Section 112: Tax on Long Term Capital Gain

Section 112 of the Income Tax Act governs the taxation of long-term capital gains arising from specified capital assets such as property, unlisted shares, bonds, and certain securities that are not covered under Section 112A. The applicable tax rate generally ranges from 12.5% to the prescribed rate depending on the nature of the asset and taxpayer category.

In this comprehensive guide, we explain the latest Section 112 provisions, tax rates, exemptions, NRI implications, DTAA benefits, and tax-saving opportunities for FY 2025-26.

Section 112 at a Glance

Particulars	Details
Applicable Provision	Section 112 of Income Tax Act
Tax Type	Long-Term Capital Gains (LTCG)
Applicable To	Residents, NRIs, HUFs, Firms, LLPs, Companies
Covered Assets	Property, Bonds, Debentures, Unlisted Shares, Certain Securities
Tax Rate	12.5% or applicable rate depending on asset type
Indexation Benefit	Available only in specific situations
Exemptions Available	Section 54, 54EC, 54F, 54B, 54GB
ITR Forms	ITR-2, ITR-3
Capital Loss Set-Off	Allowed against LTCG only

What Is Section 112 of the Income Tax Act?

Section 112 of the Income Tax Act provides the tax rules for long-term capital gains arising from the transfer of specified long-term capital assets that are not covered under Section 112A.

In simple terms, if you sell certain assets after holding them for the prescribed period and earn a profit, the gain may be taxable under Section 112.

Quick Definition

Section 112 governs taxation of long-term capital gains on specified assets such as immovable property, listed securities, unlisted shares, and zero-coupon bonds that are not covered under Section 112A.

Latest Budget Updates Affecting Section 112

Recent capital gains tax reforms have significantly changed how long-term capital gains are taxed in India.

Rationalization of Holding Periods

The government streamlined asset classification into two primary holding periods:

Asset Category	Long-Term Holding Period
Listed Securities and Equity Investments	More than 12 Months
Immovable Property, Unlisted Shares and Most Other Assets	More than 24 Months

The earlier 36-month holding period has been removed.

Impact on Taxpayers

These changes simplify capital gains taxation and make it easier for taxpayers to determine whether gains qualify as short-term or long-term capital gains.

Taxpayers should review the latest capital gains provisions before computing tax liability, especially for property transactions, securities, and unlisted shares.

Who Is Covered Under Section 112?

Section 112 applies to:

• Resident Individuals

• Non-Resident Indians (NRIs)

• Hindu Undivided Families (HUFs)

• Partnership Firms

• Limited Liability Partnerships (LLPs)

• Domestic Companies

• Foreign Companies

• Trusts and Other Taxable Entities

Assets Covered Under Section 112

The following long-term capital assets are generally taxable under Section 112:

Asset Type	Covered Under Section 112
Listed Securities (other than Section 112A assets)	Yes
Zero-Coupon Bonds	Yes
Unlisted Shares	Yes
Unlisted Securities	Yes
Immovable Property	Yes
Debentures	Yes
Government Securities	Yes
Gold Bonds (where applicable)	Yes
Other Long-Term Capital Assets	Yes

Assets Covered Under Section 112A Instead

Section 112A specifically applies to:

Asset Type	Covered Under Section 112A
Listed Equity Shares	Yes
Equity-Oriented Mutual Funds	Yes
Units of Business Trusts	Yes

Provided the applicable Securities Transaction Tax (STT) conditions are satisfied.

Holding Period for Long-Term Capital Assets

The classification of assets as long-term or short-term depends on the holding period.

Asset Type	Long-Term Asset	Short-Term Asset
Listed Equity Shares	More than 12 months	Up to 12 months
Equity Mutual Funds	More than 12 months	Up to 12 months
Listed Securities	More than 12 months	Up to 12 months
Unlisted Shares	More than 24 months	Up to 24 months
Immovable Property	More than 24 months	Up to 24 months

Tax Rates Under Section 112

The tax rate under Section 112 depends on the nature of the long-term capital asset and the taxpayer's residential status.

Asset Type	Tax Rate
Listed Securities (other than assets covered under Section 112A)	12.5%
Zero-Coupon Bonds	12.5%
Unlisted Shares and Securities (for eligible NRIs)	12.5%
Immovable Property	12.5% without indexation (subject to applicable provisions)
Other Long-Term Capital Assets	As prescribed under the Income Tax Act

Important Points

• The ₹1.25 lakh annual exemption available under Section 112A does not apply to Section 112.

• Health and Education Cess at 4% applies in addition to the tax.

• Surcharge may apply depending on the taxpayer's total income.

• NRIs may also claim DTAA relief where applicable.

Before calculating tax liability, taxpayers should verify whether the asset falls under Section 112 or Section 112A, as different tax rates and exemptions may apply.

How to Calculate Tax Liability Under Section 112

Follow these steps:

Step 1: Calculate Sale Consideration

Determine the amount received from the sale of the asset.

Step 2: Deduct Eligible Costs

Subtract:

• Cost of acquisition

• Cost of improvement (where applicable)

• Transfer expenses

Step 3: Compute Long-Term Capital Gain

LTCG = Sale Value – Eligible Deductions

Step 4: Claim Eligible Exemptions

Reduce exemptions claimed under:

• Section 54

• Section 54EC

• Section 54F

• Other applicable provisions

Step 5: Calculate Tax

Apply the applicable LTCG tax rate under Section 112.

Step 6: Add Surcharge and Cess

Add applicable surcharge and 4% health and education cess.

Examples of LTCG Tax Calculation

Example 1: Resident Selling Property

Mr. A sells a residential property.

Particulars	Amount
Sale Price	₹80,00,000
Cost of Acquisition	₹50,00,000
LTCG	₹30,00,000

Tax is calculated on the net taxable capital gain after claiming eligible exemptions.

Example 2: NRI Selling Property

An NRI sells a property in India and earns LTCG of ₹40 lakh.

The buyer may deduct TDS under Section 195. The NRI can:

• Apply for a lower TDS certificate

• Claim exemptions

• Claim DTAA relief if eligible

• Adjust actual tax liability while filing ITR

Example 3: Sale of Unlisted Shares

If an NRI sells unlisted shares after the prescribed holding period, the gains may qualify as long-term capital gains taxable under Section 112.

Example 4: Capital Loss Adjustment

If a taxpayer earns:

• LTCG = ₹10 lakh

• LTCL = ₹4 lakh

Taxable LTCG becomes:

₹10 lakh − ₹4 lakh = ₹6 lakh

Section 112 for NRIs

Section 112 is particularly relevant for Non-Resident Indians (NRIs) who earn long-term capital gains from assets located in India.

Common transactions include:

• Sale of residential property

• Sale of commercial property

• Transfer of inherited property

• Sale of gifted property

• Sale of unlisted shares

• Sale of bonds and securities

TDS on Property Sale by NRIs

When an NRI sells property in India, the buyer is generally required to deduct TDS under Section 195 of the Income Tax Act.

In many cases, the TDS deducted may be significantly higher than the actual tax liability.

Can NRIs Apply for Lower TDS Deduction?

Yes. NRIs can apply for a Lower Deduction Certificate through Form 13.

Benefits include:

• Reduced TDS deduction

• Improved cash flow

• Faster access to sale proceeds

• Lower refund dependency

DTAA Benefits for NRIs

NRIs may be eligible to claim benefits under the Double Taxation Avoidance Agreement (DTAA) between India and their country of residence.

Subject to treaty provisions, NRIs may:

• Avoid double taxation

• Claim foreign tax credit

• Reduce overall tax burden

Repatriation of Sale Proceeds

After paying applicable taxes and complying with FEMA regulations, NRIs may repatriate eligible sale proceeds outside India through authorized banking channels.

Professional tax planning can help NRIs optimize TDS, exemptions, DTAA benefits, and repatriation procedures.

Exemptions Available Against LTCG Under Section 112

Several exemptions can help reduce or eliminate tax liability.

Section 54

Available when capital gains from a residential property are invested in another residential property within prescribed timelines.

Section 54EC

Available when LTCG is invested in specified capital gains bonds within the prescribed period.

Section 54F

Applicable when capital gains from certain assets are invested in a residential house property.

Section 54B

Available for capital gains arising from the transfer of agricultural land subject to conditions.

Section 54GB

Provides relief where eligible gains are invested in specified businesses or startups, subject to prescribed conditions.

Set-Off and Carry Forward of Long-Term Capital Losses

Set-Off Rules

Long-term capital loss can be adjusted only against long-term capital gains.

It cannot be adjusted against:

• Salary income

• Business income

• House property income

• Short-term capital gains taxable under certain provisions

Carry Forward Rules

Unabsorbed LTCL may be carried forward for up to 8 assessment years, subject to timely filing of the income tax return.

Reporting Section 112 Capital Gains in ITR

Long-term capital gains under Section 112 are generally reported in:

ITR-2

Applicable for individuals and HUFs without business income.

ITR-3

Applicable for taxpayers having business or professional income.

Information Required

• Sale consideration

• Cost of acquisition

• Cost of improvement

• Transfer expenses

• Exemptions claimed

• Capital loss adjustments

The gains are reported under Schedule CG of the income tax return.

Section 112 vs Section 112A vs Section 111A

Particulars	Section 112	Section 112A	Section 111A
Nature of Gain	Long-Term Capital Gain	Long-Term Capital Gain	Short-Term Capital Gain
Assets Covered	Property, Bonds, Unlisted Shares	Listed Equity Investments	Listed Equity Transactions
STT Requirement	Generally Not Mandatory	Mandatory	Mandatory
Exemption Threshold	No ₹1.25 Lakh Benefit	Available Subject to Conditions	Not Applicable
Tax Category	LTCG	LTCG	STCG
Applies To	Residents & NRIs	Residents & NRIs	Residents & NRIs

Common Mistakes Taxpayers Make Under Section 112

Avoid these common errors:

• Incorrectly classifying assets as long-term or short-term

• Ignoring available exemptions

• Not claiming DTAA benefits

• Incorrect cost calculation

• Missing capital loss adjustments

• Incorrect ITR reporting

• Not applying for lower TDS certificates

• Failing to maintain supporting documents

Final Thoughts

Section 112 plays a crucial role in determining the taxation of long-term capital gains on property, securities, unlisted shares, bonds, and other capital assets. Understanding the applicable tax rates, exemptions, reporting requirements, and NRI-specific provisions can help taxpayers reduce errors and optimize their tax position.

For NRIs, proper planning around TDS, DTAA relief, capital gains exemptions, and repatriation can significantly improve tax efficiency and compliance.

Need Help Calculating Capital Gains Tax?

Whether you're selling property in India, transferring unlisted shares, claiming DTAA benefits, or filing your tax return, SaveTaxs experts can help you accurately calculate capital gains, claim eligible exemptions, and stay fully compliant with Indian tax laws.