Section 112 Explained: Applicability, Calculation, and Exemptions

What Is Section 112 of the Income Tax Act?

Imagine you’ve held onto something valuable—like land, a building, or bonds—for a long time, and then you sell it. The tax on the profit from that sale is called “long-term capital gains” (LTCG). Section 112 of India’s Income Tax Act explains how much tax you pay on these gains for assets not covered by another rule called Section 112A. Section 112 applies to almost every taxpayer—people, companies, residents, even people living outside India. It covers things like unlisted shares, zero-coupon bonds, land, and buildings.

When Does Section 112 Apply?

Applicability to Long-Term Capital Gains (LTCG)

Section 112 applies to long-term gains from many types of assets, such as listed shares where STT isn’t paid, bonds, real estate, and more—but not to equity shares, equity mutual funds, or business trust units traded on stock exchanges (those fall under Section 112A).

Assets Covered

• Listed securities (if STT isn’t paid)
• Zero-coupon bonds
• Unlisted securities
• Land, buildings, and other assets

Who It Applies To

Everyone—individuals, Hindu Undivided Families (HUFs), companies, firms, residents, non-residents, and foreign companies.

How Is Tax Calculated Under Section 112?

Tax Rates (as of 2025)

Before July 23, 2024:

• 20% tax with indexation
• Or 10% without indexation (whichever is lower for some situations)

After July 23, 2024:

• Flat 12.5% tax with no indexation, with a special rule: if indexation + 20% is lower, you can use that instead.

Holding Periods (2025 Update)

Asset classification into “long-term” depends on how long you held it:

• For listed shares and equity funds: 12 months or more
• For property: typically 24 months or more
• For other assets: periods may vary

What Exemptions Can You Use?

You can avoid paying some or all tax by reinvesting the gains into special assets:

• Section 54: Reinvest in residential property to avoid tax on home sale gains.
• Section 54EC: Put money into government-approved bonds (like NHAI, REC) within six months.
• Section 54F: If you have LTCG from something other than a building, buying a home can give you tax relief.

There are other options too (like 54EE or 54GB), but these are the most common. You must follow specific rules, such as buying within certain time limits and holding the new asset for a set duration.

Key Things to Keep in Mind

Section 112 vs. Section 112A

• 112A deals with equity shares, equity mutual funds, or business trust units (where STT is paid) and taxes gains at 10% above ₹1 lakh.
• 112 covers nearly everything else at a different rate.

No Double Dipping

You can’t both take indexation and claim exemptions for the same gain—pick the method that gives you the lowest tax bill.

Common Mistakes People Make

• Assuming indexation is always available (it’s not after July 2024).
• Getting confused between Section 112 and 112A assets.
• Missing deadlines to invest in new assets and losing the exemption.

What’s New? (2025 Updates Snapshot)

1. A new Flat 12.5% rate without indexation applies from July 23, 2024, but indexation + 20% can still be used if it gives a lower rate.
2. Holding periods were simplified— for example, real estate now needs at least 2 years to be long-term.
3. New Income Tax Bill 2025 offers a one-time opportunity to set off long-term capital losses (LTCL) against short-term gains (STCG) starting tax year 2026–27.