Removal of anomalies in sections 111A & 112
Before going through the suggestion first understand the concept of taxation under section 111A and section 112 of Income tax act.
A :Taxation rate under Section 111A Short term Capital gain(STCG) on Equity share /Mutual fund where Security Transaction Tax (STT) applicable
- Any income arising from the transfer of short term Capital Assets in the form of equity shares or units of mutual fund where security transaction tax has been paid , such income shall be taxed @ 15% u/s. 111A (1)(i).
- The balance income shall be taxed at normal rate of tax.If above short term Capital Gain is below the maximum amount not chargeable to tax in that case such short term Capital Gain shall be reduced by the amount of shortfall - Provisio 1 to section 111A.
- No deduction under chapter VIA shall be allowed on such short term Capital Gain. –Section 111A(2).
B: Tax on long Term Capital Gains u/s. 112 and availability of deduction under chapter VI A
In case the income of the assessee includes Long Term Capital Gains , then the tax payable by the assessee shall be aggregate of:
- 20% of long term Capital Gains which is included in the total income.
- The balance amount of tax shall be calculated after reducing from the total income the Long Term Capital Gains.
If the Total income as reduced by such Long Term Capital Gains is below the maximum amount not chargeable to tax , in that case, such long term Capital Gains shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount not chargeable to tax and the balance of such long term shall be computed to tax at the rate of 20%.
In Both cases A & B Tax rate is Flat 15 % and 20% , irrespective to tax slab in which assesse falls , so it is beneficial for assessees who otherwise falls under higher slab ,but up to Rs 500000 Income tax slab is Now 5 % only ,so these provision of Flat 15% and 20% is not beneficial to persons ,whose income is up to 500000 ,hence clauses are regressive in nature hence needs reviews.
At present, long term capital gain is taxed @ 20% in pursuance of the provisions of section 112. Whereas, in case of individual assessee having normal income, the rate of tax upto Rs. 5,00,000 is only 10%.
This leads to a situation where in case if one’s gain from transfer of long term capital asset is below Rs. 5,00,000 then also he is required to pay tax @ 20% plus cess as per section 112 whereas his tax liability otherwise would be much lesser.
Similar is the situation in case of short term capital gain by way of sale of equity shares as provided u/s 111A, where the tax rate is 15% which is more than the minimum rate of tax payable by the individuals.
Suggestion By ICAI
It is suggested that appropriate provisions be made in the Act whereby the tax liability of an individual whose taxable income consists of only long term or short term capital gain, should not in any case, exceed the amount of tax liability calculated deeming the capital gain as regular income. This can be done by making the provisions of Section 111A & 112 optional.