Taxability on Long Term Capital Gain arising from transfer of capital asset, being an equity share in a company or a unit of an equity oriented fund or unit of a business trust.
As per the amendment given in the finance bill 2018, Long term Capital gain exemption under section 10(38) in respect of listed STT paid shares, is being withdrawn with effect from 1st April 2018.
Amendment under section 10(38) has been reproduced below for ready reference:
In clause (38), after the third proviso, the following proviso shall be inserted, namely:—“Provided also that nothing contained in this clause shall apply to any income arising from the transfer of 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, made on or after the 1st day of April, 2018.”
A new section 112A, has been introduced in Act to charge tax at 10% on long term capital gain exceeding one lakh rupees, arising from transfer of capital asset, being an equity share in a company or a unit of an equity oriented fund or unit of a business trust.
The Complete text of new inserted section 112A with Analysis has been give below:-
“112A. (1) Notwithstanding anything contained in section 112, the tax payable by an assessee on his total income shall be determined in accordance with the provisions of sub-section (2), if—
(i) the total income includes any income chargeable under the head “Capital gains”;
(ii) the capital gains arise 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;
(iii) securities transaction tax under Chapter VII of the Finance (No.2) Act, 2004 has,—
(a) in a case where the long-term capital asset is in the nature of an equity share in a company, been paid on acquisition and transfer of such capital asset; or
(b) in a case where the long-term capital asset is in the nature of a unit of an equity oriented fund or a unit of a business trust, been paid on transfer of such capital asset.
Analysis: If above all three conditions are satisfied by the Assessee then only he will be eligible to avail the benefit of new inserted section 112A of Income Tax Act, 1961.
(2) The tax payable by the assessee on the total income referred to in sub-section (1) shall be the aggregate of—
(i) the amount of income-tax calculated on such long-term capital gains exceeding one lakh rupees at the rate of ten per cent.; and
Analysis:- Income Tax on Capital Gain arising from transfer of Capital Asset shall be calculated on an amount of Capital Gain exceeding Rs. 1,00,000 @ 10%.
Example:- Total Capital Gain = Rs.2,50,000 then in such case Tax shall be:- = Rs. 15,600 (Rs. 1,50,000*10% + Health and Education Cess @ 4%).
(ii) the amount of income-tax payable on the balance amount of the total income as if such balance amount were the total income of the assessee:
Analysis:- For the purpose of tax calculation on balance amount of total income (i.e. amount reduced by the capital gain amount as used in (i) above).
Example:- Gross total Income = Rs. 6,00,000 (including Rs.2,50,000 as Capital Gain) then tax shall be calculated as under:
Tax on LTCG of Rs. 1,50,000 (Excluded Rs. 1,00,000) u/s 112A @ 10%
15,000
Tax on Balance Income of Rs.3,50,000:
On Income upto Rs.2,50,000 Nil
On Balance Income of Rs. 1,00,000 @ 5% 5000
———–
20000
Add: Health and Education Cess @ 4% 800
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Tax Payable 20,800
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Provided that in the case of an individual or a Hindu undivided family, being a resident, where the total income as reduced by such long-term capital gains is below the maximum amount which is not chargeable to income-tax, then, the long-term capital gains, for the purposes of clause (i), shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax.
Analysis:- If Balance total income (i.e. amount as reduced by Capital Gain) is less than the amount which not chargeable to tax i.e.Rs.2,50,000 then the benefit of Income Tax slab may be availed.
Example:- Gross total Income = Rs. 3,50,000 (including Rs.2,50,000 as Capital Gain) then tax shall be: Nil (Since, Rs. 3,50,000 – Rs. 1,00,000 (i.e. Bal. total income) = Rs. 1,50,000, may be used against Capital gain income of Rs. 1,50,000.
(3) The condition specified in clause (iii) of sub-section (1) shall not apply to a transfer undertaken on a recognised stock exchange located in any International Financial Services Centre and where the consideration for such transfer is received or receivable in foreign currency.
(4) The Central Government may, by notification in the Official Gazette, specify the nature of acquisition in respect of which the provisions of sub-clause (a) of clause (iii) of sub-section (1) shall not apply.
(5) The capital gains under sub-section (1) shall be computed without giving effect to the provisions of the first and second provisos to section 48.
Analysis: inflation indexation in respect of cost of acquisitions and cost of improvement, if any, and the benefit of computation of capital gains in foreign currency in the case of a non-resident, will not be allowed.
(6) The cost of acquisition for the purposes of computing capital gains referred to in sub-section (1) in respect of the long-term capital asset acquired by the assessee before the 1st day of February, 2018, shall be deemed to be the higher of—
(i) the actual cost of acquisition of such asset; and
(ii) the lower of—
(a) the fair market value of such asset; and
(b) the full value of consideration received or accruing as a result of the transfer of the capital asset.
Analysis: Understanding on identification Cost of Acquisition for the purpose of calculation of Capital Gain:
| Particulars | Case-1 | Case-2 |
| Actual Cost of Acquisition | 100 | 100 |
| FMV as on 31st January, 2018 | 120 | 120 |
| Full Value of Consideration | 130 | 110 |
| Deemed Cost of Acquisition | 120 | 110 |
Note: If any 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, is sold on or before the 31st March, 2018 then liability of LTCG Tax shall not be arisen since the provision of section 10(38) shall continue till 31st march, 2018.
Explanation— fair market value” means,—
(i) in a case, capital asset is listed then, the highest price of the capital asset quoted on such exchange on the 31st day of January, 2018: and where there is no trading in such asset on such exchange on 31st day of January, 2018, the highest price of such asset on such exchange on a date immediately preceding the 31st day of January, 2018 when such asset was traded on such exchange shall be the fair market value;
(ii) in a case where the capital asset is a unit and is not listed on a recognised stock exchange, the net asset value of such asset as on the 31st day of January, 2018;
(7) Where the gross total income of an assessee includes any long-term capital gains referred to in sub-section (1), the deduction under Chapter VI-A shall be allowed from the gross total income as reduced by such capital gains.
Analysis: The benefit of deduction under chapter VIA shall be allowed from the balance gross total income as reduced by such capital gains.
(8) Where the total income of an assessee includes any long-term capital gains referred to in sub-section (1), the rebate under section 87A shall be allowed from the income-tax on the total income as reduced by tax payable on such capital gains.
Analysis: The benefit of section shall be allowed from the tax calculated on balance gross total income as reduced by such capital gains.