Section 112A taxes long-term capital gains on listed equity shares, equity-oriented mutual fund units and business-trust units at 12.5%, on gains above a ₹1.25 lakh yearly exemption. Holding period must be more than 12 months and STT must have been paid. No indexation is allowed. Gains that accrued up to 31 January 2018 are grandfathered (protected) via a fair-market-value deemed cost. The 12.5% rate and ₹1.25 lakh limit (Budget 2024, effective 23 July 2024) continue for FY 2025-26.
Section 112A — Conditions & Eligibility
Section 112A applies only when every condition below is met. If STT was not paid on a listed share (for example an off-market pre-IPO buy not covered by any notification), the gain is taxed under Section 111A / 112 instead.
| Parameter | Requirement |
|---|---|
| Assets covered | Listed equity shares, equity-oriented MF units, business-trust (REIT/InvIT) units |
| Holding period | > 12 months — otherwise STCG u/s 111A @ 20% |
| Tax rate | 12.5% on gains above the exemption (transfers on/after 23 Jul 2024) |
| Annual exemption | First ₹1.25 lakh of 112A LTCG is exempt each year |
| STT on sale | Required — sale on a recognised stock exchange |
| STT on purchase | Required — waived for IPO/FPO/ESOP/SEBI-approved off-market buys |
| Indexation | Not available under 112A |
| Grandfathering | Gains up to 31-Jan-2018 protected via FMV deemed cost |
Equity-oriented fund = at least 65% invested in Indian equity. Rate/exemption verified on incometax.gov.in for FY 2025-26 (AY 2026-27).
The ₹1.25 lakh is a single yearly threshold across all your 112A gains combined — not per scrip, per fund or per sale. It also cannot be claimed against short-term gains, and there is no basic-exemption cushion beyond it for these gains under the new regime except the general rebate rules.
Section 112A — Rate & Exemption History
| Budget | Effective from | LTCG rate | Yearly exemption | Change |
|---|---|---|---|---|
| Budget 2018 | FY 2018-19 | 10% | ₹1,00,000 | 112A introduced; LTCG on equity re-taxed |
| 2019–2023 | FY 2019-24 | 10% | ₹1,00,000 | No change |
| Budget 2024 | 23 Jul 2024 | 12.5% | ₹1,25,000 | Rate up 2.5%, exemption up ₹25,000, indexation withdrawn |
| Budget 2025 | FY 2025-26 | 12.5% | ₹1,25,000 | Retained — no change |
For transfers between 1 Apr 2024 and 22 Jul 2024 the old 10% / ₹1 lakh rate applied; from 23 Jul 2024 the 12.5% / ₹1.25 lakh rate applies.
How the 12.5% Actually Works
Suppose you sell listed shares/equity MF units held over a year with a total long-term gain of ₹3,25,000 in FY 2025-26. Only the amount above ₹1.25 lakh is taxed.
112A LTCG on equity
If gain were ₹1,25,000 or less
Add 4% health & education cess (and surcharge if applicable) on the tax. You can estimate your liability with the income-tax calculator and report it in Schedule 112A of your ITR.
112A LTCG is taxed at a flat 12.5% regardless of your slab, and this gain does not get the benefit of most Chapter VI-A deductions. Choosing between the old and new regime does not change the 12.5% on these gains — see our new tax regime guide for the rest of your income.
Grandfathering — the FMV Deemed Cost
For shares or units bought before 31 January 2018, the cost of acquisition is taken as the higher of (A) your actual cost, or (B) the lower of the FMV on 31-Jan-2018 and the actual sale price. This wipes out any gain that had already accrued up to 31-Jan-2018.
- 1Actual cost (A)What you originally paid
- 2FMV vs sale (B)Lower of 31-Jan-2018 FMV & sale price
- 3Deemed costHigher of A and B
- 4Taxable LTCGSale price − deemed cost
Example: bought in 2015 at ₹100; FMV on 31-Jan-2018 = ₹200; sold in 2025 at ₹280. Deemed cost = ₹200, so taxable LTCG = ₹80 per share — the pre-2018 gain of ₹100 stays exempt. For MF units, FMV is the NAV on 31-Jan-2018; for shares it is the highest quoted price on a recognised exchange that day.
Bonus shares issued before 31-Jan-2018 use the 31-Jan-2018 FMV as deemed cost even though their actual cost is nil, so pre-2018 gains on them are also protected. For bonus/rights issued after 31-Jan-2018, normal 112A rules apply and the 12-month holding runs from the allotment date.
Loss Set-off & Carry Forward under 112A
- Long-term capital loss on equity (112A) can be set off only against long-term capital gains — from equity or other LTCG such as property or debt funds.
- An LTCG loss cannot be set off against short-term capital gains or against any other head of income.
- Unabsorbed LTCG loss can be carried forward for 8 assessment years, set off only against future LTCG.
- To carry a loss forward you must file your ITR by the due date.
✓Tax-loss harvesting can help if
- You have taxable 112A gains this year
- You also hold loss-making equity you can book
- You want to use the ₹1.25 lakh exemption each year
!Be careful because
- Losses set off only against LTCG, not STCG
- The ₹1.25 lakh exemption does not carry forward
- Re-buying immediately still resets your holding period
Sold equity or mutual funds this year? Get your capital gains computed and filed correctly.
File ITR with a CA →- Section 112A, Income-tax Act 1961: incometax.gov.in
- Rate & exemption (Budget 2024, eff. 23 Jul 2024): 12.5% / ₹1.25 lakh
- STT condition & grandfathering: Section 112A(3)-(6) & CBDT Notification 60/2018
- From AY 2026-27 the Income-tax Act 2025 re-enacts these rules (Section 198)
Disclaimer: This guide is general information based on the law and notifications in force when it was last updated. It is not professional advice for your case — rates, thresholds and due dates change, so check the current position or speak to our CA team before you act on it.