Global Tax: The tax laws concerning listed stocks and other assets have a distinct structure. Section 112A of the Income Tax Act of 1961, now replaced by Section 198 of the Income Tax Act of 2025, offers a special concession on long-term gains from listed shares and equity-oriented schemes. This relief is applicable if Securities Transaction Tax (STT) has been paid on these securities. Under this provision, long-term capital gains up to Rs 1.25 lakh are not taxed, while gains exceeding this amount are taxed at 12.50%.
Tax Update
Is it possible to avail this concession after a 2-year holding period when selling international stocks and mutual funds, which are subject to a 12.50% tax rate after 2 years? Tax expert Balwant Jain clarifies that this is not permissible. Section 112 of the Income Tax Act of 1961, now Section 197 of the Income Tax Act of 2025, pertains to all assets apart from listed shares and equity-oriented schemes, including international stocks and mutual funds with less than 65% equity or debt investment.
A flat tax rate of 12.50% applies
The tax regime for assets falling under Section 112 and the new Section 197 differs. According to this section, long-term capital gains on such assets are taxed at a fixed rate of 12.50%. Unlike the previous provision, there is no threshold for reduced or zero tax rates on long-term gains, meaning the entire profit from selling international stocks will be taxed at 12.50%.
Which investors benefit from the zero tax rate?
The zero tax rate exemption of up to Rs 1.25 lakh on long-term capital gains is limited to listed stocks and equity-oriented schemes with over 65% equity investments and STT payment. This exemption does not apply to profits from other securities or assets. Consequently, investors holding foreign shares will be subject to a flat tax rate of 12.50% on all long-term gains.