Understanding LTCG Tax Rates: Section 112 vs 112A Explained

Learn about LTCG tax rates under Sections 112 and 112A, including key distinctions for investors.

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Long-term Capital Gains (LTCG) under Section 112 are taxed at 20% with the benefit of indexation, while under Section 112A, LTCG exceeding ₹1 lakh on listed equity shares and equity-oriented mutual funds are taxed at 10% without the benefit of indexation. This distinction helps investors understand the applicable tax rates based on the type of investment held.

FAQs & Answers

  1. What is Long-term Capital Gains (LTCG)? Long-term Capital Gains (LTCG) refer to the profit earned from the sale of a capital asset that has been held for more than 12 months. These gains are subject to taxation under specific sections of the Income Tax Act in India.
  2. How do tax rates differ between Section 112 and Section 112A? Under Section 112, LTCG is taxed at a rate of 20% with indexation benefits, while Section 112A imposes a 10% tax on LTCG exceeding ₹1 lakh for listed equity shares and equity-oriented mutual funds without indexation benefits.
  3. What is the significance of indexation in LTCG taxation? Indexation adjusts the purchase price of an asset for inflation, allowing taxpayers to calculate their capital gains based on a higher adjusted base cost, which can effectively reduce the amount of taxable income derived from the sale of the asset.
  4. When should I consider selling my investments to minimize tax impact on LTCG? To minimize tax impact on LTCG, consider selling investments after holding them for more than a year for Section 112 benefits, or keep track of your gains to avoid exceeding the ₹1 lakh threshold for the 10% tax under Section 112A.

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