For eligible listed shares and equity-oriented mutual-fund units sold on or after 23 July 2024, calculate the long-term capital gain using the actual (or grandfathered) cost, combine qualifying Section 112A gains, subtract the single aggregate exemption of ₹1,25,000, and tax the positive balance at 12.5%. A holding generally becomes long-term only after more than 12 months. The calculation changes for transfers before 23 July 2024, pre-1 February 2018 holdings, unlisted shares, and investments that fail the required securities-transaction-tax (STT) conditions.
What counts as a long-term gain?
Indian capital-gains tax first classifies the asset by type and holding period. The relevant period is measured from acquisition to transfer. Listed equity shares and equity-oriented mutual-fund units generally become long-term when held for more than 12 months. The 12-month test is not the rule for every security.
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| Asset | Long-term holding test | Typical treatment in this guide |
|---|---|---|
| Listed equity share | More than 12 months | Potentially covered by Section 112A if STT conditions are met |
| Equity-oriented mutual-fund unit | More than 12 months | Potentially covered by Section 112A if the applicable STT condition is met |
| Unlisted share | More than 24 months | Not treated as a listed-share Section 112A transaction merely because it is a share |
| Other capital assets | The general rule is more than 36 months, subject to asset-specific provisions | Use the rule applicable to that asset and taxpayer |
These rules concern investment capital gains. A person who buys and sells securities as a business may have business income instead of capital gains. Derivatives, debt-oriented funds, foreign securities, gifts, reorganisations, non-resident regimes, and company or trust taxpayers can follow different provisions.
When Section 112A applies
Section 112A covers long-term gains from the transfer of an eligible equity share in a company, a unit of an equity-oriented fund, or a unit of a business trust. The statutory description is “the capital gains arise from the transfer of a long-term capital asset being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust.” Eligibility is not automatic: the specified STT requirements must be checked for the particular instrument and transaction.
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STT checks for shares
For listed shares, verify the required STT on acquisition and on transfer, subject to the exceptions provided in the law. Your broker contract note and transaction statement should show the relevant charges. A listed share can be long-term by holding period and still fall outside the intended Section 112A treatment if the statutory STT test is not met.
STT checks for mutual-fund units
For equity-oriented fund units, check STT on transfer and any applicable statutory exception or condition. Use the fund’s capital-gains statement together with the transaction record; do not assume that every fund labelled “equity” qualifies without checking its tax classification.
The rate depends on the transfer date
The date of transfer, normally the sale date, determines which Section 112A threshold and rate apply. The 2024 amendment changed both figures.
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| Transfer date | Aggregate Section 112A threshold | Rate on excess | What to remember |
|---|---|---|---|
| Before 23 July 2024 | ₹1,00,000 | 10% | This is the earlier rule for eligible gains above the threshold. |
| On or after 23 July 2024 | ₹1,25,000 | 12.5% | The threshold is shared across qualifying shares, equity-oriented funds and business-trust units for the applicable computation. |
The ₹1,25,000 amount is not a separate exemption for every stock, folio or sale. It is one aggregate threshold for qualifying Section 112A long-term gains. If transactions straddle 23 July 2024, classify each transfer by date and follow the notified return instructions for the assessment year; never apply the 12.5% rate to a pre-23 July 2024 transfer simply because the return is filed later.
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Step-by-step calculation for a post-23 July 2024 sale
- Make a transaction inventory. For every sale, record the security or scheme, quantity, acquisition date, sale date, purchase price, sale value, transfer expenses, asset type and STT details. Keep separate rows for separate lots.
- Apply the holding-period test. A listed share or equity-oriented fund unit generally needs to be held for more than 12 months. Label shorter holdings as short-term and do not put them into the Section 112A long-term total.
- Test Section 112A eligibility. Confirm that the asset is an eligible listed share, equity-oriented fund unit or business-trust unit and that the required STT conditions are satisfied.
- Determine the cost basis. For acquisitions after 31 January 2018, start with the actual acquisition cost. For qualifying holdings acquired on or before 31 January 2018, apply the grandfathering formula described below.
- Match the correct lot. Dematerialised holdings are generally matched on a first-in, first-out (FIFO) basis. The shares sold are therefore matched to the oldest available shares in the relevant demat account, not necessarily to the purchase you remember.
- Compute each long-term gain. Subtract allowable transfer expenses and the applicable cost from the full sale consideration. For a transfer on or after 23 July 2024, do not inflate the cost using indexation.
- Aggregate qualifying gains. Add eligible Section 112A long-term gains from all qualifying shares, equity-oriented funds and business-trust units for the applicable period. Do not give each investment its own ₹1,25,000 deduction.
- Apply the threshold once. Subtract ₹1,25,000 from the aggregate eligible gain. If the result is zero or negative, there is no base Section 112A tax on that excess. If it is positive, multiply the excess by 12.5%.
- Add the result to the return calculation. Include tax on other income, then apply any applicable surcharge and the health-and-education cess. Check the current assessment-year return form and instructions before submitting.
How to calculate the cost
Purchases made after 31 January 2018
Use the actual acquisition cost for a qualifying post-31 January 2018 purchase. Your evidence may include contract notes, broker ledgers, fund statements, dividend-reinvestment records and statements showing charges included in the purchase value. Corporate actions can create additional lots or alter the number of units, so reconcile them before calculating the gain.
Grandfathered holdings acquired on or before 31 January 2018
For a qualifying holding acquired on or before 31 January 2018, the grandfathered cost is:
Grandfathered cost = higher of (actual cost) and (lower of 31 January 2018 fair market value and sale value)
In symbols, compare the actual cost with the lower of the 31 January 2018 FMV and the eventual sale consideration, then choose the higher amount. This prevents a pre-2018 holding from receiving a cost above its sale value while preserving the specified 31 January 2018 protection. Retain evidence supporting the FMV used, such as the exchange or valuation information applicable to that holding.
FIFO in a demat account
Suppose you bought the same listed company in several instalments. When part of the holding is sold, FIFO normally treats the oldest available lot as sold first. This affects both the holding-period classification and the cost. A sale that appears to be a 14-month investment could include older or newer lots after FIFO matching. Obtain the broker or depository lot report instead of assigning lots manually.
Indexation after 23 July 2024
Indexation is not available for long-term capital assets transferred on or after 23 July 2024. Use the original cost for a post-2018 acquisition, or the statutory grandfathered cost for an eligible pre-2018 acquisition. Do not replace that cost with a cost-inflation-index multiplier. The absence of indexation is separate from the 12.5% rate change, so both the correct rate and the correct unindexed cost must be used.
Worked example
Assume eligible listed shares were bought after 31 January 2018 for ₹4,00,000 and sold on 1 September 2026 for ₹6,00,000. There is no allowable transfer expense, the holding exceeded 12 months, and all STT conditions are satisfied.
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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 glitches| Calculation step | Amount |
|---|---|
| Sale consideration | ₹6,00,000 |
| Less: actual cost | ₹4,00,000 |
| Long-term capital gain | ₹2,00,000 |
| Less: aggregate Section 112A threshold | ₹1,25,000 |
| Taxable excess | ₹75,000 |
| Base Section 112A tax at 12.5% | ₹9,375 |
The ₹9,375 is before any surcharge and health-and-education cess. It also assumes there are no other Section 112A gains consuming the aggregate threshold. If the investor had qualifying gains from other shares or equity-oriented funds, those gains would be added before the single ₹1,25,000 subtraction.
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Applying the method to equity mutual funds
For an equity-oriented mutual-fund unit, begin with the purchase and redemption dates shown in the fund statement. Units held for more than 12 months generally qualify as long-term. Confirm the scheme’s equity-oriented status for the relevant period and the STT condition on transfer. Systematic investment plans create separate acquisition lots, so each instalment can have a different holding period and cost.
Use the fund house’s capital-gains statement as a cross-check, not as a substitute for reviewing the underlying transactions. Reinvested dividends, switches, mergers and other scheme-level events can produce distinct acquisition records. A switch is commonly treated as a transfer for tax purposes, so verify the specific event and the applicable return instructions rather than assuming that no cash withdrawal means no capital gain.
Comparing common transaction situations
| Situation | Holding-period result | Cost and rate issues | Action |
|---|---|---|---|
| Listed share sold 14 months after a post-2018 purchase | Generally long-term | Actual cost; 12.5% on qualifying excess over the aggregate ₹1,25,000 threshold if sold on or after 23 July 2024 | Verify share STT on acquisition and transfer |
| Equity-fund SIP instalment held 10 months | Generally short-term | Not included in the Section 112A long-term total | Classify by that instalment’s date |
| Pre-1 February 2018 listed share sold after 23 July 2024 | Long-term if held more than 12 months | Use the grandfathered cost formula; no indexation | Keep 31 January 2018 FMV evidence |
| Unlisted share held 18 months | Generally not yet long-term under the 24-month rule | Do not force it into the listed-share Section 112A calculation | Apply the unlisted-share provisions |
| Eligible sale completed before 23 July 2024 | Classify using the holding-period rule then in force | Earlier 10% rate above ₹1,00,000 applies under the pre-change rule | Use the return instructions for that transfer period |
Reporting the gain in your income-tax return
Investment capital gains are reported in the capital-gains schedule of the applicable income-tax return. Individuals with investment income commonly use the ITR form prescribed for capital gains, but the correct form can change with business income, other sources of income, residency and the assessment year. The exact schedule labels and validation rules can also change.
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- Prepare the lot-level computation. Show acquisition date, transfer date, quantity, sale value, cost, transfer expenses, holding period and whether the transaction is eligible for Section 112A.
- Enter eligible transactions in the notified schedule. Use the form’s Section 112A fields or schedule, when provided, and preserve the split between qualifying and non-qualifying gains.
- Check the portal’s pre-filled information. Information reported by brokers, registrars or other institutions can be incomplete or differently timed. Treat it as a reconciliation point, not an automatic replacement for your records.
- Review tax additions. Confirm that the computed capital-gains tax is included with tax on other income and that surcharge, cess, advance-tax credit, tax deducted at source and any self-assessment payment are handled correctly.
- Validate for the assessment year. Read the current year’s notified ITR instructions before filing, especially when the sale occurred around 23 July 2024 or involved a special transaction.
Records to retain
- Broker contract notes showing purchase, sale, brokerage and STT.
- Demat transaction and holding statements, including FIFO lot information.
- Mutual-fund account statements and scheme capital-gains reports.
- Acquisition dates, purchase costs and evidence of reinvested or corporate-action units.
- Corporate-action records for splits, bonuses, mergers, demergers and conversions.
- 31 January 2018 FMV evidence for eligible grandfathered holdings.
- STT details and the working paper that separates pre-23 July 2024 and later transfers.
- A copy of the filed return, computation and tax-payment challans.
Common errors and how to correct them
Taking ₹1,25,000 per investment
The threshold is aggregated across qualifying Section 112A gains. Recalculate the total before applying the deduction.
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Using the purchase you intended instead of FIFO
Match demat sales to the oldest available lot and update both the holding period and cost in the computation.
Indexing a post-23 July 2024 gain
Remove the inflation adjustment and use actual or grandfathered cost as applicable.
Ignoring STT eligibility
Check the statutory acquisition and transfer conditions for shares, and the transfer condition and applicable exception for fund units. Keep documentary support.
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Mixing investment gains with trading income
If the activity is treated as a business, the income-tax treatment can differ. Separate investment records from trading records and obtain professional advice where the classification is uncertain.
Relying on a pre-filled return without reconciliation
Compare the portal data with contract notes, demat records and fund statements. Correct omissions or mismatches in the return rather than copying an incomplete entry.
Scope limits
This method addresses individual investment capital gains under the cited Indian rules. It does not provide a complete treatment for derivatives, debt-oriented funds, foreign securities, non-resident special regimes, companies, trusts, gifts, business reorganisations or securities held as trading stock. Tax law, notifications and return utilities can change, so confirm the rule and filing instructions for the assessment year in which the sale is reported.
The Bottom Line
For a qualifying listed share or equity-oriented fund held for more than 12 months and sold on or after 23 July 2024, use actual or grandfathered cost without indexation, aggregate all eligible Section 112A gains, subtract ₹1,25,000 once, and apply 12.5% to the remaining positive amount. Then reconcile the result with your lot records, STT evidence and the current ITR instructions.
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