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For an eligible sale of listed equity shares made on or after 23 July 2024, calculate the gain from the actual sale value, subtract the FIFO-matched purchase cost and eligible transfer expenses (but not STT), combine all eligible Section 112A gains for the financial year, and tax the amount above the single ₹1,25,000 annual threshold at 12.5%. Surcharge and health-and-education cess may then apply according to your status and total income.
The calculation changes if the shares were held for 12 months or less, the transaction does not meet Section 112A conditions, the transfer occurred before 23 July 2024, or the activity is classified as business income. The steps below show how to classify each sale, match demat lots, compute the gain and prepare the records needed for filing.
What counts as long-term equity gain?
For listed equity shares, the long-term holding period is at least 12 months. The CBDT’s official FAQ states: “The holding period of all listed assets will be now one year.” Count the period for each matched purchase lot separately; a single sale can contain shares bought on different dates and therefore can produce both short-term and long-term portions.
Section 112A applies to an equity share in a company, a unit of an equity-oriented fund or a unit of a business trust when the statutory securities transaction tax (STT) conditions are satisfied. For equity shares, STT is generally required on acquisition as well as on transfer, subject to notified exceptions. A gain is not automatically a Section 112A gain merely because the security is listed or because a broker charged STT.
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Classification checks before doing arithmetic
- Security: Confirm that the asset is a listed equity share, an equity-oriented fund unit or a business-trust unit covered by Section 112A.
- Holding period: Determine whether every FIFO-matched lot was held for more than 12 months.
- STT: Check the acquisition and transfer conditions, including any notified exception that applies to your transaction.
- Transfer date: Use the rule in force on the date of transfer. The 23 July 2024 change is not a purchase-date change.
- Income character: Unlisted shares, derivatives, intraday trades and transactions treated as business income use different provisions and should not be put into a Section 112A worksheet.
Rates and exemption limits by transfer date
The 2024 reform applies a different rate and threshold to transfers on or after 23 July 2024. Historical sales before that date retain the rules that applied at the time. Keep the two periods separate when reviewing a financial year that contains both kinds of sale.
| Transfer date | Section 112A long-term rate | Annual threshold | Indexation | How to handle it |
|---|---|---|---|---|
| Before 23 July 2024 | 10% | ₹1,00,000 | Use the rules applicable before the reform | Calculate under the contemporaneous provisions; do not apply the post-change rate or threshold. |
| On or after 23 July 2024 | 12.5% | ₹1,25,000 | No indexation; use actual cost | Aggregate eligible Section 112A gains for the financial year, then tax the excess over ₹1,25,000. |
The CBDT FAQ says the increased exemption limit applies for FY 2024-25 and subsequent years. Because FY 2024-25 includes dates both before and after 23 July 2024, identify each sale by its transfer date and preserve separate working papers rather than applying one blended rate.
The calculation in one formula
For each eligible FIFO-matched lot transferred on or after 23 July 2024:
Long-term gain = sale consideration − eligible transfer expenses − original acquisition cost
Eligible expenses must be wholly connected with the transfer, such as brokerage and similar transfer-related charges. STT is not deductible from the gain. Post-23 July 2024 calculations use the actual acquisition cost; do not inflate that cost using an indexation table.
After calculating every eligible lot, add the gains for the financial year:
Taxable Section 112A excess = aggregate eligible long-term gain − ₹1,25,000
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Step-by-step method for a demat account
1. Build a complete sale list
Start with every sale of potentially eligible listed equity shares during the financial year. Record the trade date, settlement or transfer details shown by the broker, quantity, sale value, brokerage and other transfer-connected charges, STT and the security identifier. Include sales from all demat accounts and brokers so the ₹1,25,000 threshold is not applied separately to each account.
2. Match each sale using FIFO
Demat lots are matched on a first-in-first-out basis. The earliest shares credited to the account are treated as sold first. If you bought 100 shares in January and another 100 in September, a sale of 150 shares is matched to the January lot first and then to 50 shares from the September lot. The holding period and acquisition cost must be tested for each resulting portion.
Do not substitute the date shown on a later contract note for the original acquisition date. Retain purchase contract notes, broker capital-gains statements and any records showing when each lot was credited. Corporate actions or transfers between accounts can make the broker’s default lot report important to review; resolve discrepancies before filing.
3. Test the 12-month period for every matched portion
Compare the relevant acquisition date with the transfer date. A portion held for more than 12 months can be long term, while a portion from a newer FIFO lot can be short term in the same sale. Short-term portions do not belong in the Section 112A long-term worksheet and must be dealt with under the applicable short-term rules.
4. Verify Section 112A conditions
For each portion that passes the holding-period test, verify that the asset is covered by Section 112A and that the required STT conditions are met. For equity shares, this generally means STT on acquisition and transfer, subject to notified exceptions. Keep evidence of any exception rather than assuming that a listed-market purchase qualifies.
5. Compute the gain for each lot
Use the sale consideration attributable to the matched quantity. Subtract the original purchase cost and eligible transfer expenses. Brokerage and similar costs that are wholly connected with the transfer can be deducted. Do not subtract STT, even though it appears as a separate debit on the contract note.
6. Aggregate the year’s eligible gains
Add all eligible Section 112A long-term gains for the relevant financial year after completing the lot-level calculations. The ₹1,25,000 limit is an annual aggregate, so a ₹90,000 gain on one company and a ₹70,000 gain on another produce ₹1,60,000 of aggregate gain and leave ₹35,000 taxable at the special rate, before any taxpayer-specific adjustments.
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Subtract ₹1,25,000 from the aggregate post-23 July 2024 gain. Multiply the positive balance by 12.5%. Then combine that base tax with tax calculated on other income and apply any surcharge and health-and-education cess that your filing position requires.
8. Reconcile the result before filing
Compare your worksheet with the broker’s capital-gains statement, Form 26AS and the Annual Information Statement (AIS). Investigate differences in sale value, purchase cost, withholding or transaction reporting. Keep the contract notes and acquisition records that support every lot in the calculation.
Worked example: one eligible sale after 23 July 2024
This example illustrates the arithmetic and is not a tax assessment. Assume an investor sells eligible listed shares after holding the FIFO-matched lot for more than 12 months. The sale proceeds are ₹8,00,000. The original FIFO acquisition cost is ₹6,00,000. Eligible brokerage and other transfer expenses total ₹5,000. STT shown on the contract note is ₹1,000.
| Item | Amount | Treatment |
|---|---|---|
| Sale proceeds | ₹8,00,000 | Included |
| Original FIFO cost | ₹6,00,000 | Deducted |
| Eligible transfer expenses | ₹5,000 | Deducted |
| STT | ₹1,000 | Not deducted |
| Long-term capital gain | ₹1,95,000 | ₹8,00,000 − ₹6,00,000 − ₹5,000 |
| Less: annual Section 112A threshold | ₹1,25,000 | Applied once to the year’s aggregate eligible gain |
| Taxable excess | ₹70,000 | ₹1,95,000 − ₹1,25,000 |
| Base Section 112A tax | ₹8,750 | 12.5% × ₹70,000, before surcharge and cess |
If the investor had other eligible Section 112A gains in the same financial year, those gains would be added before applying the single ₹1,25,000 threshold. If the sale occurred before 23 July 2024, this post-change calculation would not be appropriate; the historical 10% rate and ₹1,00,000 threshold would need to be considered instead.
Special adjustments for resident individuals and HUFs
Unused basic exemption limit
A resident individual or Hindu Undivided Family (HUF) whose other income is below the applicable basic exemption limit may have an ordering adjustment under Section 112A. The shortfall in the basic exemption limit is considered before the special rate is applied to the eligible long-term gain. In practical terms, do not automatically tax the entire amount above ₹1,25,000 at 12.5% without first checking whether unused basic exemption is available after considering the taxpayer’s other income.
The exact adjustment depends on residential status, age-related exemption rules where relevant, the chosen tax regime and the taxpayer’s total income. Preserve a separate calculation showing other income, the applicable basic exemption limit and the Section 112A gain so the ordering can be reviewed.
Chapter VI-A deductions
Chapter VI-A deductions do not reduce concessional Section 112A long-term capital gain. A deduction that is available against eligible ordinary income cannot simply be subtracted from the gain before applying the 12.5% rate.
Section 87A rebate
Section 87A cannot reduce the tax charged on Section 112A long-term capital gain. It may apply to tax on income after the special-rate gain is removed, if the taxpayer otherwise meets the rebate conditions. Calculate the special-rate tax separately before considering any rebate on qualifying non-special-rate income.
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| Situation | Why the Section 112A worksheet does not fit | Action |
|---|---|---|
| Unlisted shares | The asset is not a listed equity share covered by the listed-asset holding-period rule. | Apply the provisions for the relevant unlisted asset and holding period. |
| Held for 12 months or less | The gain is not long term for listed equity under the one-year test. | Classify and report it under the applicable short-term rules. |
| Derivatives or futures and options | These are not ordinary listed equity shares for Section 112A. | Determine whether the activity is investment or business income under the applicable rules. |
| Intraday trading | No delivery-based investment holding period exists. | Use the treatment applicable to intraday or business transactions. |
| Transactions treated as business income | The profit is not a capital gain even if the underlying security is listed. | Keep it outside the Section 112A capital-gains worksheet and use the return and schedules appropriate to business income. |
| STT condition not met | The statutory eligibility condition for the concessional provision may fail. | Classify the gain under the provision that actually applies; do not claim Section 112A solely because the sale was through a stock exchange. |
Indexation after the 2024 reform
For transfers on or after 23 July 2024, Section 112A calculations use the actual acquisition cost and do not provide indexation. The 2024 reform also set the general Section 112 rate for other long-term gains at 12.5% without indexation, according to the CBDT FAQ. That general rule does not turn an unlisted or otherwise ineligible asset into a Section 112A asset; classification still comes first.
For a pre-23 July 2024 transfer, do not back-apply the post-reform no-indexation rule without checking the provisions that applied on that transfer date. Maintain separate records for historical sales and current sales.
Records to keep and the return to use
Documents
- Broker capital-gains statements showing FIFO matching, sale proceeds and acquisition cost.
- Contract notes for purchases and sales, including brokerage, STT and other charges.
- Acquisition records that establish the original purchase date and cost for each lot.
- Form 26AS and the AIS, reconciled with your own transaction ledger.
- Evidence supporting any notified exception to the usual STT acquisition condition.
- A worksheet separating transfers before 23 July 2024 from transfers on or after that date.
ITR-2 and capital-gains schedules
The income-tax e-filing portal identifies ITR-2 as the return that covers capital-gains income. It also lists a share/securities capital-gains profit-and-loss statement, Form 26AS and AIS among useful documents. Enter the gains in the capital-gains schedules using the classifications and dates supported by your records; do not copy a broker’s total blindly if its FIFO treatment or transfer-date split does not match your account history.
If your trading activity is classified as business income or you have another condition that makes a different return applicable, follow the return selection rules for that wider profile. ITR-2 is the relevant reference for a taxpayer reporting capital-gains income without such a conflicting classification.
Common calculation errors and their fixes
Applying ₹1,25,000 to every trade
Error: Deducting ₹1,25,000 from each company’s gain or from each broker statement.
Fix: Aggregate all eligible post-23 July 2024 Section 112A gains for the financial year and apply the threshold once.
Deducting STT from sale proceeds
Error: Treating the STT debit as a transfer expense.
Fix: Deduct eligible brokerage and similar wholly transfer-connected costs, but leave STT out of the deduction.
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Using average cost instead of FIFO
Error: Dividing total historical purchases by total shares and using that average for the sale.
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Fix: Match the earliest credited shares first, then test the holding period and cost of each matched lot.
Using indexation for a current sale
Error: Increasing the purchase cost with an inflation index for a transfer on or after 23 July 2024.
Fix: Use actual acquisition cost for the post-change calculation.
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Error: Applying 12.5% and ₹1,25,000 to a sale before 23 July 2024, or applying the old 10% and ₹1,00,000 figures to a later sale.
Fix: Split the ledger by transfer date and calculate each period under its applicable provisions.
Assuming every listed trade qualifies
Error: Claiming Section 112A for unlisted shares, derivatives, intraday trades, business income or a transaction that does not satisfy the STT conditions.
Fix: Complete the security, holding-period, STT and income-character checks before calculating the special-rate gain.
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Applying deductions or rebate to the special-rate gain
Error: Subtracting Chapter VI-A deductions or Section 87A directly from Section 112A tax.
Fix: Keep the concessional gain and its tax separate. Consider deductions and any rebate only in the manner permitted for other qualifying income.
A practical worksheet layout
Use one row per FIFO-matched lot, not one row per contract note. The following columns capture the decisions that affect the result:
| Column | What to enter |
|---|---|
| Security and account | Name or identifier and the demat account in which the lot was held |
| Purchase date and quantity | Original acquisition date, shares and actual cost |
| Sale date and matched quantity | Date of transfer and quantity matched under FIFO |
| Holding-period result | More than 12 months or not |
| Section 112A status | Eligible, ineligible or exception requiring supporting evidence |
| Sale consideration | Amount attributable to the matched quantity |
| Transfer expenses | Brokerage and other wholly transfer-connected costs; exclude STT |
| Long-term gain | Sale consideration less eligible expenses and actual cost |
| Transfer-date bucket | Before 23 July 2024 or on/after 23 July 2024 |
Once the rows are complete, total only the eligible rows in the applicable date bucket. This structure makes it easier to explain a result to a tax professional and to find a missing purchase or duplicate sale.
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Quick Recap
Final pre-filing checklist
- Every sale from every broker and demat account is included.
- FIFO matching uses the earliest credited shares first.
- Each matched lot has a documented acquisition date and actual cost.
- Only portions held for more than 12 months enter the long-term worksheet.
- Section 112A security and STT conditions are checked for each eligible portion.
- Transfers before 23 July 2024 are separated from later transfers.
- Post-change gains use actual cost and no indexation.
- Brokerage and wholly transfer-connected expenses are deducted; STT is not.
- The ₹1,25,000 limit is applied once to the year’s aggregate eligible post-change gain.
- Resident-individual or HUF basic-exemption adjustments are reviewed where applicable.
- Chapter VI-A deductions and Section 87A are not used to reduce the concessional Section 112A gain itself.
- The result agrees, or differences are explained, against the broker statement, Form 26AS and AIS.
- ITR-2 and its capital-gains schedules are used when the taxpayer’s profile calls for that return.
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