Section 112A — LTCG Tax on Listed Equity Shares & Mutual Funds 2025-26

Updated: 3 June 2026 | FY 2025-26 (AY 2026-27) | Budget 2024 Changes | Exemption ₹1.25 Lakh

Section 112A taxes Long-Term Capital Gains (LTCG) on listed equity shares, equity-oriented mutual fund units, and units of business trusts at 12.5% (Budget 2024 rate; was 10% before). Gains up to ₹1.25 lakh per year are exempt (raised from ₹1 lakh in Budget 2024). Holding period: more than 12 months. STT must have been paid on both purchase and sale. No indexation benefit available. Grandfathering: gains accrued before 31 January 2018 are exempt via FMV cost deemed cost.

12.5%

Section 112A LTCG rate from FY 2024-25 (Budget 2024). Exemption: ₹1.25 lakh/year.
Applies to listed equity shares, equity MFs, business trust units. STT paid required. No indexation. Grandfathering for pre-31-Jan-2018 gains.

Section 112A — Budget History & Rate Changes

Budget Year	Effective From	LTCG Rate	Annual Exemption	Key Change
Budget 2018	FY 2018-19	10%	₹1,00,000	Section 112A introduced; LTCG on equity reintroduced after 14-year gap
Budget 2019–2023	FY 2019-24	10%	₹1,00,000	No change to rate or exemption
Budget 2024	23 July 2024	12.5%	₹1,25,000	Rate raised by 2.5%, exemption raised by ₹25,000
Budget 2025	FY 2025-26	12.5%	₹1,25,000	No change — rates maintained

Section 112A — Conditions and Eligibility

Parameter	Requirement
Asset type	Listed equity shares, equity-oriented MF units, business trust units
Holding period	More than 12 months (long-term)
STT on purchase	Required (exceptions: IPO, FPO, ESOP, off-market transfers approved by SEBI/govt)
STT on sale	Required (sale must be on a recognised stock exchange)
Annual exemption	First ₹1.25 lakh of LTCG is exempt (FY 2024-25 onwards)
Tax rate	12.5% on gains above ₹1.25 lakh (FY 2024-25 onwards)
Indexation	Not available under Section 112A
Grandfathering	Gains accrued up to 31 January 2018 exempt via FMV deemed cost
Set-off of losses	LTCG losses can be set off only against LTCG (not STCG)
Loss carry forward	Unabsorbed LTCG loss can be carried forward for 8 assessment years

Grandfathering — How the FMV Cost Calculation Works

For equity shares or MF units acquired BEFORE 31 January 2018, the deemed cost of acquisition is the higher of:

Comparison	Value
A. Actual purchase cost	Price you originally paid
B. Lower of: FMV on 31-Jan-2018 OR Actual sale price	Whichever of these two is lower
Deemed Cost = Higher of A or B	This eliminates pre-2018 gains from the taxable LTCG

Example: You bought shares in 2015 at ₹100. FMV on 31-Jan-2018 = ₹200. You sell in 2024 at ₹280. Taxable LTCG = ₹280 − ₹200 = ₹80 per share (pre-2018 gain of ₹100 is exempt).

Frequently Asked Questions

What is grandfathering under Section 112A and how does it work?

Grandfathering protects gains accrued on equity investments BEFORE 31 January 2018. For shares/units held before 31-Jan-2018, the cost of acquisition is taken as the HIGHER of (a) the actual cost, or (b) the lower of the Fair Market Value (FMV) on 31-Jan-2018 and the actual sale price. FMV on 31-Jan-2018 is the highest price quoted on a recognised stock exchange on that date. This means any gains that had accrued up to 31-Jan-2018 are effectively exempt. Only gains arising AFTER 31-Jan-2018 are taxable under 112A. For mutual fund units, FMV is the NAV as on 31-Jan-2018.

Is Section 112A applicable to equity mutual fund redemptions?

Yes. Section 112A applies to units of equity-oriented mutual funds (funds that invest at least 65% of their corpus in equity and equity-related instruments of Indian companies). If you redeem equity MF units held for MORE than 12 months, the gains exceeding ₹1.25 lakh are taxable at 12.5% under Section 112A. STT must have been paid on the purchase of units (on or after 1 April 2018) and on the redemption. Grandfathering applies for units acquired before 31-Jan-2018.

Are bonus shares and right shares eligible for grandfathering under Section 112A?

For bonus shares issued before 31-Jan-2018, the FMV (highest price on 31-Jan-2018) is used as the deemed cost under grandfathering — even though the actual cost of bonus shares is zero. So effectively, gains accrued up to 31-Jan-2018 on bonus shares are also exempt. For right shares acquired before 31-Jan-2018, the actual cost of subscription plus the FMV comparison applies. For bonus or right shares issued AFTER 31-Jan-2018, normal 112A rules apply from the acquisition date. The holding period for long-term classification (12 months) is computed from the allotment date of bonus/right shares.

What is the STT (Securities Transaction Tax) condition under Section 112A?

Section 112A requires that STT was paid both at the time of ACQUISITION and at the time of SALE on a recognised stock exchange. This condition ensures the tax benefit is limited to market-traded transactions. Exception: STT on acquisition is waived in certain cases notified by the government — for example, shares acquired through IPO, FPO, ESOP, preferential allotment, or off-market transactions approved by SEBI. If STT was not paid on purchase (e.g., pre-IPO shares bought off-market not covered by any notification), Section 112A does not apply and gains are taxed at 20% under Section 112 or as per applicable provisions.

How can LTCG losses under Section 112A be set off?

Long-term capital losses under Section 112A (e.g., sold listed equity shares at a loss) can be set off ONLY against long-term capital gains — whether from equity (112A) or from other long-term assets like property or debt funds. LTCG losses CANNOT be set off against short-term capital gains. Any unabsorbed LTCG loss can be carried forward for 8 assessment years, to be set off only against future LTCG. STCG losses (from equity or other assets) can be set off against both STCG and LTCG. Harvesting LTCG losses before year-end (tax loss harvesting) is a common strategy to offset LTCG tax liability.

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