What is Section 112A? LTCG on Indian-listed equity — complete 2026 guide

Section 112A of the Income-tax Act, 1961 is the special-rate long-term capital gains provision for Indian-listed equity. It applies to three asset categories: equity shares listed on a recognised stock exchange in India, units of equity-oriented mutual funds, and units of a business trust — provided Securities Transaction Tax has been paid at the prescribed points of acquisition and transfer. Since 23 July 2024, the rate is 12.5 percent on long-term gains exceeding Rs 1.25 lakh in the financial year; below the threshold the tax is nil. This guide is the canonical reference for Section 112A as it stands on 30 May 2026.

Section 112A was inserted by the Finance Act, 2018 effective 1 April 2018, ending a fourteen-year regime in which long-term gains on listed Indian equity were tax-free under Section 10(38). The Finance (No. 2) Act, 2024 then rewrote the rate from 10 percent to 12.5 percent and the exemption from Rs 1 lakh to Rs 1.25 lakh, effective 23 July 2024.

For an Indian resident with a mixed portfolio of Reliance, Nifty 50 ETFs, REITs, US RSUs and direct US shares, Section 112A and Section 112 together govern the long-term gains — the Indian-listed slice falls into Section 112A; the foreign slice falls into Section 112. The companion piece What is Section 112 covers the residual foreign and non-equity universe.

Definition and statutory basis

Section 112A 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 in certain cases". Unlike Section 112, which is the residual long-term provision, Section 112A is a carve-out that applies only where three conditions are simultaneously satisfied:

1. The asset transferred is an equity share in a company listed on a recognised stock exchange in India, a unit of an equity-oriented fund, or a unit of a business trust.
2. The asset is a long-term capital asset — held for more than 12 months under Section 2(42A).
3. Securities Transaction Tax has been paid on acquisition and transfer of an equity share, or on transfer of a unit, as the case may be. Specified exceptions are notified by the Central Government.

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

1. Section 112A(1) — the charging clause identifying eligible assets and the tax rate.
2. Section 112A(2) — the Rs 1.25 lakh exemption.
3. Section 112A(3) — bars Chapter VI-A deductions.
4. Section 112A(4) — bars the Section 87A rebate.
5. Section 112A(5) and (6) — define the cost of acquisition for shares acquired on or before 31 January 2018, embedding the grandfathering rule.
6. Section 112A(7) — empowers the Central Government to notify acquisitions exempt from the STT-paid requirement.

The underlying liability arises from Section 45 read with Section 2(14), Section 2(29A) and Section 2(29B). The CBDT FAQ released on 4 February 2018 and CBDT Notification 60/2018 dated 1 October 2018 listing exempt acquisitions are persuasive but not binding.

History — three regimes for listed equity LTCG

Indian listed-equity LTCG has cycled through three regimes in the last quarter-century.

Regime 1 — Pre-1 October 2004. Long-term gains on listed equity were taxed at 10 percent without indexation or 20 percent with indexation under the predecessor Section 112, at the taxpayer's election. No STT.

Regime 2 — 1 October 2004 to 31 March 2018. The Finance (No. 2) Act, 2004 introduced STT and inserted Section 10(38), exempting long-term gains on STT-paid transactions. For nearly fourteen years an Indian resident holding listed equity for more than 12 months and selling on-exchange paid zero income-tax on the gain.

Regime 3 — 1 April 2018 onwards. The Finance Act, 2018 ended the Section 10(38) exemption and inserted Section 112A. The charge was 10 percent on long-term gains above Rs 1 lakh per financial year, with grandfathering of cost basis up to 31 January 2018 FMV. The grandfathering was the compromise that limited the retrospective sting of withdrawing a fourteen-year exemption.

Sub-regime 3A — From 23 July 2024. The Finance (No. 2) Act, 2024 raised the rate from 10 percent to 12.5 percent and the exemption from Rs 1 lakh to Rs 1.25 lakh. The grandfathering rule was untouched. For a Rs 5 lakh annual long-term gain, the change is a tax increase from Rs 40,000 to Rs 46,875.

The pre- and post-Budget-2024 regimes summarised:

Element	1 April 2018 to 22 July 2024	From 23 July 2024
Headline rate	10 percent	12.5 percent
Annual exemption threshold	Rs 1,00,000	Rs 1,25,000
Grandfathering for pre-1 Feb 2018 acquisitions	Available	Available
Indexation	Not applicable	Not applicable
Surcharge cap on LTCG	15 percent	15 percent
Health and education cess	4 percent on tax plus surcharge	4 percent on tax plus surcharge
Section 87A rebate	Not available	Not available
Chapter VI-A deductions	Not available	Not available

Transfers up to 22 July 2024 follow the old rate and the new rate applies from 23 July 2024 within the same financial year, requiring split-period reporting in Schedule CG for AY 2025-26 and a clean single-rate year for AY 2026-27 onwards.

Assets covered under Section 112A

Section 112A applies to three categories of long-term capital assets.

Equity shares listed on a recognised Indian stock exchange

The first category is an equity share in a company listed on a recognised stock exchange in India — the NSE, the BSE, or any other exchange recognised under Section 2(f) of the Securities Contracts (Regulation) Act, 1956. The share must be listed at the time of transfer. A pre-IPO holding that lists between acquisition and sale is governed by the character of the asset at the date of transfer — if the share is listed and STT is paid at sale, Section 112A applies even if the cost predates listing.

Sponsored ADRs and GDRs of Indian companies are foreign securities and fall into Section 112, not 112A, even though the underlying corporate issuer is Indian.

Units of an equity-oriented mutual fund

The second category is a unit of an equity-oriented fund. The Explanation to Section 112A defines an equity-oriented fund as one where:

1. In the case of a fund of funds, the underlying fund invests at least 90 percent of its assets in another fund that itself invests at least 90 percent in equity shares of domestic companies; or
2. In any other case, the fund invests at least 65 percent of its assets in equity shares of domestic companies.

The 65 percent equity-in-domestic-companies threshold is the single most important test for mutual fund taxation. A scheme that fails it is treated as a debt or hybrid fund under Section 112 or Section 50AA. The classification is checked at the scheme level.

International equity funds that invest in foreign markets are not equity-oriented under Section 112A even if they hold 100 percent equity, because the equity is not of domestic companies. PPFAS Flexi Cap, which holds approximately 35 percent US equity inside an Indian mutual fund wrapper, qualifies because the 65 percent Indian equity floor is met. The Motilal Oswal Nasdaq 100 Fund of Fund does not qualify. The trade-offs are unpacked in PPFAS and MOSL Nasdaq vs direct US investing.

Units of a business trust

The third category is a unit of a business trust — a SEBI-registered REIT or InvIT. Embassy Office Parks REIT, Mindspace Business Parks REIT, Brookfield India REIT, Nexus Select Trust and PowerGrid InvIT are the principal listed business trusts in 2026. Their units trade on Indian exchanges with STT, so the long-term gains fall within Section 112A. Off-exchange transfers of the same units, where STT is not paid, fall back into Section 112 — same rate, no Rs 1.25 lakh exemption.

The STT-paid requirement and notified exceptions

The defining feature of Section 112A is that Securities Transaction Tax must have been paid at both acquisition and transfer of equity shares, or at transfer of units. The condition serves as the proxy for an on-exchange transaction. Off-market transfers, where STT is not paid, fall back into Section 112.

The Central Government, recognising that several genuine acquisitions could not carry STT, exempted specified acquisitions through CBDT Notification 60/2018 dated 1 October 2018. The principal exempt acquisitions are:

1. IPOs, FPOs and new fund offers — STT is not collected at primary issuance but the resulting holding is deemed STT-paid at acquisition.
2. Bonus issues, rights issues, demergers, schemes of amalgamation, conversion of preference shares or debentures into equity.
3. Acquisitions before 1 October 2004 — the date STT was introduced.
4. ESOP shares allotted by a domestic company.
5. Acquisitions by a non-resident under FDI guidelines.
6. Acquisitions approved by the Supreme Court, High Courts, NCLT or SEBI.
7. Acquisitions under tender offers, open offers and buybacks.

Where the acquisition is covered by the notification and the eventual sale is on-exchange with STT paid, Section 112A applies. Where no exception covers the situation and STT was not paid, Section 112 governs the long-term gain.

The STT-at-transfer requirement is also relaxed for transfers on a recognised stock exchange in an IFSC such as GIFT City where the consideration is paid in foreign currency, allowing Section 112A treatment even without Indian STT.

The 12-month holding-period rule

Section 2(42A) defines a short-term capital asset by reference to a holding-period threshold that varies by asset class. For an equity share listed on a recognised Indian stock exchange, a unit of an equity-oriented fund or a unit of a business trust, the threshold is 12 months. More than 12 months produces a long-term gain; 12 months or less produces a short-term gain taxable under Section 111A at 20 percent (15 percent before 23 July 2024).

The threshold runs from the date of acquisition to the date of transfer. For IPO shares, the date of allotment is the date of acquisition. For bonus shares, the date of allotment of the bonus shares — not the original shares — is the date of acquisition. For rights shares, the allotment date applies. For ESOP shares of a listed Indian company, the date of allotment after exercise is the date of acquisition.

The contrast with the 24-month threshold for foreign equity is operationally important. A US-listed share crosses into long-term territory only at 24 months under Section 112 with no Rs 1.25 lakh exemption. The full reference is at Holding-period rules for every asset class.

The Rs 1.25 lakh annual exemption

The Rs 1.25 lakh annual exemption sits inside Section 112A(2). It is applied at the taxpayer level — not per scrip, not per asset category, not per broker. All long-term capital gains on Section 112A-eligible assets in the financial year are aggregated; the first Rs 1.25 lakh is exempt; the excess is taxed at 12.5 percent.

The exemption is fresh every financial year and cannot be carried forward — an unused Rs 50,000 in FY 2025-26 does not roll into FY 2026-27. It is not available against short-term gains under Section 111A or against Section 112 gains on foreign shares, unlisted shares, gold or immovable property.

All three Section 112A asset categories are pooled. A taxpayer with Rs 80,000 of LTCG on Reliance, Rs 60,000 on a Nifty 50 ETF and Rs 30,000 on Embassy REIT units in the same year aggregates to Rs 1,70,000, claims the Rs 1,25,000 exemption and pays 12.5 percent on the residual Rs 45,000 — Rs 5,625 before surcharge and cess.

Long-term capital losses on Section 112A assets are set off against long-term gains before the exemption is applied. The exemption protects net long-term gain, not gross.

The grandfathering rule for pre-1 February 2018 acquisitions

Section 112A(5) and (6) embed the grandfathering rule that preserves pre-Section-112A capital appreciation from retroactive taxation. The mechanics are as follows.

For an equity share, equity-oriented fund unit or business-trust unit acquired on or before 31 January 2018, the cost of acquisition for Section 112A is the higher of:

1. The actual cost of acquisition; and
2. The lower of (a) the fair market value of the asset on 31 January 2018 and (b) the full value of consideration received on transfer.

Gains accrued up to 31 January 2018 are protected, gains accrued thereafter are taxed, and a paper loss cannot be manufactured by stepping up to FMV when actual sale consideration is lower.

For listed shares, the 31 January 2018 fair market value is the highest quoted price on a recognised stock exchange on that date; where the share was not traded that day, the immediately preceding trading day's high is used. For units, the NAV or quoted price on 31 January 2018 applies.

A worked illustration. A taxpayer bought 100 shares of Hindustan Unilever in 2010 at Rs 200, the 31 January 2018 high was Rs 1,350, and sale takes place in March 2026.

Scenario	Sale price	Actual cost	31 Jan 2018 FMV	Section 112A cost basis
A — Sale at Rs 2,400	Rs 2,400	Rs 200	Rs 1,350	Rs 1,350
B — Sale at Rs 1,000	Rs 1,000	Rs 200	Rs 1,350	Rs 1,000
C — Sale at Rs 150	Rs 150	Rs 200	Rs 1,350	Rs 200
D — Sale at Rs 1,400	Rs 1,400	Rs 200	Rs 1,350	Rs 1,350

In Scenario A the grandfathering bites fully — taxable gain is Rs 1,050 per share rather than Rs 2,200. In Scenario B the price has fallen below the 31 January 2018 FMV; the cost basis is capped at the sale price, producing zero gain rather than a paper loss. In Scenario C the share has fallen below the original 2010 cost; the grandfathering does not manufacture a deeper loss. Scenario D is the normal grandfathered case.

The rule applies only to acquisitions on or before 31 January 2018. Anything bought from 1 February 2018 onwards uses ordinary actual-cost. The grandfathering window is closing in relevance but still matters for pre-2018 long-hold positions in legacy blue-chip portfolios.

Section 112A vs Section 112 vs Section 111A — the canonical comparison

The three special-rate capital gains sections together exhaust the entire Indian capital gains landscape. They are frequently confused, especially after Budget 2024 touched all three.

Element	Section 111A	Section 112A	Section 112
Nature of gain	Short-term	Long-term	Long-term
Asset universe	Indian listed equity, equity-oriented MFs, business-trust units with STT	Indian listed equity, equity-oriented 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 12 months (listed Indian non-equity) or more than 24 months (everything else)
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
Grandfathering	Not relevant	Pre-1 Feb 2018 acquisitions at higher of cost or 31 Jan 2018 FMV	Immovable property only, pre-22 Jul 2024 acquisitions for resident individuals and HUFs
Indexation	Not applicable	Not applicable	Removed except immovable property grandfathering
STT required	Yes	Yes	Not relevant
Foreign equity covered	No — foreign STCG goes to slab rates	No	Yes — foreign LTCG is the principal use case
Surcharge cap on this component	15 percent	15 percent	15 percent
Section 87A rebate	Available against tax on this component	Not available	Not available
Chapter VI-A deductions	Available	Not available	Not available

The decision tree for any capital gains transaction by an Indian resident is:

1. Is the asset Indian listed equity, an equity-oriented mutual fund unit or a business-trust unit with STT paid at acquisition and transfer? If yes, go to step 2. If no, go to step 3.
2. Held for more than 12 months? Yes — Section 112A at 12.5 percent above Rs 1.25 lakh. No — Section 111A at 20 percent.
3. Long-term under the applicable threshold (12 months for listed Indian non-equity, 24 months for everything else)? Yes — Section 112 at 12.5 percent without any exemption. No — slab rates.

A portfolio mixing Reliance, an HDFC Top 100 fund, Embassy REIT units, US RSUs, US ESPP shares, an SBI gilt fund and a Pune flat will simultaneously deploy Section 111A, Section 112A and Section 112 in the same return — one section per transaction.

Worked example — Indian-listed Reliance shares

A resident individual for AY 2026-27 buys 500 shares of Reliance Industries on 15 March 2024 at Rs 2,900 per share through a SEBI-registered Indian broker, STT paid. The shares are sold on 1 December 2025 at Rs 3,400 per share, STT paid. There are no other Section 112A gains in FY 2025-26.

Step 1 — Holding period. From 15 March 2024 to 1 December 2025 is more than 20 months. The gain is long-term and falls within Section 112A.

Step 2 — STT condition. STT was paid at both legs on a recognised Indian exchange. Satisfied.

Step 3 — Cost of acquisition. 500 multiplied by Rs 2,900 equals Rs 14,50,000. Post-1 February 2018, so the grandfathering rule does not apply.

Step 4 — Full value of consideration. 500 multiplied by Rs 3,400 equals Rs 17,00,000.

Step 5 — Long-term capital gain. Rs 17,00,000 minus Rs 14,50,000 equals Rs 2,50,000.

Step 6 — Section 112A exemption. Taxable LTCG is Rs 2,50,000 minus Rs 1,25,000 equals Rs 1,25,000.

Step 7 — Tax. 12.5 percent of Rs 1,25,000 equals Rs 15,625. Assuming 10 percent surcharge, surcharge of Rs 1,562 is added; cess at 4 percent on tax plus surcharge is Rs 687. Total: Rs 17,874.

Step 8 — Reporting. Reported in Schedule CG of ITR-2 in the Section 112A column, with scrip-wise ISIN, units, sale value, cost and gain. The schedule auto-populates from broker reports, but the taxpayer remains liable for any mismatch.

Under the pre-23 July 2024 regime — 10 percent above Rs 1 lakh — the same transaction would have produced Rs 15,000 of basic tax. The Rs 25,000 exemption uplift offset only part of the 250-basis-point rate increase.

Why foreign equity is excluded from Section 112A

Section 112A applies only to equity shares listed on a recognised stock exchange in India. The definition is explicit and exhaustive. A share of Apple, Microsoft, Nvidia, Tesla, Meta or any other US-listed company is not an Indian listed equity share, regardless of whether the Indian investor bought it through Vested or through an Indian mutual fund's overseas allocation.

Three consequences follow.

No Rs 1.25 lakh exemption. Long-term gains on US equity fall into Section 112. The first rupee is taxable.

Longer holding period. US equity must be held for more than 24 months to qualify as long-term. Indian listed equity qualifies after 12 months. A US share sold in month 13 is short-term at slab rates; the equivalent Indian share would have been long-term at 12.5 percent.

Different reporting trail. Indian equity gains are reported in Schedule CG auto-populated from broker reports. Foreign equity gains are reported in Schedule CG separately as long-term other than STT-paid equity, and the underlying foreign holdings must additionally be disclosed in Schedule FA. Both the gain and the asset must be reported.

The asymmetry is deliberate. Section 112A is the policy reward for on-exchange domestic equity participation through STT-paid channels. Foreign equity, accessed via LRS, does not receive that reward — but it is also not subject to STT. See PPFAS and MOSL Nasdaq vs direct US investing and the US investing hub.

Tax-loss harvesting and loss set-off

Section 74 governs capital loss set-off. Long-term losses can be set off only against long-term gains; short-term losses can be set off against both. Unabsorbed long-term losses carry forward for eight assessment years.

A long-term loss on one Section 112A asset can be set off against a long-term gain on another Section 112A asset, or against a Section 112 long-term gain on foreign equity, gold or unlisted shares. The set-off happens before the Rs 1.25 lakh exemption is applied.

Worked illustration. An investor has Rs 3,00,000 of long-term gain on Reliance, Rs 80,000 of long-term loss on TCS (both Section 112A) and Rs 1,50,000 of long-term gain on Apple shares (Section 112). The Rs 80,000 loss is set off first, leaving Rs 2,20,000 of Section 112A gain and Rs 1,50,000 of Section 112 gain. The Rs 1.25 lakh exemption reduces the Section 112A portion to Rs 95,000. Tax is 12.5 percent of Rs 95,000 plus 12.5 percent of Rs 1,50,000 — Rs 11,875 plus Rs 18,750 — for Rs 30,625 before surcharge and cess.

Until Budget 2018 there was confusion about whether long-term losses on Section 112A assets even existed, because Section 10(38) had previously exempted the corresponding gains. CBDT clarified in 2018 that losses on grandfathered shares are recognised under the grandfathered cost-basis rule. Full mechanics for a mixed Indian and US book are in the RSU lot selection tax-loss harvesting guide.

Special features and edge cases

Buyback of shares

Until 30 September 2024 buybacks by Indian listed companies attracted buyback distribution tax under Section 115QA at the company level, and the shareholder received the proceeds tax-free under Section 10(34A). The Finance (No. 2) Act, 2024 reversed this from 1 October 2024 — the company no longer pays buyback distribution tax, and the shareholder is taxed on the consideration as a deemed dividend under Section 2(22)(f), with cost of acquisition recognised as a capital loss. A buyback on or after 1 October 2024 generates a Section 112A-eligible capital loss in the shareholder's hands.

Bonus stripping and dividend stripping

Sections 94(7) and 94(8) disregard losses on shares or units acquired within three months before and sold within three months after a bonus or dividend record date, to the extent of the bonus or dividend received. The provision reduces the loss available for set-off under Section 74. Investors using STPs into Section 112A-eligible schemes around dividend record dates should map the timing.

Switch between mutual fund schemes

A switch between schemes — including regular to direct, or growth to IDCW — is a redemption plus fresh purchase for tax purposes. A switch out of an equity-oriented fund held for more than 12 months crystallises a Section 112A gain. The most common retail filing error is treating an intra-AMC switch as a non-event because no cash flowed.

Section 115AD overlay for FPIs

Section 115AD prescribes special rates for FIIs and specified FPIs; the same 12.5 percent rate and Rs 1.25 lakh exemption govern the long-term gain on listed equity from 23 July 2024. Resident individuals do not use Section 115AD.

Tools

• US capital gains calculator — illustrates the contrast between Section 112 and Section 112A treatment for a mixed Indian and US equity portfolio.
• Holding-period checker — confirms whether a specific Indian or foreign equity lot has crossed the relevant threshold to qualify as a long-term asset under Section 112A or Section 112.

Related concepts

• What is Section 112 — the residual long-term capital gains provision for foreign equity, unlisted Indian shares, gold and immovable property.
• Holding-period rules for every asset class — the full reference table comparing 12-month, 24-month and slab-rate thresholds across Indian and foreign assets.
• PPFAS and MOSL Nasdaq vs direct US investing — when an Indian mutual fund wrapper that qualifies under Section 112A beats direct US investing under Section 112.
• US investing hub — the canonical entry point for resident Indians investing in US securities under LRS.

Frequently asked questions

Does Section 112A apply to Nifty 50 or Sensex ETFs?

Yes. Index ETFs from major Indian asset managers hold more than 65 percent in domestic equity, qualify as equity-oriented funds and trade on the NSE or BSE with STT paid. Long-term gains beyond 12 months and above Rs 1.25 lakh are taxed at 12.5 percent.

Does Section 112A apply to international ETFs listed on Indian exchanges?

No. The Motilal Oswal Nasdaq 100 ETF, for example, invests in US equity through a feeder. The underlying is not Indian equity, the 65 percent domestic-equity test fails, and units are taxed under Section 112 at 12.5 percent without the Rs 1.25 lakh exemption after 24 months. The Indian wrapper does not change the underlying classification.

What surcharge applies on Section 112A long-term gains?

Surcharge is at the slab applicable to the taxpayer, capped at 15 percent on the LTCG component. Cess at 4 percent is added on tax plus surcharge. The maximum effective rate is approximately 14.95 percent — 12.5 percent multiplied by 1.15 multiplied by 1.04.

Can I claim Section 80C deduction against Section 112A gains?

No. Section 112A(3) bars Chapter VI-A deductions — Section 80C, 80D, 80G and similar — against the gain. Chapter VI-A continues to apply against ordinary slab-rate income.

Does the basic exemption limit shield Section 112A gain?

For a resident individual whose total income is below the basic exemption limit of Rs 2.5 lakh (old regime) or Rs 3 lakh (new regime), the shortfall can be set off against Section 112A LTCG exceeding Rs 1.25 lakh before the 12.5 percent rate is applied. Available only to residents.

Are dividends on Section 112A-eligible shares covered by this section?

No. Section 112A applies only to capital gains. Dividends are taxed as ordinary income at slab rates under Section 56(2) after the abolition of DDT by the Finance Act, 2020, with TDS at 10 percent for dividends above Rs 5,000 per year.

Do I need to file ITR-2 if my only LTCG is below Rs 1.25 lakh?

If the gain is below the Rs 1.25 lakh exemption it is not chargeable to tax. But if other reporting obligations apply — Schedule FA foreign assets, multiple house properties, or any capital gain — ITR-2 is required. ITR-1 does not accommodate capital gains reporting.

What changes for AY 2026-27 returns specifically?

AY 2026-27 covers FY 2025-26 — the first full year after the 23 July 2024 rate change, with no split-period computation. The rate is 12.5 percent throughout, exemption Rs 1.25 lakh throughout. Scrip-wise reporting in Schedule CG continues, auto-populated from broker statements. Grandfathering still applies to any pre-1 February 2018 acquisition disposed of in the year.