A Deep Dive into the Amendments of Chapter XII of the Income Tax Act, 1961

Chapter XII of the Income Tax Act, 1961, delineates the procedural framework for determining income tax in specific scenarios, encapsulated in Sections 110 to 115. This discourse meticulously explores the fiscal amendments within Chapter XII, illuminating their profound implications.

Refinements to Section 111A

Section 111A, addressing the taxation of short-term capital gains, witnesses a pivotal amendment. The Finance Bill revises the first proviso to section 111A(1), stipulating that the taxpayer’s liability on the total income encompasses:

• Income tax on short-term capital gains at 15% for transfers preceding July 23, 2024, escalating to 20% for transfers from July 23, 2024, onwards.
• Taxation on the remaining income as though it constituted the entirety of the taxpayer’s earnings.

Enhancements to Section 112

Section 112 prescribes the tax obligations for various entities on long-term capital gains. The Finance Bill substitutes comprehensive new clauses under Section 112(1), redefining the rates applicable to distinct taxpayer categories.

• For individuals or Hindu Undivided Families (HUFs), the tax rate on long-term capital gains is 20% for transfers before July 23, 2024, and 12.5% subsequently.
• For domestic companies, the taxation mirrors the rates stipulated for individuals/HUFs.
• For non-residents and foreign companies, the tax rate remains at 20% for transfers before July 23, 2024, and adjusts to 12.5% thereafter. For unlisted securities or shares, the rate is 10%, disregarding specific provisos of section 48.
• For residents, the tax rates align similarly, with specific provisions for listed securities or zero-coupon bonds.

Revision of Section 112A

Clause 31 of the Finance Bill revises Section 112A, which pertains to long-term capital gains exceeding ₹1,25,000. The amendment specifies:

• A 10% tax rate for transfers before July 23, 2024.
• An increased rate of 12.5% for transfers from July 23, 2024, onwards.

Overhaul of Section 113

Section 113 deals with the taxation of undisclosed income in search cases. The amendment omits the terms “undisclosed” and specific references to assessment years tied to searches initiated under sections 132 or 132A.

Amendment of Section 115AB

Clause 33 modifies Section 115AB, impacting long-term capital gains. The new rates are:

• 10% for transfers before July 23, 2024.
• 12.5% for transfers on or after this date.

Update to Section 115AC

The Finance Bill’s Clause 34 redefines Section 115AC, focusing on long-term capital gains from specified income sources, adopting the same revised rates of 10% and 12.5%.

Modification of Section 115ACA

Section 115ACA, addressing income from global depository receipts or their capital gains, is amended under Clause 35 to reflect the updated tax rates of 10% before July 23, 2024, and 12.5% thereafter.

Adjustment of Section 115AD

Section 115AD concerns the tax on foreign institutional investors’ income from securities or capital gains. The revised rates under Clause 36 stipulate:

• 15% for short-term capital gains before July 23, 2024, and 20% subsequently.
• For long-term capital gains exceeding ₹1,25,000, the rates are 10% before July 23, 2024, and 12.5% thereafter.

Redefinition of Section 115BAC

Clause 37 revises Section 115BAC, establishing new income tax rates for individuals, HUFs, and other entities. Effective from April 1, 2024, the rates are as follows:

For the assessment year beginning April 1, 2025, the revised income brackets are:

This exhaustive overview elucidates the significant fiscal modifications within Chapter XII of the Income Tax Act, 1961, underscoring their impact on diverse taxpayer categories.

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