset is in the nature of a unit of an equity oriented fund or a unit of a business trust, been paid on transfer of such capital asset.

(2). The tax payable by the assesses on the total income referred to in sub-section (1) shall be the aggregate of (Section 112a of income tax act 1961):-

• (i) the amount of income-tax calculated on such long-term capital gains (Sale of Listed equity share and Sale of equity oriented fund) exceeding one lakh rupees (1 Lakh)  at the rate of ten per cent (10%).; and
• (ii) the amount of income-tax payable on the balance amount of the total income as if such balance amount   were the total  income of the assesses:

Note- No Tax on Long Term Capital Gain upto 1 Lakh rupees

Provided that in the case of an individual or a Hindu undivided family, being a resident, where the total income as reduced by such long-term capital gains is below the maximum amount which is not chargeable to income-tax, then, the long-term capital gains, for the purposes of clause (i), shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax.

(3). The condition specified in clause (iii) of sub-section (1) shall not apply to a transfer undertaken on a recognized stock exchange located in any International Financial Services Centre and where the consideration for such transfer is received or receivable in foreign currency.

(4). The Central Govt. may, by notification in the Official Gazette, specify the nature of acquisition in respect of which the provisions of sub-clause (a) of clause (iii) of sub-section (1) shall not apply.

(5). The capital gains under sub-section (1) shall be computed without giving effect to the provisions of the first and second provisos to section 48.

(6). The cost of acquisition for the purposes of computing capital gains referred to in sub-section (1) in respect of the long-term capital asset acquired by the assesses before the 1st day of Feb., 10 2018, shall be deemed to be the higher of—

• (i) the actual cost of acquisition of such asset; and
• (ii) the lower of—
•         (a) the fair market value of such asset; and
•      (b) the full value of consideration received or accruing as a result of the transfer of the capital  asset.

(7).Where the gross total income of an assesses includes any long-term capital gains  referred to in sub-section (1), the deduction under Chapter VI-A shall be allowed from the gross total income as reduced by such capital gains.

(8).Where the total income of an assesses includes any long-term capital gains referred to in sub-section (1), the rebate under section 87A of Income Tax Act shall be allowed from the income-tax on the total incomes reduced by tax payable on such capital gains.

Explanation.—For the purposes of this section,—

• (a) “equity oriented fund” means a fund set up under a scheme of a mutual fund specified under clause (23D) of section 10 and,—
• (i) in a case where the fund invests in the units of another fund which is traded on a recognised stock exchange,—
•       (A) a minimum of ninety per cent. of the total proceeds of such fund is invested in the units   of such other fund;  and
•      (B) such other fund also invests a minimum of ninety per cent. of its total proceeds in the 30 equity shares of   domestic  companies listed on a recognised stock exchange; and
• (ii) in any other case, a minimum of sixty-five per cent (65%). of the total proceeds of such fund is  invested in the equity  shares of domestic companies listed on a recognised stock exchange:

Provided that the percentage of equity shareholding or unit held in respect of the fund, as the case may be, shall be computed with reference to the annual average of the monthly averages of the opening and closing figures;

• (b) “fair market value” means,—(Section 112a of income tax act 1961)
•        (i) in a case where the capital asset is listed on any recognised stock exchange, the highest price of the capital asset  quoted on such exchange on the 31.01.2018:

Provided that where there is no trading in such asset on such exchange on 31.01.2018,  the highest  price  of such asset on such exchange on a date immediately preceding the 31.01.2018 when such asset was traded on such exchange shall be the fair market value;

• •        (ii) in a case where the capital asset is a unit and is not listed on a recognised stock exchange, the net asset value of such  asset as on the 31.01.2018;
  •              (c) “International Financial Services Center” shall have the meaning assigned to it in clause (q) of section 2 of     the Special Economic Zones Act, 2005;
  •              (d) “recognised stock exchange” shall have the meaning assigned to it in clause (ii) of Explanation 1 to clause      (5) of section 43.’.

Example(Section 112a of income tax act 1961)

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