Section 112 Income Tax Act Tax on long-term capital gains.

By | March 10, 2023
(Last Updated On: March 10, 2023)

Section 112 Income Tax Act

Section 112 Income Tax Act is for Tax on long-term capital gains. This article is written by CA satbir Singh (Contact us Taxheal@gmail.com )

Summary of Section 112 Income Tax Act

  • Section 112 Income Tax Act is Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. Earlier, section 112 was omitted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968 and replaced by section 80S. Before its omission, the section was first amended by the Finance Act, 1965, w.e.f. 1-4-1965 and then by the Finance (No. 2) Act, 1965, w.e.f. 11-9-1965.
  • Long-term capital gains will be subject to a flat rate of income-tax (With certian exception). The rate of tax will be 20%  in the case of an resident individual and an HUF, .The tax so computed shall be increased by surcharge wherever applicable.
  •  Section 112  provide that the tax on long-term capital gains on transfer of ‘listed securities (other than unit) and zero coupon bonds.’ would be calculated at lower of the following :
    • 10% of the capital gains, before allowing adjustment for cost inflation index or
    • 20% of the capital gains after considering cost inflation index.

      Note the following
      The section refers to listed securities. The use of plural form gives rise to a doubt as to whether the computation has to be done scripwise or on a global basis. It appears that the computation has to be done scripwise.
      The provision shall be beneficial for bonus shares where the cost of acquisition being nil [section 55(2)(aa)(ii)], the indexed cost of acquisition would also be nil. In such a case, the computation of 10% will always be found to be beneficial to the assessee.
  • The Finance Act, 2022 has put a cap on the rate of surcharge to 15% in respect of long-term capital gains taxable under section 112. The relevant provisions have been prescribed in this respect under Part III of the First Schedule and section 2 of the Finance Act, 2022. The consequential amendments have also been made to Part II of the First Schedule of the Finance Act, 2022 prescribing the rates of surcharge while withholding of tax from the income of a non-resident.
  • Increased rate of surcharge on TDS – Consequential amendments have been made to Section 2 and Part II of the First Schedule to the Finance Act, 2022 to limit the rate of surcharge to be applied to the withholding tax rate applicable in case of a non-resident. Thus, the rate of surcharge shall be limited to 15% for deduction of tax in respect of capital gain taxable under sections 111A, 112, 112A and 115AD only. The TDS rate in respect of all other capital gains shall be increased by the surcharge rate as applicable in respect of the underlying capital gain
  • In the case of a non-resident (not being a company) or a foreign company, the amount of income-tax on long-term capital gains arising from the transfer of a capital asset, being unlisted securities or shares of a company not being a company in which the public are substantially interested, shalll be calculated at the rate of ten per cent on the capital gains in respect of such asset as computed without giving effect to the first and second proviso to section 48;
  • Section 112 of Income Tax is amended many times refer Notes on Amendment of Section 112 of Income Tax Act given below.
  •  Refer also Circular No. 721, dated 13-9-1995 (Set-off of losses under other heads).

Section 112 Income Tax Act

[Tax on long-term capital gains.

112. (1) Where the total income of an assessee includes any income, arising from the transfer of a long-term capital asset, which is chargeable under the head “Capital gains”, the tax payable by the assessee on the total income shall be the aggregate of,—
(a)in the case of an individual or a Hindu undivided family, 1[being a resident,]—
(i)the amount of income-tax payable on the total income as reduced by the amount of such long-term capital gains, had the total income as so reduced been his total income ; and
(ii)the amount of income-tax calculated on such long-term capital gains at the rate of twenty per cent :
Provided that 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, such long-term capital gains 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 and the tax on the balance of such long-term capital gains shall be computed at the rate of twenty per cent ;
(b)in the case of a 2[domestic] company,—
(i)the amount of income-tax payable on the total income as reduced by the amount of such long-term capital gains, had the total income as so reduced been its total income ; and
(ii)the amount of income-tax calculated on such long-term capital gains at the rate of 3[twenty] per cent :
4[***]
5[(c)in the case of a non-resident (not being a company) or a foreign company,—
(i)the amount of income-tax payable on the total income as reduced by the amount of such long-term capital gains, had the total income as so reduced been its total income ; and
6[(ii)the amount of income-tax calculated on long-term capital gains [except where such gain arises from transfer of capital asset referred to in sub-clause (iii)] at the rate of twenty per cent; and
(iii)the amount of income-tax on long-term capital gains arising from the transfer of a capital asset, being unlisted securities 7[or shares of a company not being a company in which the public are substantially interested], calculated at the rate of ten per cent on the capital gains in respect of such asset as computed without giving effect to the first and second proviso to section 48;]]
8[(d)]in any other case 9[of a resident],—
(i)the amount of income-tax payable on the total income as reduced by the amount of long-term capital gains, had the total income as so reduced been its total income ; and
(ii)the amount of income-tax calculated on such long-term capital gains at the rate of 10[twenty] per cent.
Explanation.11[***]
12[Provided that where the tax payable in respect of any income arising from the transfer of a long-term capital asset,13[being listed securities (other than a unit)] 14[or zero coupon bond], exceeds ten per cent of the amount of capital gains before giving effect to the provisions of the second proviso to section 48, then, such excess shall be ignored for the purpose of computing the tax payable by the assessee :
15[Provided further that where the tax payable in respect of any income arising from the transfer of a long-term capital asset, being a unit of a Mutual Fund specified under clause (23D) of section 10, during the period beginning on the 1st day of April, 2014 and ending on the 10th day of July, 2014, exceeds ten per cent of the amount of capital gains, before giving effect to the provisions of the second proviso to section 48, then, such excess shall be ignored for the purpose of computing the tax payable by the assessee.]
16[Explanation.—For the purposes of this sub-section,—
17[(a)the expression “securities” shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (32 of 1956);
(aa)“listed securities” means the securities which are listed on any recognised stock exchange in India;
(ab)“unlisted securities” means securities other than listed securities.]
(b)18[***]]]
(2) Where the gross total income of an assessee includes any income arising from the transfer of a long-term capital asset, the gross total income shall be reduced by the amount of such income and the deduction under Chapter VI-A shall be allowed as if the gross total income as so reduced were the gross total income of the assessee.
(3) Where the total income of an assessee includes any income arising from the transfer of a long-term capital asset, the total income shall be reduced by the amount of such income and the rebate under section 88 shall be allowed from the income-tax on the total income as so reduced.]

Notes on Amendment of Section 112 of Income Tax Act

1. Inserted by the Finance Act, 1994, w.e.f. 1-4-1995.
2. Inserted by the Finance Act, 1994, w.e.f. 1-4-1995.
3. Substituted for “thirty” by the Finance (No. 2) Act, 1996, w.e.f. 1-4-1997. Earlier, “thirty” was substituted for “forty” by the Finance Act, 1994, w.e.f. 1-4-1995.

4. Proviso omitted by the Finance Act, 1995, w.e.f. 1-4-1996. Prior to its omission, the proviso, as amended by the Finance Act, 1994, w.e.f. 1-4-1995, read as under :’Provided that in relation to long-term capital gains arising to a venture capital company from the transfer of equity shares of venture capital undertakings, the provisions of sub-clause (ii) shall have effect as if for the words “thirty per cent”, the words “twenty per cent” had been substituted;’

5. Inserted by the Finance Act, 1994, w.e.f. 1-4-1995.

6. Clauses (ii) and (iii) substituted for clause (ii) by the Finance Act, 2012, w.e.f. 1-4-2013. Prior to its substitution, clause (ii) read as under :

“(ii)the amount of income-tax calculated on such long-term capital gains at the rate of twenty per cent ;”

7. Inserted by the Finance Act, 2016, w.r.e.f. 1-4-2013†. (†Effective date amended by the Finance Act, 2017.)

8.Relettered by the Finance Act, 1994, w.e.f. 1-4-1995.

9.Inserted by the Finance Act, 1994, w.e.f. 1-4-1995.

10. Substituted for “thirty” by the Finance (No. 2) Act, 1996, w.e.f. 1-4-1997.

11. Omitted by the Finance Act, 1995, w.e.f. 1-4-1996.

12.Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.

13.Substituted for “being listed securities or unit” by the Finance (No. 2) Act, 2014, w.e.f. 1-4-2015. Earlier, the quoted words were amended by the Finance Act, 2000, w.e.f. 1-4-2000.

14. Inserted by the Finance Act, 2005, w.e.f. 1-4-2006.

15. . Inserted by the Finance (No. 2) Act, 2014, w.e.f. 1-4-2015.

16. Substituted by the Finance Act, 2000, w.e.f. 1-4-2000. Prior to its substitution, Explanation, as inserted by the Finance Act, 1999, w.e.f. 1-4-2000, read as under :

Explanation.—For the purposes of this sub-section, “listed securities” means the securities—

(a)as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (32 of 1956); and
(b)listed in any recognised stock exchange in India.’

17. Clauses (a), (aa) and (ab) substituted for clause (a) by the Finance Act, 2012, w.e.f. 1-4-2013. Prior to its substitution, clause (a) read as under :