Section 112A: LTCG Tax on Equity Shares & Mutual Funds 2025

Hey! If you’ve ever bought stocks or equity mutual funds, you know how exciting it can be to watch your money grow—until tax season rolls around and you realize there’s a whole behind-the-scenes playbook you need to follow. Enter Section 112A of the Income‑tax Act.

A quick backstory Remember when long‑term gains from equity investments were totally tax‑free? That golden era ended on Feb 1, 2018, when Section 112A kicked in. The idea was simple: let’s make sure big winners chip in their fair share, without scaring away everyday investors.

What counts under Section 112A?

You’re in this club if you’re dealing with any of these:

Listed equity shares (the ones you buy and sell on the stock exchange).
Equity‑oriented mutual funds, where at least 65% of the corpus is in stocks.
Units of business trusts, if they tick the right boxes.

Sell any of these after holding them for more than 12 months, and Section 112A is your new best friend (or worst enemy—depends on the gains!).

How much tax are we talking about?

Rate: 12.5% on gains above ₹1,25,000 in a financial year.
Exemption: First ₹1.25 lakh of profits? Comes back to you, tax‑free.
No indexation: Unlike other assets, you can’t adjust your purchase price for inflation. (Bummer, I know.)

Note: Prior to July 23, 2024, the rate was 10% with a ₹1 lakh exemption. The 2024 Budget bumped it up to 12.5% and added ₹25,000 more cushion for small investors.

The fine print—when 112A applies

Asset type: Must be one of those three categories above.
Holding period: Over 12 months.
STT paid: Securities Transaction Tax must’ve been paid both at buy and sell for shares; for mutual funds or business trusts, STT on the sale is enough.

Your “get‑out” card: The Grandfathering Clause

If you snapped up shares before Feb 1, 2018, you get a sweet deal: you calculate your cost of acquisition as the higher of:

The price you actually paid.
The lower of:
- The fair market value on Jan 31, 2018, or
- Your actual sale price.

FMV on Jan 31, 2018 usually means the highest trading price that day. If the market was closed? Use the last trading day’s high.

Examples to make it real

1. Straight‑up LTCG (Post‑2024 Budget)

Priya bought 1,000 Reliance shares at ₹2,400 each on Mar 15, 2022.
She sells all on Aug 10, 2024 at ₹3,200.
- Cost: ₹24 lakh
- Sale: ₹32 lakh
- Gain: ₹8 lakh
- Exempt: ₹1.25 lakh
- Taxable: ₹6.75 lakh
- Tax @12.5%: ₹84,375
- Health & Education Cess (4%): ₹3,375
- Total bill: ₹87,750

2. Grandfathering to the rescue

Rajesh bought 500 HDFC Bank shares at ₹1,800 on Jun 10, 2017.
FMV on Jan 31, 2018: ₹2,100.
Sold on Sep 5, 2024 at ₹2,800.
- Deemed cost: ₹2,100 (higher of real cost and FMV, but less than sale price)
- Sale value: ₹14 lakh
- Gain: ₹3.5 lakh
- Exempt: ₹1.25 lakh
- Taxable: ₹2.25 lakh
- Tax @12.5%: ₹28,125

A few more pointers

Chapter VI‑A deductions (80C, 80D, etc.) only reduce your regular income, not LTCG under 112A.
Section 87A rebate (up to ₹12,500 old regime or ₹25,000 new regime) doesn’t apply to LTCG under 112A.
Capital losses: Net off long‑term losses against long‑term gains this year; carry forward any leftover for up to 8 years.

What changed in FY 2024‑25?

Rate bumped from 10% to 12.5% for sales on/after July 23, 2024.
Exemption limit upped from ₹1 lakh to ₹1.25 lakh.
Uniform rate across all covered equity assets.

Filing season—what to do

Pick the right ITR form (usually ITR‑2 or ITR‑3).
Fill Schedule 112A: list every stock/fund, purchase/sale dates, ISIN, FMV if you’re using grandfathering.
Keep your contract notes, demat statements, bank statements, and any FMV certificates handy.

When 112A takes a back seat

Unlisted shares (taxed under Section 112).
Securities held as stock‑in‑trade.
NRI transactions (special rules apply).
IFSC exchange trades (no STT, so 112A not relevant).
Investment vs. trading classification matters—make sure you know which bucket you’re in!