s.112 — Tax on long-term capital gains
Long-term capital gains are taxed at twenty per cent on a transfer before 23 July 2024 and twelve and one-half per cent after, with a comparison for resident individuals and HUFs on land or buildings acquired before then.
Clause (a) of sub-section (1), with its two provisos, was substituted by the Finance (No. 2) Act, 2024 (Act No. 15 of 2024) with retrospective effect from 23 July 2024; clauses (b) to (d) carry the same split between twenty and twelve and one-half per cent. The counterpart in the Income-tax Act, 2025 is section 197, with the comparison in section 197(3).
Income-tax Act, 1961
s.112
Income-tax Act, 2025
s.197
In force from 1 April 2026, but s.536(2)(c) preserves the 1961 Act for tax years beginning before that date.
In short
Section 112(1)(a) of the Income-tax Act, 1961 taxes a resident individual or Hindu undivided family on total income reduced by long-term capital gains, plus tax on those gains "(A) at the rate of twenty per cent for any transfer which takes place before the 23rd day of July, 2024; and (B) at the rate of twelve and one-half per cent for any transfer which takes place on or after the 23rd day of July, 2024". The first proviso lets the gains absorb any shortfall of other income below the exemption limit. The second proviso provides that "in the case of transfer of a long-term capital asset, being land or building or both, which is acquired before the 23rd day of July, 2024, where the income-tax computed under item (B) exceeds the income-tax computed in accordance with the provisions of this Act, as they stood immediately before their amendment by the Finance (No. 2) Act, 2024, such excess shall be ignored". That is a cap on tax, computed at twenty per cent on indexed cost, not an option to index. Clauses (b) for a domestic company, (c) for a non-resident or foreign company and (d) for any other resident carry the same twenty and twelve and one-half per cent split with no comparison. So a firm, LLP, company, discretionary trust or non-resident individual landowner pays twelve and one-half per cent without indexation on a transfer on or after 23 July 2024 (whether a specific trust for resident individuals takes their comparison through section 161 is untested). In joint development every fork turns on when the transfer takes place: for an individual or Hindu undivided family under section 45(5A) the gain is charged in the completion certificate year, and for other landowners in the year of transfer under section 2(47). The counterpart in the Income-tax Act, 2025 is section 197, which taxes long-term gains at 12.5% under sub-section (1)(b) and in sub-section (3) ignores the excess E = A - B for a resident individual or Hindu undivided family on land or building acquired before 23 July 2024, B being tax at 20% on indexed cost.
What the provision does
Fixes the rate on long-term capital gains: twenty per cent for a transfer before 23 July 2024 and twelve and one-half per cent after, and for a resident individual or Hindu undivided family caps the tax on land or buildings acquired before that date at the old-law figure with indexation. It does not decide when a transfer under a joint development agreement takes place, it gives no comparison to a company, firm, discretionary trust or non-resident, and it does not reach short-term gains.
Threshold questions
- Is the gain long-term, the land or building having been held for more than twenty-four months
- Did the transfer take place before 23 July 2024, which gives twenty per cent with indexed cost
- Is the transferor a resident individual or Hindu undivided family, the only persons entitled to the comparison in the second proviso
- Was the land or building acquired before 23 July 2024
- Under section 45(5A), is the date that matters the agreement and possession or the completion certificate
In practice
The recurring disputes.
An agreement signed before 23 July 2024 with a completion certificate after it
The rate items and the indexation proviso in section 48 both turn on when the "transfer ... takes place". The Revenue's argument at full strength is that section 45(5A) is a code for the specified agreement, values the share on the certificate date for section 48, and so places the transfer in that year, which the Department's explainer on joint development agreements also assumes; on that reading the owner pays twelve and one-half per cent with the comparison, indexing to the certificate year. The owner can answer that section 45(5A) deems only the year of charge and the full value, while the rate provisions use the factual words of section 2(47), under which a registered agreement with possession is a transfer on its own date, giving twenty per cent with indexation to that earlier year. No decision on the point was found. Because section 45(5A) fixes the same full value on either reading, a resident individual or Hindu undivided family is never worse off on the certificate-year reading: the comparison caps the tax at twenty per cent on cost indexed to the later, higher index. The fork matters in money for a non-resident individual within section 45(5A), who has no comparison and gains from the agreement-date reading wherever indexation cuts the gain by more than three-eighths, as it usually does for land held long.
Landowners outside the comparison
For a company, firm, LLP, discretionary trust or non-resident individual the rate depends wholly on the date of transfer under section 2(47), so the old dispute over the year of transfer now also decides between twenty per cent with indexation and twelve and one-half per cent without it. The owner of land held for decades will want an early transfer, relying on possession in part performance under a registered agreement within section 2(47)(v). The Revenue's answer is that an unregistered agreement is outside section 53A on Balbir Singh Maini (Supreme Court, 4 October 2017, paragraph 20) and that a licence to enter and develop is not possession on Seshasayee Steels (Supreme Court, 4 December 2019), so no transfer took place until a later event. The question is one of fact on each agreement's terms.
Flats received under the agreement and sold later
The comparison needs land or building "acquired before" 23 July 2024. The Revenue's argument is that the flats are acquired when allotted or completed, and for a section 45(5A) share when the completion certificate fixes its cost under section 49(7), so a later sale gets twelve and one-half per cent flat and may even be short-term. The owner's argument is that a registered agreement identifying his share gives him a right that ripens into the flat, the reasoning the Punjab and Haryana High Court applied to allotments in Madhu Kaul (17 January 2014); outside section 45(5A) the Tribunal orders found count the holding of flats from the agreement or allotment. No decision on the words "acquired before" for flats received under a joint development agreement was found.