For a qualifying section 112A transaction, India taxes long-term capital gains on listed equity shares, equity-oriented mutual-fund units and certain business-trust units at 12.5% on the aggregate gain above ₹1.25 lakh when the transfer occurs on or after 23 July 2024. The rate is 10% for the same category of gains transferred before 23 July 2024. The holding-period test comes first: the Income Tax Department’s ITR-2 FAQ describes 12 months for listed equity shares and equity-oriented mutual-fund units.
That headline rate is not automatically your final bill. Eligibility depends on the asset, the transaction and applicable statutory conditions, including relevant securities transaction tax requirements. Your total liability can also depend on taxpayer status, surcharge, health and education cess, other income, losses and the return form you are allowed to use.
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The rule in one view
| Question | Rule to apply |
|---|---|
| What makes the gain long-term? | For listed equity shares and equity-oriented mutual-fund units, the Income Tax Department’s ITR-2 FAQ states a 12-month holding period for long-term classification. |
| Which special provision matters? | Section 112A covers specified listed equity shares, equity-oriented fund units and business-trust units when the applicable statutory conditions are satisfied. |
| What is the threshold? | ₹1.25 lakh aggregate of qualifying section 112A long-term gains, not ₹1.25 lakh for each share or fund. |
| What rate applies from 23 July 2024? | 12.5% on the portion above the aggregate threshold, before any applicable surcharge and cess. |
| What rate applied before 23 July 2024? | 10% on the portion above the threshold under the cited Finance (No. 2) Bill, 2024 wording. |
| Can every taxpayer use ITR-1? | No. Income Tax Department guidance for AY 2026-27 lists section 112A long-term gains above ₹1.25 lakh among ITR-1 exclusions, alongside other exclusions. |
These figures come from the Ministry of Finance’s Finance (No. 2) Bill, 2024 and its explanatory memorandum, plus Income Tax Department guidance. Check the law and return instructions for the tax year you are filing because rates, forms and conditions can change.
Step 1: Check whether the gain is long-term
Listed equity shares
The ITR-2 FAQ uses a 12-month holding period for listed equity shares when determining whether the asset is long-term. A holding that does not meet that period is not treated as long-term under this summary, so the section 112A LTCG rate should not be applied merely because the investment is an equity share.
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Equity-oriented mutual-fund units
The same FAQ states a 12-month period for units of equity-oriented mutual funds. Confirm that the fund actually falls within the statutory equity-oriented category; the label used by an investment platform is not, by itself, a complete tax classification.
Other securities and business-trust units
The FAQ also describes different periods for other capital assets, including a general 36-month period and a 24-month period for unlisted shares. Those summaries should not be generalized to every security. Section 112A mentions specified business-trust units, but the material establishing the 12-month test here is specifically about listed equity shares and equity-oriented fund units. Check the applicable provision for a business-trust unit or another asset before classifying its gain.
Step 2: Confirm that section 112A can apply
Section 112A is a special regime, not a universal rate for every share sale. The covered categories include specified equity shares, equity-oriented fund units and business-trust units. The official Finance Bill material also refers to relevant securities transaction tax conditions.
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Random freezes, missing sound and display glitches usually trace back to one bad driver. Find and replace yours safely.Free scan · under a minuteUse the short list as a screening test, not as a complete eligibility certificate. Acquisition and transfer conditions can differ by asset type and transaction history. Verify the statutory conditions for the exact security, the relevant transaction dates and whether the required tax was paid. If any condition fails, a different capital-gains rule may apply.
- Identify the exact asset: listed share, equity-oriented fund unit or business-trust unit.
- Determine the acquisition and transfer dates and the category-specific holding period.
- Check the applicable securities transaction tax and other statutory conditions.
- Keep contract notes, statements and tax records that support the classification.
Step 3: Use the transfer date to select the rate
The change from 10% to 12.5% is tied to the transfer date, not simply the date on which you bought the investment. For a qualifying section 112A gain, the Finance (No. 2) Bill, 2024 states the following split:
| Transfer date | Section 112A rate on gain above the threshold | Threshold described in the official material |
|---|---|---|
| Before 23 July 2024 | 10% | Aggregate qualifying section 112A LTCG above ₹1.25 lakh under the 2024 explanation |
| On or after 23 July 2024 | 12.5% | Aggregate qualifying section 112A LTCG above ₹1.25 lakh |
For example, a qualifying transfer completed on 22 July 2024 falls in the earlier-date row, while a qualifying transfer completed on 23 July 2024 falls in the later-date row. The purchase date alone does not move a sale into the 10% row.
How the ₹1.25 lakh threshold works
The threshold is aggregate. Add your qualifying section 112A long-term gains covered by the relevant rule; do not apply a separate ₹1.25 lakh allowance to every share, demat account, fund or sale. The Finance Ministry’s memorandum describes the exemption as increasing from ₹1 lakh to ₹1.25 lakh in aggregate.
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| Aggregate qualifying section 112A gain | Amount above ₹1.25 lakh | Illustrative section 112A tax at 12.5% (before surcharge and cess) |
|---|---|---|
| ₹90,000 | ₹0 | ₹0 under the section 112A rate |
| ₹1,25,000 | ₹0 | ₹0 under the section 112A rate |
| ₹2,00,000 | ₹75,000 | ₹9,375 |
| ₹80,000 plus ₹70,000 from two qualifying sales | ₹25,000 | ₹3,125 |
The examples isolate the statutory rate. They assume the gains are qualifying section 112A gains and do not calculate surcharge, cess, other income, losses, or any issue that could change the taxpayer’s final liability.
A practical calculation workflow
- Classify each asset. Separate listed equity shares, equity-oriented fund units, business-trust units and assets that do not fit those categories.
- Test the holding period. Apply the relevant period to determine whether each gain is long-term. For listed equity shares and equity-oriented fund units, the cited Department FAQ uses 12 months.
- Verify section 112A conditions. Check the specified-asset definition, applicable securities transaction tax requirements and any acquisition or transfer conditions.
- Group qualifying gains. Add the qualifying section 112A long-term gains that belong in the same aggregate threshold calculation.
- Apply ₹1.25 lakh once. Subtract the aggregate threshold from the qualifying gain, stopping at zero rather than subtracting it separately for each investment.
- Choose the transfer-date rate. Use 10% for qualifying transfers before 23 July 2024 and 12.5% for qualifying transfers on or after that date, based on the cited 2024 legislation.
- Complete the wider tax computation. Account for the rules that apply to your residence, taxpayer type, surcharge, health and education cess, other income and eligible losses.
- Select the correct return. Check the current Income Tax Department instructions rather than assuming that ITR-1 is available.
Why 12.5% is not always your final effective rate
Section 112A’s 10% or 12.5% figure is the statutory rate for the qualifying gain above the threshold. It is not a personalized quotation of the amount payable to the tax department. The final computation can involve surcharge and health and education cess, and the result can depend on your residency, taxpayer category, other income and losses. The official material used for this explainer does not provide a complete taxpayer-by-taxpayer surcharge and cess calculation.
Do not describe a portfolio’s tax as “12.5% of the sale proceeds.” Capital-gains tax is based on the relevant gain, after the applicable computation rules, and section 112A applies only to the qualifying portion above the aggregate threshold.
Losses: what the Department FAQ says
The Income Tax Department’s ITR-2 FAQ says a long-term capital loss can be adjusted only against long-term capital gains in subsequent years. That is a restriction on the type of gain against which the loss may be used; it is not permission to net a long-term loss against every kind of income.
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1Scan for outdated or missing drivers - takes under a minute2Clear out junk files and repair common Windows errors3Fix the driver behind crashes, sound loss and screen glitchesWhether a particular loss can be carried forward, for how long and through which return depends on the applicable filing rules and the taxpayer’s facts. Preserve the computation and filed-return records needed to support any carry-forward, and check the instructions for the relevant assessment year.
Return-form implications
Income Tax Department guidance for salaried individuals for AY 2026-27 says ITR-1 cannot be used by taxpayers with section 112A long-term capital gains exceeding ₹1.25 lakh, among other exclusions. This is one form-eligibility rule, not universal advice that every equity investor must use a particular alternative form.
Your correct return can depend on the presence of capital losses, business or professional income, multiple property types, foreign assets, residency and other circumstances. Read the current form instructions and the Department’s eligibility conditions for the assessment year in which you are filing. If the facts are complex, an optional review by a qualified Indian tax professional can help validate classification and reporting.
Records to keep before filing
- Broker contract notes showing purchase and sale dates.
- Demat or fund statements identifying the security or unit and quantity.
- Evidence relevant to the holding-period calculation.
- Statements or records supporting securities transaction tax where applicable.
- A schedule that separates qualifying section 112A gains from other capital gains.
- Calculations showing the aggregate threshold was applied once rather than per investment.
- Prior returns and loss schedules if you are claiming a permitted carry-forward.
Common mistakes and the correction
Applying the allowance to every share
Mistake: Treating ₹1.25 lakh as an allowance for each stock or mutual fund.
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Correction: The Finance Ministry describes it as an aggregate threshold for qualifying section 112A gains.
Using the purchase date to choose 10% or 12.5%
Mistake: Applying the old rate because the investment was bought before the 2024 change.
Correction: The cited rate split is based on whether the transfer was before 23 July 2024 or on or after that date.
Calling every equity gain section 112A income
Mistake: Assuming that any equity-related sale automatically receives the special rate.
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Assuming a 12-month rule for every security
Mistake: Extending the listed-equity summary to unlisted shares, debt instruments or every business-trust situation.
Correction: The Department FAQ gives different summaries for other asset classes; check the category-specific rule.
Treating the statutory rate as the total bill
Mistake: Quoting 12.5% as the final effective tax without checking surcharge, cess and personal circumstances.
Correction: Use 12.5% only as the section 112A rate for the qualifying amount above the threshold, then complete the full computation.
Choosing ITR-1 by default
Mistake: Filing ITR-1 because the taxpayer is salaried, even though section 112A gains exceed ₹1.25 lakh or another exclusion applies.
Correction: Check the current Department eligibility guidance for the assessment year.
Special caution for older acquisitions
The material supporting this guide does not establish the complete grandfathering cost formula for assets acquired on or before 31 January 2018. Do not insert a remembered formula into a return without checking the applicable statutory provision or current official guidance. Obtain the relevant historical cost details and follow the rule in force for the assessment year.
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Before you file: a decision checklist
- Have you identified the asset category and confirmed it is potentially within section 112A?
- Does the holding period meet the category-specific long-term test?
- Are the applicable securities transaction tax and other statutory conditions satisfied?
- Did you separate transfers before 23 July 2024 from transfers on or after that date?
- Did you combine qualifying gains and apply the ₹1.25 lakh threshold only once?
- Did you keep long-term losses separate from short-term losses and apply the Department’s set-off rules?
- Does your chosen return form allow your section 112A gains and all your other income sources?
- Have you checked the law and form instructions for the exact tax year rather than relying on an older article?
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