25 October 2024
Dear Experts, please guide me on my query. Is the benefit of indexation using Cost inflation index available while computing LTCG on sale of listed equity shares as per section 48 with 20% tax? Or 10% according to sect. 112A. Thanks.
25 October 2024
Sir, thanks for clarifying. The only confusion was regarding applicability of sect. 48, whether in case of shares, 112A is over riding 48 for inflatory adjustment to cost of acquisition. So assessee can't choose 20% with CII, in place of 10% (now 12.5%), even if that's beneficial! Have I understood correctly Sir? Thanks n Regards
25 October 2024
"[Provided also that nothing contained in the first and second provisos shall apply to the capital gains arising from the transfer of a long-term capital asset being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust referred to in section 112A:] [Inserted by Act 67 of 1984, Section 13 (w.e.f. 1.4.1985).]"
25 October 2024
Sec. 112A takes precedence over Section 48 for long-term capital gains on listed shares. This means that the indexation benefit (which would allow taxpayers to adjust their acquisition costs based on inflation) is not available if sec. 112A applies. The third proviso explicitly states that when calculating capital gains under sec. 112A, the first and second provisos of Section 48 (which include indexation benefits) are not applicable. This is a clear legal stipulation that eliminates the option for indexation in these cases. The legislative intent behind introducing Section 112A was to simplify the tax regime and provide a flat tax rate for LTCG on equity shares and units. Allowing assessee to opt for Section 48 would defeat this purpose. This means that for long-term capital gains on shares subject to sec 112A, taxpayers must calculate their gains without considering indexation adjustments, regardless of whether it would have been more beneficial to do so.
25 October 2024
Sir I found this on cleartax website: "Scope of Section 112A The following conditions apply for availing the benefit of the concessional rate under section 112A of Income-tax Act,1961:
1. The securities transaction tax (STT) has been paid on the acquisition and transfer of an equity share of a corporation." They say STT should have been paid on acquisition n transfer of shares. STT on acquisition too?
25 October 2024
Sir for Sect 112A, STT should have been paid on acquisition n transfer of listed shares. Sect. 112 where STT is not paid on acquisition n transfer! "If there is LTCG on listed securities (other than units) where STT is not paid at the time of acquisition and transfer Tax rate is lower of: 10% (without indexation) 20% (with indexation)" Kindly have your view. Regards
25 October 2024
In case of acquisition of shares under Right issues, bonus shares, merger or demerger of companies etc. or any shares acquired before the listing of the company on any exchange, STT is not paid.... Even if these shares are traded on exchange (with STT paid up) the rule remains same. But if the shares are directly transferred without trade on any exchange, the rule doesn't apply.
25 October 2024
Sir STT was introduced in the year 2004. That means shares bought prior to that from market, or from public issues by the companies, won't satisfy the condition of STT on acquisition. So these should fall under section 112 & not 112A, so tax should be lower of 10% without indexation & 20% with indexation (as given in section 48) as per section 112 for each individual scrip. Sir, it's extremely difficult to track all corporate actions like bonus, split, rights etc.in case of old physical shares dating back to 80s or 90s, especially when there are many transactions. How to isolate 112A n 112 eligibles in such cases? What's your invaluable advice Sir?
25 October 2024
Sir, let's take an example. LTCG is 6 lakhs as per 112A. But if the grandfathered values are indexed as per CII, it's translating to loss of 7.50 lakhs. Shares are purchased from 1989 till 2023, and sold in FY 2023-24, and of course include so many amalgamations/ mergers/demergers/takeovers/rights/bonuses/splits/capital reductions by the companies. So should I compute as per 112A without indexation? What's your take Sir? Regards
26 October 2024
After introduction of sec. 112A, all the shares sold through exchanges are subject to 10% (12.5% now) LTCG tax. No more 20% with indexation is accepted by ITD.
26 October 2024
Thank you so much Rambhia Sir, for promptly providing your valued expert guidance in the matter. As always, your replies have been very helpful to me, and other members. Thanks again, and best regards Sir.
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