I invested in the shares of Techno Electric and Engineering in August ‘22. Now one year has passed, there is an accrual of ₹1.25 lakh gains. In line with section 112 for LTCG benefits up to ₹1 lakh, I would like to sell the shares and book my LTCG and want to reinvest in the same shares due to their growth prospects. Can I sell and book the profits under 112 A and re-buy the same shares again?

Sumathi

Section 112A of the Income-tax Act, 1961 (‘the Act’) states that in case of a long-term capital asset being an equity share in a company and where STT has been paid on acquisition and transfer of such shares, then income-tax on transfer of such shares (after holding the asset for more than 12 months) shall be calculated on long-term capital gains exceeding ₹1 lakh at the rate of 10 per cent.

There is no provision under the Act restricting the taxpayer from sale of listed equity shares and reinvesting the proceeds in the same shares. However, in case the shares are sold and bought on the same day, since this transaction does not cause a stock-out and stock-in entry in your Demat, it may not be construed as a capital gains transactions as covered under section 112A of the Act.

As per section 43(5) of the Act that covers “speculative transaction”, one may infer that transaction in stocks and shares which are settled otherwise than by the actual delivery or transfer i.e., an intra-day transaction is considered under the nature of business transaction and not covered under section 112A of the Act. The tax authorities may take this view on the transaction carried out (as briefly explained herein above).

Subject to the above and the transaction not being an intraday transaction, the shares can be sold and repurchased and claim of ₹1 lakh under section 112A can be made against the long-term capital gains on the sale of the said shares.

 The author is a practising chartered accountant

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