Section 112, 112A & 3rd Proviso to Sec 48

Hey Ajinkya! You’ve touched on an important and often confusing area of capital gains taxation. Let me break it down clearly regarding Section 112, 112A, and the 3rd Proviso to Section 48 — especially focusing on unlisted equity shares.

Quick overview:

Now, your specific questions:

1. How are LTCG on unlisted equity shares taxed?

• Unlisted equity shares are not covered under Section 112A.

• They also do not qualify for the 10% rate with indexation under the 3rd proviso to Section 112 (which applies only to listed securities and ZCBs).

• Hence, LTCG on unlisted equity shares is taxed at 20% without indexation under Section 112.

2. Does Section 112A apply to unlisted shares?

• No. Section 112A applies only to listed equity shares and equity-oriented mutual fund units.

• Unlisted shares are excluded from 112A benefits.

3. Is there an option to choose between Sec 112 and 112A for unlisted shares?

• No choice exists here.

• Since 112A does not apply to unlisted shares, gains on unlisted equity shares are taxed under Section 112 at 20% without indexation.

Why the confusion?

• Section 112A was introduced to provide a concessional rate for gains on listed equity shares and units to encourage investments in stock markets.

• The 3rd proviso to Section 112 was introduced to give indexation benefit on listed securities (other than units) and ZCBs taxed at 10%.

• Unlisted equity shares are considered a different category and taxed at normal LTCG rates under 112 without indexation.

Summary table for equity shares LTCG: