Section 111A vs 112A of Income Tax, and Difference between 111A and 112A under Income Tax Act

Understanding Sections 111A and 112A of the Income Tax Act is crucial for taxpayers, as these provisions are essential for calculating capital gains tax on shares, mutual funds, and other types of movable property. This article explains the information on Section 111A, Section 112A, and the differences between 111A vs 112A of the Income Tax Act.

Introduction

Understanding Sections 111A and 112A of the Income Tax Act is crucial for taxpayers, as these provisions are essential for calculating capital gains tax on shares, mutual funds, and other types of movable property. This article explains the details of Section 111A, Section 112A, and the differences in capital gains calculations in “111A vs 112A” of the Income Tax Act.

The Finance Act of 2018 added Section 112A to tax long-term capital gains from the sale of listed equity shares, units of equity-oriented mutual funds, and business trust units. Tax profits that were formerly exempt until FY (Financial Year) 2017-18 were now subject to schedule 112A. Previously, section 10(38) exempted capital gains from the sale of mutual fund units,  listed stock shares, and business trusts.

What is Section 111A of the Income Tax Act

Short-term capital gains deriving from the transfer or sale of equity shares, units of an equity-oriented mutual fund, or units of a business trust after holding for less than 12 months are taxable at 15% under Section 111A. Only short-term capital gains are taxed under Section 111A. If a gain occurs in this section, it is taxed at a rate of 15%; otherwise, short-term capital gains are taxed at the regular income tax slab rates.

Exemptions under Section 111A of the Income Tax Act

• Securities Transaction Tax (STT) is not imposed on the transfer of shares listed in a recognized Stock Exchange at an International Financial Service Centre (IFSC).

• If the assessee can show that the securities he owns are capital assets rather than stock in trade, he will be exempt from the tax.

• Foreign Institutional Investors (FII) are also excluded because the securities they own are considered Capital Assets and no proof is required.

Points to Keep in Mind

If your total income, including STCG (Short Term Capital Gain), after all relevant tax deductions is less than INR 2.5 lakh, you would have no tax burden and no responsibility under Section 111A, as deductions up to the basic tax exemption amount are allowed.

If your total income, including STCG, exceeds INR 2.5 lakhs, you would be charged a flat rate of 15% on STCG. (However, if total income is less than 5 lakhs, a rebate of up to INR 12,500 of tax liability will be available under the current income tax regime.)

What is Section 112 of Income Tax Act

An assessee is liable to pay a tax at the rate of 20% after indexation or 10% before indexation on the capital gained on long-term capital assets described under Section 2 (29A) of the IT Act, 1961, under Section 112 of the Income Tax Act. This section applies to all securities, whether listed or not, including shares, debentures, and business trust units.

Exemptions under Section 112 of the Income Tax Act

• Gains from mutual funds are not taxed.

• Section 112 does not apply to non-residents of India (NRIs).

• If Section 112A is apply, then Section 112 will not be in effect.

What is Section 112A of the Income Tax Act

If the value of gains exceeds INR 1,00,000, the assessee is entitled to pay a tax of 10% on the capital obtained on long-term capital assets described under Section 2 (29A) of the IT Act, 1961. This section applies to all securities, whether listed or not, including shares, debentures, and business trust units.

Condition for benefited under Section 112A of Income Tax Act

The following conditions must be met in order to benefit from the reduced rate under section 112A of the Income Tax Act.

• The securities transaction tax (STT) was paid on the acquisition and transfer of a company’s equity stake.

• The STT was paid at the time of disposal of the asset in the case of units of an equity-oriented fund or units of a business trust.

• Long-term capital assets should be securities.

• Such long-term capital gains are not eligible for a deduction under Chapter VI A.

• The section 87A rebate cannot be used to offset the tax due on long-term capital gains under section 112A.

Difference between Section 111A and 112A

Conclusion

The Income Tax Act has different sections for deductions on gains. Section 111A does not allow deductions for certain short-term capital gains. However, there is a provision to claim deductions for short-term capital gains not covered by section 111A. To report the sale of listed securities and calculate long-term capital gains, taxpayers need to fill out Schedule 112A of the ITR forms. This schedule is specifically for those who have long-term capital gains under the grandfathering provisions mentioned in section 112A. The differences of 111A vs 112A lies in the type of capital gains and the deductions allowed.