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How to read section numbers: s.80C→s.123 means Section 80C of the Income-tax Act, 1961 is now Section 123 of the Income-tax Act, 2025 (in force from 1 April 2026). Returns for FY 2025-26 still use the old numbers; Tax Year 2026-27 onwards uses the new ones. Section Finder
Key rules
- Applies when STT is paid (on purchase and sale for shares; on sale for equity funds)
- No indexation and no deductions like 80C against this income
- The ₹87A rebate does not cover it, even if total income is under ₹12 lakh
- ITR-1 and ITR-4 can report LTCG under 112A up to ₹1.25 lakh from AY 2026-27 (no brought-forward losses); above that use ITR-2 or ITR-3
Grandfathering for pre-2018 holdings
For shares bought before 1 February 2018, cost is the higher of actual cost and the lower of (fair market value on 31 January 2018, sale price). This protects gains made before the tax was introduced.
Gain harvesting
Because the first ₹1.25 lakh is exempt every year, many investors sell and rebuy to book exempt gains annually. It is legal, but keep a record of dates and prices for the return.
Worked example
Example
Example: LTCG on equity funds in FY 2025-26: ₹2,05,000. Taxable = ₹80,000 → tax ₹10,000 + cess ₹400 = ₹10,400.
Common mistakes
- Applying the 87A rebate to it
- Forgetting grandfathering on pre-2018 shares
- Using ITR-1 when LTCG exceeds ₹1.25 lakh
Frequently asked questions
Debt funds bought on or after 1 April 2023 are taxed at slab rates regardless of holding period, not under 112A.
Last reviewed on 11 November 2026 by Vinay Jaglan, VJ & Associates. Law and portal screens change — verify before acting, or ask the office.
