For transfers made on or after 23 July 2024, qualifying long-term gains from listed equity shares, equity-oriented mutual-fund units and business-trust units are taxed at 12.5% on the amount above an aggregate ₹1.25 lakh threshold under Section 112A. That threshold is not a universal exemption for every investment or a separate allowance for each stock or fund. The asset, holding period, transfer date, securities transaction tax (STT) conditions and taxpayer status all affect the result.
What does the 12.5% LTCG tax and ₹1.25 lakh threshold mean?
Long-term capital gains (LTCG) are profits on assets held long enough to qualify as long-term under the applicable tax rules. For the specified equity-related assets covered by Section 112A, the Income Tax Department’s current guidance says that transfers on or after 23 July 2024 are taxed at 12.5% on aggregate qualifying gains above ₹1.25 lakh. The Department’s guidance on sale of shares describes the rate and threshold.
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The ₹1.25 lakh is an annual aggregate threshold for the relevant Section 112A gains, not ₹1.25 lakh per share, mutual fund or transaction. If your qualifying gains across these covered holdings exceed the threshold, the 12.5% rate applies to the excess, subject to the section’s conditions. This does not establish your final tax bill: other income, applicable tax computation rules and your transactions matter.
Which investments can qualify under Section 112A?
- Listed equity shares.
- Units of equity-oriented mutual funds.
- Units of business trusts.
These assets do not qualify merely because they are commonly described as equity investments. Section 112A has STT requirements. The Income Tax Department says STT must be paid at transfer and, for equity shares, generally at acquisition as well, subject to notified exceptions. See its Section 112A guidance for the conditions.
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How the transfer date changes the treatment
The key date is when the asset is transferred, not simply when it was bought. The amended treatment discussed here applies to transfers made on or after 23 July 2024. A transfer before that date falls under the earlier rules; do not apply the post-change rate or threshold to it without checking the law applicable to that transaction.
The Budget 2024-25 explanatory memorandum described the policy change, including the proposed 12.5% long-term rate and removal of indexation for relevant gains. It is useful context, but it is not a substitute for the enacted provisions and current official guidance. The Ministry of Finance memorandum records the proposal; the current tax treatment should be assessed under the applicable law.
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Does the ₹1.25 lakh threshold cover all long-term gains?
No. It is specific to qualifying Section 112A gains. Do not assume that the same threshold applies to property, debt investments or every other capital asset. For long-term capital gains outside that specified Section 112A class, the Income Tax Department describes a 12.5% rate for transfers on or after 23 July 2024, alongside removal of indexation. The treatment depends on the asset and applicable provisions; Section 112 and the Department’s capital-gains overview provide further official context.
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Property sold after the change
Indexation is not generally available for post-23 July 2024 transfers under the amended treatment described by the Department. There is, however, a limited safeguard for a resident individual or resident Hindu Undivided Family (HUF) selling land or a building acquired before 23 July 2024: if tax under the amended treatment would be higher than tax computed under the immediately previous law, the excess is ignored. This is a specific comparison protection, not a general restoration of indexation for all investors or assets. Check the current Section 112 guidance and the transaction’s facts before relying on it.
Other rules that can change an individual’s tax calculation
Unused basic exemption amount
Resident individuals and resident HUFs may adjust Section 112A long-term gains by an unused basic exemption amount when their other income is below the maximum exemption limit. Whether an adjustment is available depends on the taxpayer’s income and status; it should not be presumed from the gain alone. The Income Tax Department explains individual computation in its tax computation guidance.
Chapter VI-A deductions
Chapter VI-A deductions are not allowed against Section 112A gains. A deduction that reduces other eligible income does not therefore automatically reduce these gains.
Short-term gains are a separate category
Specified short-term gains on STT-paid listed equity shares, equity-oriented mutual-fund units and business-trust units transferred on or after 23 July 2024 are listed at 20% in the Income Tax Department’s guidance. That is not the Section 112A long-term treatment, and it should not be confused with gains that are taxed under general slab-rate rules. See the Department’s individual tax computation page.
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- Identify the asset. Establish whether it is a listed equity share, equity-oriented mutual-fund unit or business-trust unit covered by Section 112A, or another kind of capital asset.
- Confirm the transfer date. Determine whether the transfer occurred before 23 July 2024 or on or after that date.
- Classify the holding period. Check whether the gain is long-term or short-term under the rule applicable to that asset and transaction.
- Check STT conditions. For Section 112A treatment, verify STT at transfer and, for equity shares, generally at acquisition, including whether a notified exception applies.
- Apply the right threshold and rate. Use the aggregate ₹1.25 lakh threshold only for qualifying Section 112A long-term gains; do not extend it to unrelated assets.
- Check taxpayer-specific rules. Consider whether an unused basic-exemption adjustment or the limited property safeguard applies to your status and facts.
The Department’s share-sale guidance, Section 112A page and capital-gains overview are starting points. A personal calculation requires the transaction details and income facts for the relevant tax year.
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