Archive / Investment Adviser (Level 2) / Taxation of Equity Products
nism-series-xb-ltcg-equity-exemption-threshold-post-budget-2024[ INVESTMENT ADVISER (LEVEL 2) ]
Under Section 198 of the Income-tax Act, 2025 (the erstwhile Section 112A of the Income-tax Act, 1961), Long-Term Capital Gains on listed equity shares and equity-oriented mutual fund units are taxed at 12.5% only on the amount exceeding what exemption threshold in a financial year, post the Finance (No. 2) Act, 2024 amendments?
[ A ]Rs. 1,25,000[ CORRECT ]
[ B ]Rs. 50,000
[ C ]Rs. 2,50,000
[ D ]There is no exemption threshold — the full gain is taxable
Takeaway
Option A is correct: Rs. 1,25,000.
Derivation
The Finance (No. 2) Act, 2024 raised the LTCG exemption threshold under Section 198 of the Income-tax Act, 2025 (previously Section 112A of the Income-tax Act, 1961) for listed equity shares and equity-oriented mutual funds from Rs. 1,00,000 to Rs. 1,25,000 per financial year, effective from 23 July 2024, while simultaneously raising the tax rate on gains above this threshold from 10% to 12.5%. Only the portion of long-term gains exceeding Rs. 1,25,000 in the year is taxed; the first Rs. 1,25,000 of such gains remains exempt.
Why the others fail
B — Rs. 50,000
Rs. 50,000 is the threshold above which gifts from non-relatives become taxable under Section 92(2)(m) of the Income-tax Act, 2025 (the erstwhile Section 56(2)(x) of the Income-tax Act, 1961) — an unrelated provision, not the Section 198 LTCG exemption.
C — Rs. 2,50,000
Rs. 2,50,000 is the basic income-tax exemption slab under the old tax regime, not the Section 198 equity LTCG exemption threshold.
D — There is no exemption threshold — the full gain is taxable
Section 198 explicitly carves out an annual exemption before the 12.5% rate applies; the gain is not taxable in full from the first rupee.