Schedule 112A: Scrip-Wise Reporting Of Capital Gains
The long-term capital gains (LTCG) tax is levied on the sale of business trusts, equity-oriented mutual funds, and listed equity shares under Section 112A. For these listed stocks, the long-term capital gains tax rate is 10% for gains over Rs 1 lakh. Schedule 112A on the ITR forms asks for the scrip-by-scrip details of these listed securities that were sold within a fiscal year. A taxpayer who has long-term capital gains under Section 112A's grandfathering provisions is required to complete Schedule 112A. In this article, we will share a detailed overview of Schedule 112A.
Table of content
What is Schedule 112A?
Any capital gains from the sale of listed equity shares or units on a recognised stock exchange should be disclosed in accordance with Schedule 112A of the Income Tax Act. The individual's income tax return must include this information along with the specifics on any capital gains, whether they are short-term or long-term. This schedule was introduced primarily to increase openness and give the tax authorities the ability to confirm the reported capital gains. By underreporting or failing to record capital gains, it will also aid in the reduction of tax evasion. The stock exchange is required to provide the Income Tax Department with the transaction details of every investor on a quarterly basis in order to maintain compliance. After that, the government will compare the information provided by the taxpayer with the stock exchange's components. The taxpayer shall be responsible for paying interest and penalties as stipulated by the Income Tax Act in the event of any disparity.
Section 112A
The Finance Act of 2018 added Section 112A to tax long-term capital gains from the sale of business trust units, listed equity shares, and equity-oriented mutual fund units. Tax profits that were formerly exempt until FY 2017–18 (AY 2018–19) were now subject to Schedule 112A. A capital gains exemption from the sale of listed stock shares, mutual fund units, and business trusts was previously permitted by section 10(38). Section 112A's requirements for capital gains taxation are:
Units of a business trust, listed equity shares, and equity-oriented mutual fund units should all be sold.
The securities should be long-term capital assets, meaning they should be held for more than a year.
Securities Transaction Tax (STT) is applicable to the purchase and sale of equity shares. The selling transaction is subject to STT for business trusts or equity-oriented mutual fund units.
For such gains, a deduction under Chapter VI-A is not available.
It is not possible to receive a Section 87A rebate on these gains.
Scope of Section 112A
Section 112A states that long-term capital gains on the transfer of a long-term capital asset, such as stock in a firm, units in an equity-oriented mutual fund, or units in a business trust, are taxable at the rate of 10% as capital gains tax. These long-term capital gains, however, are free from taxes and will not be counted towards the assessee's overall income. Furthermore, long-term capital gains resulting from the transfer of a long-term capital asset—such as equity shares in a company, units of an equity-oriented mutual fund, or units of a business trust—that are listed on an Indian stock exchange that is recognised and subject to securities transactions are also covered by section 112A. These long-term capital gains are free from taxes and do not count towards the assessee's overall income.
Long-Term Capital Gains Under Section 112A
Section 112A exclusively applies to long-term capital gains (LTCG). To be eligible for taxation under section 112A, the holding period must be more than a year. The tax rate is 10% over a Rs 1 lakh threshold exemption. Accordingly, up to Rs 1 lakh in long-term capital gains covered by section 112A are exempt from taxation each fiscal year. Gains over one lakh rupees are subject to 10% tax, education cess, and any relevant surcharge. The cap on the exemption of long-term capital gains on the transfer of equity shares, equity-oriented units, or business trust units, however, has been raised from Rs. 1 lakh to Rs. 1.25 lakh annually as of July 23. However, the tax rate has increased from 10% to 12.5%.
For instance, the 10% tax under section 112A is applied to Rs. 50,000 (Rs. 1,50,000 – Rs. 1,00,000) if a taxpayer has an annual (net) long-term capital gain of Rs. 1,50,000 for the fiscal year 2023–2024 under section 112A. However, the 12.5% tax under section 112A is on Rs. 25,000 (Rs. 1,50,000 – Rs. 1,25,000) if a taxpayer has an annual (net) long-term capital gain under section 112A of Rs. 1,50,000 for the fiscal year 2024–2025.
When a resident individual or HUF's total income falls below the basic exemption ceiling after deducting long-term capital gains, the long-term capital gains are also deducted. A 15% cap has been placed on the long-term capital gains (LTCG) surcharge on listed equity shares, units, etc.
For instance, we take into account that a taxpayer has Rs 4,00,000 in total income and Rs 2,00,000 in (net) long-term capital gains under section 112A. After deducting capital gains, the remaining income in this case is Rs 2 lakh, which is less than the basic exemption threshold. The amount of Rs. 50,000 (Rs. 2,50,000 – Rs. 2,00,000) that the lowered total income is below the basic exemption level. Rs 1,50,000 will be the taxable long-term capital gains (Rs 2,00,000 – Rs 50,000).
Capital Loss or Profit on Sale of Assets
The gain or loss on the sale of an asset is determined by deducting the purchase price from the sale price. If the sale price exceeds the buying price, the difference is a capital gain. If the sales price is less than the acquisition price, the difference is a capital loss. There are two types of capital gains and losses: short-term and long-term. Gains or losses realised on the sale of an asset held for less than a year are referred to as short-term capital gains and losses. Gains or losses achieved upon the sale of an asset held for more than a year are referred to as long-term capital gains and losses.
The tax rate for long-term capital gains is 20%, and they are taxed more favourably than those over short periods of time. The amount of short-term capital gains tax is determined by the taxpayer's normal income tax rate. It is crucial to ascertain whether a capital gain is short-term or long-term before calculating the tax rate on it. Long-term capital gains are taxed at a reduced rate of 20%, whereas short-term capital gains are taxed at the taxpayer's ordinary income tax rate. The tax rate on a capital gain may also be influenced by the taxpayer's income; those with greater incomes may pay a higher tax rate on their capital gains. The way capital gains are taxed varies.
Long-Term Capital Loss Set-Off from Long-Term Capital Gain
Any loss resulting from the sale of the aforementioned long-term listed equity shares or units is considered a long-term capital loss. Only long-term capital gains can offset the loss. You can deduct losses from profits if you have losses from certain securities and gains from others. Only when the net gains surpass Rs 1,00,000 are they subject to taxation. Long-term capital losses that you are unable to deduct for eight years following the assessment year in which they occur can be carried forward.
Section 112A Grandfathering Provisions
Grandfathering measures were implemented by the Finance Act of 2018 to exempt long-term capital gains generated up until January 31, 2018. When determining the cost of acquisition for certain securities purchased prior to February 1, 2018, we first take the lower of the sale consideration and the fair market value as of January 31, 2018. After that, we choose the higher of the two after comparing the outcome with the purchase price.
Fair Market Value:
The highest price of the security published on the reputable stock exchange is the fair market value (FMV) of listed securities.
The FMV is the highest price of the security quoted on a day just before January 31, 2018, when the security has traded on the recognised stock exchange, in the event that there was no trading in the security on that date.
The net asset value of the units as of January 31, 2018, in the case of unlisted units.
The FMV for an equity share that was listed after January 31, 2018, or that was purchased through a section 47 merger or other transfer, shall be: Cost of purchase * Cost inflation index for FY 2017–18 / Cost inflation index for FY 2001–02 or the year of purchase.
Reporting under Schedule 112A
Schedule 112A is included in the income tax returns for AY 2024–2025 to allow for the scrip-wise reporting of long-term capital gains in cases where grandfathering provisions apply. Information including the ISIN code, the name of the scrip, the number of units or shares sold, the sale price, the purchase price, and the FMV as of January 31, 2018, are all required under Schedule 112A. In cases when grandfathering rules apply, the specifics are required to determine the accurate amount of long-term capital gains. Your ITR must include information on long-term capital gains in Schedule 112A. However, only shares or mutual funds purchased prior to January 31, 2018, and sold during the current assessment year, are subject to scrip-wise disclosure. If shares or mutual funds were purchased after January 31, 2018, and sold during the current assessment year, scrip-by-scrip information is not needed.
Conclusion
Long-term capital gains on the transfer of listed equity shares or units of equity-oriented mutual funds are covered under Schedule 112A of the Income Tax Act and are required to be declared on the income tax return. Such long-term capital gains are subject to a reduced tax rate of 10% under the schedule, which does not permit the indexation benefit. To enable scrip-by-scrip reporting of capital gains from listed equity shares and units, the taxpayer must include the name of the company or scheme, the date of acquisition of the shares or units, the sale consideration, and the date of transfer of the shares or units in the income-tax return.
FAQ
Q1. What do I fill out in Schedule 112A?
Schedule 112A of your income tax return is where you must report any long-term capital gains from the sale of listed equities shares or equity-oriented mutual funds. All stocks and mutual funds that are sold over the long term are listed in this schedule with scrip-by-scrip details.
Q2. How do I show capital gains on my income tax return?
When submitting ITR 2, individuals are required to include scrip-by-scrip data for long-term capital gains. This will include the ISIN, pricing for buying and selling, dates of different transactions, and more. After filling out 'Schedule 112A,' click 'Add.'
Q3. How do you calculate capital gains on listed shares?
The following formula is used to calculate the capital gain in the case of listed equity shares.
Capital gain= sale value - acquisition costs
It is deemed a long-term capital gain and must be disclosed in Schedule 112A if you have owned listed equity shares or mutual funds (Equity) for more than a year on which STT is paid.
Q4. How do I claim a deduction under 112A?
To qualify for the concessional rate under section 112A, the assets must have been held for more than a year. A 10% tax is imposed on any total income over 100,000 naira. An education cess and surcharge would be applied to taxable gains.
Q5. What are Scheduled capital gains?
The majority of people record capital gains and losses from the sale or transfer of a particular property during the year using the Schedule D form.
Q6. Is Sec 112A compulsory?
For the assessment year 2020–2021, Schedule 112A must be filled out in order to provide details regarding each sale or redemption of listed equity shares and equity-oriented mutual funds.
Q7. Can I file ITR 2 if I have capital gains?
Yes, you must submit an ITR-2 if you have capital gains. Additionally, you must file an ITR-3 if your business income includes a capital gain.
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