Long-Term Capital Gains on WebNotes

Section 112A of the Income Tax Act

Sat, 16 May 2026 00:00:00 +0000

Section 112A of the Income Tax Act, 1961, is the operative tax provision that governs long-term capital gains (LTCG) on transfers of listed equity shares, units of equity-oriented mutual funds , and units of business trusts (REITs and InvITs), subject to the condition that Securities Transaction Tax (STT) has been paid on both acquisition and sale (with prescribed exceptions). The section was inserted by the Finance Act, 2018, effective from 1 April 2018, replacing the long-standing Section 10(38) exemption that had operated since the introduction of STT in 2004. As of the post-23 July 2024 regime introduced by the Finance (No. 2) Act, 2024, LTCG under Section 112A is taxed at 12.5 per cent on gains above an annual exemption threshold of Rs 1.25 lakh, with no indexation benefit. The section operates alongside Section 111A (short-term capital gains on the same asset class at 20 per cent) and the broader capital gains tax in India framework.

LTCG on equity mutual funds (Section 112A)

Tue, 12 May 2026 00:00:00 +0000

Long-term capital gains (LTCG) on equity-oriented mutual funds are taxed under Section 112A of the Income Tax Act 1961 at a flat rate of 12.5% on gains exceeding Rs 1,25,000 per financial year, as revised by the Finance Act 2024 effective 23 July 2024. Section 112A was introduced by the Finance Act 2018 to reimpose LTCG tax on listed equity after a 14-year exemption and is the primary charging section for long-term redemptions of equity mutual fund units, ELSS, balanced hybrid funds, and arbitrage funds that qualify as equity-oriented. Indexation is not available under Section 112A. The grandfathering provision in Section 55(2)(ac) ensures that gains accrued before 1 February 2018 are excluded from the taxable base.

Taxation of debt mutual funds (post-April 2023)

Tue, 12 May 2026 00:00:00 +0000

Taxation of debt mutual funds in India underwent a fundamental change with effect from 1 April 2023 under the Finance Act 2023. Before that date, debt mutual fund units held for more than 36 months qualified as long-term capital assets and were taxed at 20% with the benefit of indexation under Section 48 of the Income Tax Act 1961. The Finance Act 2023 inserted the third proviso to Section 50AA (later renumbered as applicable amendments in the Schedule), which provides that the capital gains on specified mutual funds – those investing less than 65% of their assets in domestic equity – shall be treated as short-term regardless of the actual holding period, and shall be included in total income and taxed at the investor’s applicable income-tax slab rate. The regime for units acquired on or after 1 April 2023 is now uniformly slab-rate taxation with no indexation and no concept of long-term holding for such funds.