Tax on LTCG u/s 112 and STCG u/s 111A

CA Anshu Agarwal (B€ @LW@¥\$ ]-[@Pp¥) (1832 Points)

20 June 2010

Mr. A (resident) has the following incomes:

Under PGBP                                            = 150000.00

STCG on equity shares (liable to STT) = 15000.00

LTCG                                                        = 25000.00

Total income = 150000+15000+25000 = 190000

BEL = 160000.00

Calculate the tax payable by him.

Solution: In this question provisions of section 111A and 112 shall be applied. It may have 3 solutions as below:

1.

STCG: tax on such STCG shall be @ 15% u/s 111A

Proviso to section 111A(1) states that where total income - such STCG < BEL, the such STCG shall be reduced by such short fall.

Here 190000 – 15000 = 175000, i.e more than BEL, so proviso to section 111A(1) shall not be applied.

Tax payable on such STCG = 15000 * 15% = 2250

LTCG: tax on such LTCG shall be @ 20% u/s 112

Proviso to section 112(1)(a) states that where total income - such LTCG < BEL, the such LTCG shall be reduced by such short fall.

Here 190000 – 25000 = 165000, i.e more than BEL, so proviso to section 112(1)(a) shall not be applied.

Tax payable on such LTCG = 25000 * 20% = 5000

Note: this solution is according to my understanding to language of act. It seems to wrong to me as tax is charged on Rs.40000 (15000+25000), but his total income exceeds the BEL by only Rs. 30000 (190000-160000).

2.

According to me and keeping in view the intention of law, in such case, the following steps shall be for calculating tax:-

1.      calculate the total income of the assessee

2.      calculate and aggregate the incomes chargeable at specific rate.

3.      If total income – income chargeable at specific rate < BEL, compute such short fall.

4.      Divide such short fall proportionately to the various incomes chargeable at specific rates, and deduct them from relating incomes.

Total income = 190000

Aggregate of total incomes chargeable at specific rate = 15000+25000 = 40000

Total income – income chargeable at specific rate = 190000 – 40000 = 150000, which is short by Rs.10000.

Short fall belonging to STCG = 10000 * 15000 / 40000 = 3750

Short fall belonging to LTCG = 10000 * 25000 / 40000 = 6250

Tax on STCG = (15000 – 3750 ) * 15% = 1688.00

Tax on LTCG = (25000 – 6250 ) * 20% = 3750.00

3.      Benefit for B.E.L. can be availed for LTCG amounting Rs.10000, then balance LTCG   amounting Rs.15000 shall be taxed @ 20%, and whole STCG shall be taxable @ 15%. So   total tax = 3000 + 2250 = 5250.00

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