Any income or loss arising from the sale of a capital asset is a capital gain. Based on the capital asset’s nature, the income tax department has defined the provisions for capital gains tax. Capital Gain arising on the sale of a long term capital asset is a Long Term Capital Gain. As per the Income Tax Act, provisions for tax on LTCG are determined under Section 112 and Section 112A. Section 112 of the Income Tax Act is the provision for the taxation of capital gains on long term capital assets other than those covered under Section 112A of Income Tax Act.
Section 112 is the income tax provision for tax on long term capital assets. It applies to all taxpayers such as individuals, HUFs, partnership firms, companies, residents, non-residents, foreign companies, etc. This section covers capital gains arising from the sale of all long-term capital assets. Long Term Capital Asset covers the following assets:
Section 112 does not apply to the capital gains on the sale of the following long-term capital assets to which Section 112A applies:
The income tax rate applicable to different capital assets is based on the nature of the asset and the period of holding. Below are the applicable tax rates for LTCG under Section 112.
| Asset Type | Holding | Tax Rate on LTCG |
| Listed Securities (other than unit) | 12 months | 10% without indexation |
| Zero-Coupon Bonds | 12 months | Lower of 10% without indexation or 20% with indexation |
| Unit of Unit Trust of India | 12 months | 20% with indexation |
| Unlisted Securities (Transfered by Non resident/ Foreign Company) | 12 months | 10% without indexation |
| Unlisted Securities | 24 months | 20% with indexation |
| Immovable Property | 24 months | 20% with indexation |
| Any other asset | 36 months | 20% with indexation |
As per the Budget 2023, if you are purchasing any Debt MF after 1st April 2023 it is going to be taxed at individual slab rates and are considered as Short term Capital Gain.
As per the Budget 2023, if you are purchasing any Debt MF after 1st April 2023 it is going to be taxed at individual slab rates and are considered as Short term Capital Gain.
Taxpayers holding the status of Resident can benefit from adjusting the special rate income against the basic exemption limit to reduce taxes. Thus, if your total taxable income is less than the basic exemption limit, you can adjust your special rate income such as LTCG u/s 112, STCG u/s 111A, LTCG u/s 112A, etc. against the shortfall in the basic exemption limit and pay tax on the remaining income only.
The ITR Form under which the taxpayer needs to report income from capital gains includes ITR-2 and ITR-3. The taxpayer must report the following details for LTCG under Schedule CG of the ITR:
When a taxpayer sells a capital asset at a loss after holding it for a period longer than the specified holding period under Section 112, it results in a Long-Term Capital Loss (LTCL). The taxpayer can offset this LTCL against LTCG from another capital asset. As per the income tax rules for set off and carry forward of losses, the taxpayer can set off LTCL against LTCG only in the current year. The taxpayer can carry forward the remaining loss for 8 years and set off against future LTCG only.
Taxpayers with long-term capital gain income from the sale of a specified asset under Section 112, such as listed securities on which STT is not paid, zero-coupon bonds, immovable property, unlisted securities, etc., can claim the following capital gain exemptions:
A taxpayer can claim the exemption by reinvesting the proceeds from the sale into a specified capital asset. Such an exemption would lower the capital gains and save taxes on the same. However, the taxpayer must hold the new asset for the specified period as per the relevant section. Further, if they sell the asset before the specified period, they must report it as an income in the relevant financial year and pay tax at the applicable rate.
The taxpayer has the option to open an account under the Capital Gains Account Scheme and park the sale proceeds in it till the time they invest in the specified asset to claim the Capital Gains exemption.
