Section 112A of Income Tax Act is a section that deals with the tax on long-term capital gains from the sale of certain assets like:
- Equity shares in a company 📈
- Units of equity-oriented mutual fund 🏦
- Units of a business trust 🏢
These assets should be held for more than one year to be considered as long-term capital assets. 💯
The tax rate under this section is 10% of the gains exceeding Rs 1 lakh per financial year. 💸
However, there is a catch! 😮
The tax is only applicable on the gains made after 31st January 2018. 🗓️
This is because before this date, these gains were exempt from tax under section 10(38). 😎
So, to protect the interests of investors who bought these assets before 31st January 2018, there is a grandfathering clause in section 112A. 👴🏻
This clause allows you to calculate your cost of acquisition as if you bought these assets on 31st January 2018 at their fair market value or actual selling price, whichever is lower. 🧮
This way, you can reduce your taxable gains and save some tax. 🙌
Example – Section 112A 💡
Let’s say you bought 1000 shares of ABC Ltd. on 1st April 2017 for Rs 100 per share. 🛒
On 31st January 2018, the fair market value of these shares was Rs 150 per share. 📊
On 1st June 2019, you sold these shares for Rs 200 per share. 💰
Your actual gain is Rs 100 per share or Rs 1 lakh in total. 🤑
But, your taxable gain under section 112A is only Rs 50 per share or Rs 50,000 in total. 😍
This is because your cost of acquisition is taken as Rs 150 per share (lower of fair market value or selling price on 31st January 2018). 🔢
So, your tax liability under section 112A is only Rs 5,000.
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Disclaimer: Please note that the content provided in this article is for educational purposes only and represents the author’s point of view. It is crucial to consult with a qualified financial advisor or tax professional before making any decisions based on the information provided. Your unique financial situation may require personalized guidance, and professional advice ensures accurate decision-making tailored to your specific needs.
