Section 112A of income tax act taxes long term gains on listed shares and equity mutual funds at 12.5%, but only on the part of the year's gains above ₹1.25 lakh. Short term gains on the same assets fall under section 111A at 20%, and long term gains on everything else, such as property, gold or unlisted shares, fall under section 112 at 12.5% without indexation.
These rates apply to transfers made from 23 July 2024, which covers all of FY 2025-26. This hub explains how a gain is computed, how long you must hold each asset, where indexation still survives, how mutual funds are treated and which return to file, then points to the detailed pages in this section.
Quick facts
STCG on listed equity (111A)
20%LTCG on listed equity (112A)
12.5% above ₹1.25 lakh a yearOther LTCG (112)
12.5% without indexationLong term after
12 months listed securities; 24 months othersIndexation option
Land or building bought before 23 July 2024, resident individual or HUF: 20% with indexationCII
376 for FY 2025-26; 384 for tax year 2026-27Return form
ITR-2, or ITR-3 with business income
Capital gains tax rates at a glance
| Asset | Short term if held | STCG rate | LTCG rate |
|---|---|---|---|
| Listed shares, equity mutual funds, business trust units (STT paid) | 12 months or less | 20% (111A) | 12.5% above ₹1.25 lakh (112A) |
| Land, building, house | 24 months or less | Slab rate | 12.5%; or 20% with indexation if bought before 23 July 2024 (resident individual or HUF) |
| Unlisted shares, gold, jewellery | 24 months or less | Slab rate | 12.5% without indexation (112) |
| Listed bonds and debentures | 12 months or less | Slab rate | 12.5% without indexation |
| Debt fund units bought from FY 2023-24 onward | Any period | Slab rate | Not available; always treated as short term |
Surcharge on 111A, 112 and 112A gains is capped at 15%, and 4% cess is added on top.
How section 112A of income tax act works
Section 112A applies when three things are true: the asset is a listed equity share, a unit of an equity oriented fund or a unit of a business trust; it was held for more than 12 months; and securities transaction tax was paid as the law requires. The first ₹1.25 lakh of such gains in a year is free. The rest is taxed at 12.5%, with no indexation.
Gains are reported scrip by scrip in Schedule 112A of the return. Two points are often missed. The 87A rebate cannot be used against this tax. But a resident individual whose other income is below the basic exemption limit can use the unused part of that limit against these gains.
Shares sold in FY 2025-26. Rohan sells listed shares held for three years at a gain of ₹3,00,000, and shares held for eight months at a gain of ₹1,00,000. His salary already fills the basic limit.
- LTCG under 112A: ₹3,00,000 minus ₹1,25,000 = ₹1,75,000 × 12.5% = ₹21,875.
- STCG under 111A: ₹1,00,000 × 20% = ₹20,000.
- Total ₹41,875; cess 4% = ₹1,675. Tax on gains ₹43,550.
Section 111A and section 112 of income tax act
Section 111A covers short term gains on listed shares and equity funds where STT was paid. The rate is a flat 20%, whatever your slab. Short term gains on other assets, like a flat held for 18 months, are simply added to your total income and taxed at whatever slab rate applies to you.
Section 112 is the general rule for long term gains on assets outside 112A: property, gold, unlisted shares, listed bonds and foreign shares. The rate is 12.5% without indexation. For land or a building that a resident individual or HUF bought before 23 July 2024, the tax is the lower of 12.5% without indexation and 20% with indexation.
Section 48 of income tax act: computing the gain
Section 48 gives the method. Start with the full sale value. Subtract expenses wholly for the transfer, such as brokerage or legal fees. Subtract the cost of acquisition and any cost of improvement. The balance is the gain. Where indexation is allowed, cost is raised by the ratio of the cost inflation index for the year of sale to the index for the year of purchase (or FY 2001-02, if the asset was bought earlier).
| Year | CII |
|---|---|
| FY 2001-02 (base year) | 100 |
| FY 2016-17 | 264 |
| FY 2020-21 | 301 |
| FY 2023-24 | 348 |
| FY 2024-25 | 363 |
| FY 2025-26 | 376 |
| Tax year 2026-27 | 384 |
Income tax on mutual funds
Equity funds, those with at least 65% in Indian listed shares, follow the share rules: 20% short term, 12.5% long term above ₹1.25 lakh after 12 months. Units of specified debt funds bought from FY 2023-24 onward are always taxed at slab rates, however long you hold them. Debt fund units bought earlier keep the older treatment: long term after 24 months at 12.5% without indexation. Hybrid funds need a check of their equity share before you decide the rate.
ITR form for capital gain, and how losses are set off
Use ITR-2 if you have capital gains and no business income, and ITR-3 if you also have business or professional income. From AY 2025-26, ITR-1 and ITR-4 also allow long term gains under 112A of up to ₹1.25 lakh where there is no loss to carry forward. A short term loss can be set off against short or long term gains; a long term loss only against long term gains. Unused losses can be carried forward for eight years if the return is filed on time.
Capital gains under the Income-tax Act, 2025
Sales made on or after 1 April 2026 are taxed under the Income-tax Act, 2025 in tax year 2026-27. The rates, the ₹1.25 lakh free limit and the holding periods continue, with new section numbers in place of 111A, 112 and 112A. The cost inflation index for tax year 2026-27 has been notified as 384. Gains from sales made in FY 2025-26 stay under the 1961 Act and are reported in the return for AY 2026-27. See the 2025 Act overview for how sections were renumbered.
Pages in this section
| Page | What it answers |
|---|---|
| Income tax calculator | Slab tax, rebate, cess and monthly TDS on your normal income |
| Section 54 and 54F | How buying a house, bonds or farm land shelters a gain |
| Depreciation rates | Block rates and the short term gain rule on selling business assets |
| HRA exemption | Exempt part of house rent allowance for tenants |
| Gratuity tax | Tax free limits on gratuity and leave encashment |
Errors in capital gains returns
| Slip | Fix |
|---|---|
| Claiming 87A rebate against 112A tax | The rebate does not apply to special rate gains |
| Using indexation on shares or gold | Indexation survives only for land or buildings bought before 23 July 2024 |
| Filing ITR-1 with short term share gains | Move to ITR-2 or ITR-3 |
| Missing the scrip wise Schedule 112A | Report each sale or use the summary allowed by the utility |
Capital gains depend on dates, prices and the type of asset, and this hub states only the general rules. Ask a chartered accountant to check a large sale, and confirm figures through the e-filing portal at incometax.gov.in.
Sources we checked
- Income-tax Act, 1961, sections 48, 111A, 112 and 112A
- Finance (No. 2) Act, 2024
- CBDT notifications on cost inflation index
- Income-tax Act, 2025
Frequently asked questions
What is section 112A of income tax act?
It taxes long term gains on listed equity shares, equity funds and business trust units at 12.5% on the part above ₹1.25 lakh a year, for transfers from 23 July 2024. STT must have been paid.
What is the tax on short term capital gain on shares?
Under section 111A, short term gains on listed shares and equity funds are taxed at 20% plus cess. Other short term gains are added to income and taxed at slab rates.
Is indexation still allowed in income tax?
Only as an option for land or buildings bought before 23 July 2024 by a resident individual or HUF, who can pay the lower of 12.5% without indexation and 20% with it.
What is the CII for FY 2025-26?
The cost inflation index is 376 for FY 2025-26. For tax year 2026-27 it has been notified as 384.
Which ITR form is used for capital gains?
ITR-2 if you have no business income, ITR-3 if you do. ITR-1 and ITR-4 allow only 112A gains up to ₹1.25 lakh with no loss to carry forward.
What is the full form of CII in income tax?
CII stands for cost inflation index. It is the number used to raise the purchase cost for inflation where indexation is allowed.