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Capital gains are taxed as per the tenure of holding investments. The gains on investments are broadly classified into long-term capital gains or short-term capital gains. The taxation of long-term capital gains is divided under two provisions, i.e. Section 112 and Section 112A of the Income Tax Act.
In this article, we will know the tax rates applicable to transfer all the long-term capital assets (except capital assets covered under Section 112A).
Section 112 applies to whom?
Section 112 applies to all types of taxpayers, such as individuals, HUF, company, firm, resident, non-resident (not a company), a foreign company, etc.
What types of long-term assets are covered under Section 112?
Section 112 specifies income tax rates on all kinds of long-term capital assets, such as-
This section does not apply to the capital assets covered under Section 112A below-
How to classify various capital assets into long term and short term?
See the table below to understand how capital assets are classified:
|Type of capital asset||Long term||Short term|
|Equity mutual funds||12 months and more||Less than 12 months|
|Debt mutual funds||36 months and more||Less than 36 months|
|Zero-coupon bonds||12 months and more||Less than 12 months|
|Equity shares (listed)||12 months and more||Less than 12 months|
|Equity shares (unlisted)||24 months and more||Less than 24 months|
|Immovable property||24 months and more||Less than 24 months|
What is the tax rate on long-term capital gain covered under Section 112?
There taxation rates for various types of long-term capital gains are as follows:
|Type of asset||Long-term capital gains|
|Debt mutual funds||20% with indexation|
|Zero-coupon bonds||Lower of:|
20% after indexation (Resident),
10% without indexation
|Unlisted equity shares|
|20% with indexation|
|Unlisted equity shares|
|10% without indexation |
|Immovable Property||20% with indexation|
How to calculate the tax liability if total income includes long-term capital gain?
If the total income of the taxpayer includes income from the transfer of long-term capital assets, then the income tax liability will be calculated as below-
Points to remember
2. Suppose an individual (below 60 years of age) has a total income of Rs 3.5 lakh in which long-term capital gain (mutual funds units) of Rs 3 lakh is included. Here, the normal income (Rs 3.5 lakh – Rs 3 lakh= Rs 50,000) is less than the basic exemption limit (Rs 2.5 lakh). So the tax payable by the individual can be calculated as below-
3. Suppose an individual (below 60 years of age) has a gross total income of Rs 4 lakh in which long term capital gain (mutual funds units) of Rs 3 lakh is included. Chapter VI-A deduction is Rs 1.5 lakh.
Here, the gross total income excluding LTCG is Rs 1 lakh (Rs. 4 lakh – Rs 3 lakh). You can adjust the Chapter VI-A deduction from normal income only, not LTCG. Hence. Your normal income will be Nil after claiming Chapter VI-A deductions. Hence, the total income tax liability will be calculated as under.