What is Section 112? Long-term capital gains on non-equity assets (2026 guide)

Section 112 of the Income-tax Act, 1961 is the residual long-term capital gains charging section. It applies to every long-term capital asset that is not Indian listed equity, equity-oriented mutual funds, or business-trust units carrying Securities Transaction Tax — those fall under Section 112A. Inside Section 112 sit foreign shares, foreign ETFs, unlisted Indian shares, gold, immovable property and debt securities. As of Budget 2024, the rate is a flat 12.5 percent without indexation, applied after a 24-month holding-period threshold for most non-equity assets. This guide is the canonical reference for Section 112 as it stands on 30 May 2026.

Section 112 was inserted with effect from 1 April 1993 by the Finance Act, 1992, alongside the broader rewrite of Chapter XII to separate ordinary income from capital gains. Through three decades of amendments it has been the workhorse provision that taxed gains on land, buildings, gold and unlisted shares while equity was carved out by Section 10(38), then later by Section 112A. The Finance (No. 2) Act, 2024 is the most consequential rewrite the section has seen — it eliminated the 20 percent with indexation regime and replaced it with a uniform 12.5 percent without indexation regime, effective for transfers on or after 23 July 2024. Every contemporary Section 112 question begins with that effective date.

For Indian residents who invest in US stocks via the Liberalised Remittance Scheme, Section 112 is the single most important capital gains provision they will encounter, because every Apple, Microsoft, Nvidia or S&P 500 ETF holding is taxed here rather than under the more visible Section 112A. The companion pieces Schedule FA for AY 2026-27 and Form 67 and Form 44 transition for AY 2026-27 handle the disclosure and foreign tax credit side; this guide is the substantive law.

Definition and statutory basis

Section 112 sits inside Chapter XII of the Income-tax Act, 1961, the chapter that prescribes special rates for specified incomes. Its full title is "Tax on long-term capital gains". It specifies the rate; the underlying liability arises from Section 45 read with Section 2(14), Section 2(29A) and Section 2(29B), which together define a capital asset, a long-term capital asset, and the moment of transfer.

The structural reading of Section 112 after the Finance (No. 2) Act, 2024 amendments is as follows:

1. Section 112(1)(a) — applies to a resident individual or HUF. The rate is 20 percent on transfers up to 22 July 2024 and 12.5 percent from 23 July 2024.
2. Section 112(1)(b) — applies to a resident other than an individual or HUF, including domestic companies and firms, at the same revised rate.
3. Section 112(1)(c) — applies to non-residents and foreign companies on long-term gains other than those covered by Section 115AD and the first proviso to Section 48.
4. Section 112(1)(d) — a residual sub-clause for any other case.
5. First proviso — preserves the foreign-currency computation under Section 48 first proviso for non-residents on shares and debentures of Indian companies.
6. Second proviso (post-amendment) — the grandfathering rule for land and buildings acquired on or before 22 July 2024 in the hands of resident individuals and HUFs, giving the option of 20 percent with indexation if it yields a lower tax than 12.5 percent without indexation.
7. Section 112(2) — bars Chapter VI-A deductions from being claimed against the gain taxed under this section.

Departmental clarifications, including the CBDT FAQ released on 24 July 2024 explaining the Budget 2024 capital gains rationalisation, are persuasive but not binding. Where ambiguity exists, the Supreme Court principle that a charging section is construed strictly and a relieving proviso liberally continues to govern.

History — pre-Budget 2024 versus post-Budget 2024

Until 22 July 2024, Section 112 imposed a rate of 20 percent on the indexed long-term capital gain. Indexation was computed using the Cost Inflation Index notified by CBDT under Section 48 second proviso, applied to both the cost of acquisition and the cost of improvement. The result was a tax base substantially smaller than the nominal gain, especially for assets held through high-inflation periods. Real estate transactions in tier-one Indian cities frequently produced an indexed loss despite a doubling of nominal value, because the CII rose roughly fivefold between 2001 and 2024.

The Finance (No. 2) Act, 2024 made three simultaneous changes: the rate fell from 20 percent to 12.5 percent; indexation was removed for all transfers on or after 23 July 2024; and the holding-period thresholds were rationalised so that there are now only two — 12 months for listed securities and 24 months for everything else. The 36-month bucket that previously applied to gold and certain other assets was eliminated.

The pre- and post-amendment regimes can be summarised side by side as follows.

Element	Pre-23 July 2024	From 23 July 2024
Headline rate	20 percent	12.5 percent
Indexation	Available under Section 48 second proviso	Removed for all Section 112 assets
Holding period — immovable property	24 months	24 months
Holding period — gold and unlisted shares	36 months (gold), 24 months (unlisted shares)	24 months across the board
Holding period — foreign shares	24 months	24 months
Exemption threshold	None	None
Surcharge cap on LTCG	15 percent	15 percent
Health and education cess	4 percent on tax plus surcharge	4 percent on tax plus surcharge

The 6 August 2024 amendment to the Finance Bill added the immovable property grandfathering option discussed below. No other element of Section 112 was retrospectively softened.

Assets covered under Section 112

Section 112 applies to long-term capital gains on every capital asset other than (i) Indian listed equity shares with STT paid, (ii) units of equity-oriented mutual funds, (iii) units of business trusts where STT is paid at sale — all three of which are taxed under Section 112A — and (iv) units of specified mutual funds purchased on or after 1 April 2023, where Section 50AA deems the gain short-term and taxes it at slab rates.

The principal categories that fall inside Section 112 are:

1. Foreign equity shares — Apple, Microsoft, Nvidia and any other share listed on a non-Indian exchange.
2. Foreign ETFs and overseas mutual fund units — including S&P 500 ETFs purchased through a US broker under LRS.
3. Unlisted Indian equity shares — private limited company shares, pre-IPO shares, ESOP shares of unlisted Indian companies and shares of delisted companies.
4. Immovable property — land, buildings and rights in immovable property, including leasehold interests.
5. Gold and other precious metals — physical gold, gold ETFs, gold mutual funds and Sovereign Gold Bonds (subject to the SGB-specific maturity exemption under Section 47(viic)).
6. Debt securities — listed and unlisted debentures, government securities, bonds, and units of debt mutual funds purchased on or before 31 March 2023.
7. Business trust units sold without STT.
8. Other capital assets — jewellery, drawings, paintings, sculptures and any work of art under Section 2(14).

Shares of an unlisted Indian company that list between acquisition and sale are governed by the character of the asset at the date of transfer. A share sold post-listing on a recognised exchange with STT paid attracts Section 112A even if the cost of acquisition predates listing. Off-market transfers of formerly listed shares fall back into Section 112.

The 24-month holding-period rule

Section 2(29A) defines a long-term capital asset as one that is not a short-term capital asset, and Section 2(42A) defines a short-term capital asset by reference to a holding-period threshold that varies by asset class. After the Finance (No. 2) Act, 2024 rationalisation, the thresholds collapsed into just two buckets.

Asset class	Threshold to become long-term
Listed equity shares (Indian, STT-paid)	12 months
Equity-oriented mutual funds	12 months
Units of UTI and business trusts	12 months
Zero-coupon bonds (listed)	12 months
Foreign equity shares	24 months
Foreign ETFs and overseas mutual funds	24 months
Unlisted Indian equity shares	24 months
Immovable property — land and buildings	24 months
Gold, jewellery, art	24 months
Debt mutual funds (pre-1 April 2023 units)	24 months
Specified mutual funds (post-1 April 2023 units)	Not applicable — always slab-rate under Section 50AA

The 24-month threshold for foreign equity is the most operationally important rule for Indian residents holding US stocks. A Nvidia share acquired on 15 March 2023 and sold on 14 March 2025 is short-term; sold on 16 March 2025 it is long-term and falls into Section 112. For multi-lot positions, the first-in-first-out method applies unless the taxpayer tracked specific lots. Use the holding-period checker to confirm whether a lot has crossed the threshold before selling.

Tax computation mechanics

Computation under Section 112 proceeds in two stages. The first is the gain computation under Section 48, the master computation provision for all capital assets. The second is the application of the Section 112 rate to that gain.

Section 48 prescribes that the income chargeable as capital gains is the full value of consideration received or accruing on transfer, less the cost of acquisition, the cost of any improvement and the expenditure incurred wholly and exclusively in connection with the transfer. After the Finance (No. 2) Act, 2024, the second proviso to Section 48, which previously authorised indexation, no longer applies to any asset taxed under Section 112 except within the immovable property grandfathering window. The first proviso to Section 48, governing foreign-currency computation for non-residents on Indian shares and debentures, continues to apply unchanged.

For an Indian resident transferring a foreign-currency-denominated capital asset such as a US share, the computation runs in INR. Rule 115 of the Income-tax Rules, 1962 governs the conversion. The relevant rates are:

Component	Conversion date
Full value of consideration on transfer	SBI TT buying rate as on the last day of the month immediately preceding the month of transfer
Cost of acquisition	SBI TT buying rate as on the last day of the month immediately preceding the month of acquisition
Cost of improvement	SBI TT buying rate as on the last day of the month immediately preceding the month in which the improvement was incurred
Transfer-related expenditure	SBI TT buying rate as on the last day of the month immediately preceding the month of expenditure

The two legs are translated at different rates, so an Indian resident can sit with a USD-denominated gain that becomes an INR loss, or vice versa, depending on the rupee's path. This is the explicit design of Rule 115, which treats the rupee as the reference currency and asks the taxpayer to bear the FX translation risk both ways. Conversion happens at the rate of the last day of the month preceding the relevant event — not on the actual day of the event and not at any average rate.

Once the gain is computed in INR, the 12.5 percent rate is applied. Surcharge is added at the applicable slab on that basic tax, capped at 15 percent on the long-term capital gain component. Health and education cess at 4 percent is then added on tax plus surcharge. There is no Section 87A rebate against Section 112 income, and Chapter VI-A deductions cannot be set off against the gain.

Worked example — US stock for an Indian resident

The cleanest illustration of Section 112 is a single US stock transaction by a resident Indian.

Facts: A resident and ordinarily resident individual for AY 2026-27 buys 200 shares of Nvidia (NVDA) on 12 January 2023 at USD 130.00 through a US broker funded via LRS, and sells them on 18 July 2025 at USD 200.00, with brokerage and SEC fees of USD 12 on sale. Assume the SBI TT buying rate on 31 December 2022 is Rs 82.30 per USD, and on 30 June 2025 is Rs 86.00 per USD.

Step 1 — Holding period. From 12 January 2023 to 18 July 2025 is more than 24 months. The gain is long-term and falls within Section 112.

Step 2 — Cost of acquisition in INR. 200 times USD 130 equals USD 26,000. Converted at Rs 82.30, the cost is Rs 21,39,800.

Step 3 — Full value of consideration in INR. 200 times USD 200 equals USD 40,000. Converted at Rs 86.00, the gross consideration is Rs 34,40,000.

Step 4 — Allowable transfer expenditure. USD 12 at Rs 86.00 is Rs 1,032.

Step 5 — Long-term capital gain. Rs 34,40,000 minus Rs 21,39,800 minus Rs 1,032 equals Rs 12,99,168.

Step 6 — Tax under Section 112. 12.5 percent of Rs 12,99,168 equals Rs 1,62,396. Assuming the taxpayer is in the 10 percent surcharge bracket, surcharge of Rs 16,240 is added. Cess at 4 percent on tax plus surcharge is Rs 7,146. Total tax: Rs 1,85,782.

Step 7 — Reporting. The gain is reported in Schedule CG of ITR-2 under the long-term column for shares other than STT-paid equity. The NVDA holding is separately reported in Schedule FA. No US tax is withheld on the capital gain of an Indian resident under Article 13 of the US-India DTAA, so no foreign tax credit is claimed.

The USD gain is 53.8 percent while the INR gain is 60.7 percent because the rupee depreciated over the holding period. Indian tax is computed on the INR gain, not the USD gain. The US capital gains calculator replicates this workflow for any ticker, lot and trade-date combination.

Section 112 vs Section 112A vs Section 111A

Three sections together exhaust the special-rate capital gains landscape in India. They are frequently confused with one another, partly because all three were touched by Budget 2024.

Element	Section 111A	Section 112A	Section 112
Nature of gain	Short-term	Long-term	Long-term
Asset universe	Indian listed equity, equity MFs, business-trust units with STT	Indian listed equity, equity MFs, business-trust units with STT	All other long-term capital assets
Holding-period trigger	Up to 12 months	More than 12 months	More than 24 months (or 12 months for listed Indian non-equity)
Rate from 23 July 2024	20 percent	12.5 percent	12.5 percent
Rate before 23 July 2024	15 percent	10 percent above Rs 1 lakh	20 percent with indexation
Annual exemption	None	Rs 1.25 lakh	None
Indexation	Not applicable	Not applicable	Removed except immovable property grandfathering
STT required	Yes	Yes	Not relevant
Set-off of basic exemption limit	Available to resident individuals against the gain	Available to resident individuals against the gain in excess of Rs 1.25 lakh	Available to resident individuals
Surcharge cap on this component	15 percent	15 percent	15 percent

The decision tree is: (a) Is the asset Indian listed equity, an equity MF or a business-trust unit with STT? If yes, the gain is in Section 111A or 112A. (b) Long-term? If yes, Section 112A; if no, Section 111A. (c) If the asset fails the STT-equity test, default to Section 112 for the long-term gain and to slab rates for the short-term gain.

DTAA interaction and foreign tax credit

Section 112 applies regardless of whether a Double Taxation Avoidance Agreement exists with the source country. India's DTAA network allocates the taxing right on capital gains in different ways depending on the asset and counterparty. Article 13 of the India-US DTAA gives each contracting state the right to tax capital gains under its own domestic law. In practice, the United States does not tax capital gains realised by an Indian resident on portfolio investment in US securities, so no foreign tax credit is typically required.

The position differs across jurisdictions. Capital gains on UK listed shares are not taxed by the UK on a non-resident, but UK immovable property is. Singapore has no capital gains regime at all. Where source-country tax is actually paid, Section 90 read with Rule 128 permits a Foreign Tax Credit claim, capped at the lower of the Indian tax payable on the doubly-taxed income or the foreign tax actually paid. Form 67 must be filed on or before the due date of the return to perfect the claim. The mechanics, including the Form 44 transition for AY 2026-27, are covered in Form 67 and Form 44 transition for AY 2026-27.

A DTAA cannot displace Section 112. The treaty allocates the taxing right; once allocated to India, the rate is fixed by domestic law.

Special cases under Section 112

Immovable property grandfathering

The grandfathering rule added by amendment to the Finance Bill on 6 August 2024 sits inside Section 112 as a proviso. It applies only where all four conditions are met: (i) the transferor is a resident individual or HUF, (ii) the asset is land or building, (iii) it was acquired on or before 22 July 2024, and (iv) the transfer takes place on or after 23 July 2024. The taxpayer may compute the tax under two methods — 12.5 percent of the unindexed gain or 20 percent of the indexed gain — and pay whichever is lower.

The election is not available to companies, LLPs, firms, AOPs, BOIs or non-residents, and is not available for any asset other than land or building. Gold, unlisted shares and foreign shares acquired before 23 July 2024 receive no equivalent relief. For high-CII-uplift positions in tier-one Indian residential property purchased before 2010, the 20 percent with indexation route frequently produces a lower number; for property acquired after 2018, the 12.5 percent route is generally lower.

Debt mutual funds and the Section 50AA overlay

Debt mutual funds interact with Section 50AA. Units of a specified mutual fund as defined in Section 50AA — broadly, a fund investing more than 65 percent in debt and money-market instruments — purchased on or after 1 April 2023 give rise to deemed short-term capital gains taxed at slab rates, regardless of holding period. Section 112 does not apply to these units. Units of the same fund purchased on or before 31 March 2023 retain capital-asset treatment, are long-term after 24 months under the post-Budget-2024 rule, and are taxed under Section 112 at 12.5 percent without indexation. Mixed holdings are bifurcated on a first-in-first-out basis.

Gold and Sovereign Gold Bonds

Physical gold, gold ETFs and gold mutual funds are taxed under Section 112 at 12.5 percent without indexation if held for more than 24 months. The earlier 36-month threshold for gold was eliminated in Budget 2024. Sovereign Gold Bonds redeemed at maturity continue to enjoy a complete capital gains exemption under Section 47(viic), which survived Budget 2024 untouched. SGBs sold on the secondary market before maturity remain capital assets under Section 112 with the 24-month threshold.

Unlisted equity shares and ESOPs

Unlisted Indian equity shares — private limited company shares, pre-IPO shares and ESOP shares of unlisted Indian companies — are long-term after 24 months and taxed under Section 112 at 12.5 percent without indexation. Non-residents transferring unlisted shares fall under Section 112(1)(c) and the first proviso to Section 48 governing foreign currency computation. ESOP perquisite tax under Section 17(2)(vi) is computed at exercise on the fair market value on that date; the FMV at exercise becomes the Section 48 cost of acquisition for the eventual sale, and the Section 112 holding period runs from the date of allotment, not grant.

Foreign ETFs and overseas mutual funds

A US-listed S&P 500 ETF held by an Indian resident is a foreign security, falls outside Section 112A regardless of its equity content, and is taxed under Section 112 at 12.5 percent without indexation after 24 months. The same exposure through an India-domiciled equity-oriented mutual fund would qualify for Section 112A. The distinction turns on the domicile of the fund vehicle, not the underlying portfolio composition.

Common mistakes and select rulings

The most frequent Section 112 errors made by retail investors holding US assets are mechanical. Six recur with particular regularity.

1. Using the wrong FX rate. Taxpayers convert at the trade-date rate from a US broker statement rather than at the Rule 115 month-end SBI TT buying rate.
2. Treating Section 112A exemption as available. The Rs 1.25 lakh exemption is exclusive to Section 112A. Section 112 has no threshold; the first rupee of gain is taxable.
3. Forgetting Schedule FA. Filing the gain in Schedule CG without the corresponding Schedule FA entry triggers Black Money Act exposure independent of any Section 112 mismatch.
4. Applying indexation post-23 July 2024. Indexation is removed for all Section 112 assets except the immovable property grandfathering window. Spreadsheets still using CII for foreign shares are wrong from FY 2024-25.
5. Misidentifying ESOP holding period. The holding period runs from allotment, not from grant, vest or exercise. The FMV at exercise is the cost basis, not the strike price.
6. Claiming foreign tax credit without paid foreign tax. No US tax is typically withheld on capital gains of an Indian resident; nothing exists to credit against the Section 112 liability.

The ITAT and High Courts have produced a steady stream of Section 112 rulings. The Bombay High Court in Cairn UK Holdings Ltd. v. DIT (2013) confirmed that the proviso granting a 10 percent option without indexation applied to non-residents — that proviso has now been displaced by the post-Budget-2024 12.5 percent uniform rate. The Mumbai ITAT has consistently held that the character of the asset at the date of transfer governs the section applicable: a pre-IPO holding sold post-listing on a recognised exchange with STT paid attracts Section 112A, while off-market transfers of listed shares fall back into Section 112. Specific citations should be verified against current databases before being relied upon in any return.

Tools

• US capital gains calculator — converts USD trade data to INR using Rule 115 month-end rates and computes Section 112 tax with surcharge and cess.
• Holding-period checker — confirms whether a specific lot has crossed the 24-month threshold to qualify as a long-term asset under Section 112.

Related concepts

• Schedule FA for AY 2026-27 — disclosure of the foreign assets whose disposal triggers Section 112.
• Form 67 and Form 44 transition for AY 2026-27 — claiming foreign tax credit against Section 112 liability.
• What is LRS — the remittance channel through which the foreign assets taxed under Section 112 are acquired.
• US investing hub — the canonical entry point for resident Indians investing in US securities.

Frequently asked questions

Is Section 112 still relevant for Indian listed equity shares?

No. Indian listed equity shares on which STT is paid are taxed under Section 112A in the long term and Section 111A in the short term. The only situation in which a listed Indian share returns to Section 112 is an off-market transfer where STT was not paid at sale, which removes the share from the Section 112A universe.

What is the surcharge on Section 112 long-term capital gains?

Surcharge is computed at the slab applicable to the taxpayer's total income, capped at 15 percent on the LTCG component. Health and education cess of 4 percent is added on tax plus surcharge. The 15 percent cap on the LTCG slice means a high-income taxpayer in the 25 or 37 percent slab still pays surcharge of only 15 percent on the Section 112 portion.

Can I set off losses against Section 112 gains?

Long-term capital losses can be set off only against long-term capital gains under Section 74, irrespective of which section taxes each leg — a Section 112A equity loss can be set off against a Section 112 foreign-share gain. Short-term capital losses can be set off against both short-term and long-term gains. Unabsorbed long-term losses carry forward for eight assessment years.

Does the 12.5 percent rate include surcharge and cess?

No. 12.5 percent is the basic rate. Surcharge of up to 15 percent is added on that, then cess of 4 percent on tax plus surcharge. The maximum effective rate is approximately 14.95 percent, computed as 12.5 percent multiplied by 1.15 multiplied by 1.04.

Is Section 112 applicable to non-residents transferring Indian assets?

Yes. Section 112(1)(c) prescribes the rate for non-residents and foreign companies on long-term gains other than those covered by Section 115AD. The first proviso to Section 48 continues to apply for non-residents transferring shares or debentures of Indian companies acquired in foreign currency. Non-residents do not get the immovable-property grandfathering option, which is reserved for resident individuals and HUFs.

What about gifts of foreign shares — does Section 112 apply?

A gift is not a transfer under Section 47(iii) and does not give rise to capital gains for the donor. The donee inherits the donor's cost of acquisition and holding period under Section 49(1) and Section 2(42A). When the donee later sells the asset, Section 112 applies at that point using the original donor's cost. Gift tax in the hands of the donee under Section 56(2)(x) is a separate question.

Can Section 54F exemption be claimed against Section 112 gains?

Yes, where Section 54F conditions are met. Section 54F exempts long-term capital gains arising from any long-term asset other than a residential house, where the net consideration is invested in one residential house in India within the prescribed timeline. The exemption applies to Section 112 gains, including foreign shares, gold and unlisted Indian shares. The investment must be in an Indian residential house — foreign property does not qualify. The exemption is capped at Rs 10 crore on the cost of the new house.

How does Section 112 interact with the Black Money Act?

Section 112 governs taxation of disclosed foreign assets. The Black Money Act, 2015 governs undisclosed foreign assets. A Schedule FA omission triggers Black Money Act exposure regardless of whether the disposal is subsequently taxed correctly under Section 112. Filing the gain correctly does not cure a Schedule FA omission, and disclosing correctly does not cure a Section 112 misreport. The two regimes operate in parallel.

Is there any Section 87A rebate against Section 112 tax?

No. The Section 87A rebate is not available against tax computed under Section 112 or Section 112A. The rebate applies only to slab-rate tax on ordinary income. A taxpayer with low ordinary income and a significant Section 112 gain will still pay 12.5 percent plus surcharge and cess on the gain, with no 87A relief.