What Is Grandfathering in Section 112A?
The section 112A grandfathering rule can affect the cost used for qualifying long-term capital gains on assets acquired before 1 February 2018. The prescribed fair-market-value mechanism can therefore be important when calculating the gain.
Quick Answer
For qualifying assets acquired before 1 February 2018, section 112A uses a special cost mechanism involving the actual cost and the prescribed fair market value as of 31 January 2018. The Schedule 112A calculation applies the statutory formula.
Why Was Grandfathering Introduced?
The grandfathering mechanism protects the tax treatment of qualifying gains attributable to appreciation up to the specified historical date, subject to the statutory formula.
What Date Is Important?
For the section 112A grandfathering calculation, 31 January 2018 is the key fair-market-value date for assets acquired before 1 February 2018.
How Is the Cost Determined?
The prescribed computation compares the actual acquisition cost with the relevant fair market value and sale consideration using the statutory formula. The ITR Schedule 112A captures these inputs.
Which Records Help?
Keep acquisition statements, historical market-price evidence where applicable, broker records and the transaction details used for the Schedule 112A calculation.
Why Older Holdings Need Care
Older shares or fund units can have historical transactions, corporate actions and multiple lots. A blanket current market-value approach can produce an incorrect result.
Important
Grandfathering is specific to qualifying assets and section 112A conditions. It should not be applied to every long-term capital asset.
Frequently Asked Questions
Does grandfathering apply to all shares?
No. It applies to qualifying assets and transactions covered by section 112A and its conditions.
What is the grandfathering date?
The relevant fair-market-value date is 31 January 2018 for qualifying assets acquired before 1 February 2018.
Is the 31 January 2018 value always the cost?
No. The statutory formula considers the actual acquisition cost, fair market value and sale consideration.
Related EZTax Resources
- What Is Capital Gain in Income Tax?
- What Is Short-Term and Long-Term Capital Gain?
- How to Calculate Capital Gain From Shares?
- How to Report Capital Loss in ITR?
- Which ITR Form Should I Use for Capital Gains?
- Does AIS Show Capital Gains?
Official Sources
For current capital-gains and ITR guidance, refer to the Income Tax Department resources for the relevant assessment year.
Income Tax Department — ITR-2 FAQ
Income Tax Department — Set-off / Carry-forward of Losses FAQ
