What Is the Section 112A Grandfathering Rule?
The section 112A grandfathering rule protects the value of certain listed equity investments and equity-oriented units acquired before 1 February 2018. Instead of using only the original purchase cost, the prescribed deemed-cost mechanism can apply when the asset is later transferred.
Quick Answer
For qualifying assets acquired before 1 February 2018, the grandfathered cost is broadly linked to the higher of the actual acquisition cost and the lower of the fair market value as prescribed and the sale consideration. The exact Schedule 112A fields should be completed using the notified ITR rules.
Which Investments Can Get Grandfathering?
The rule applies to specified long-term capital assets covered by section 112A, including qualifying equity shares in a company, units of an equity-oriented fund and units of a business trust, subject to the conditions of the provision.
Why Is 31 January 2018 Important?
The grandfathering mechanism uses the fair market value as on 31 January 2018 for qualifying assets acquired before that date. The purpose is to determine the deemed cost for the post-1 February 2018 capital-gain regime.
How Is the Deemed Cost Used?
The notified Schedule 112A requires the taxpayer to provide acquisition-date information, ISIN, number of shares or units, sale consideration and the prescribed fair-market-value information where applicable. The resulting deemed cost is then used in the capital-gain computation.
What Should Investors Keep?
Keep original purchase records, broker statements, corporate-action records and evidence supporting the 31 January 2018 fair market value where relevant. Multiple lots should be tracked separately.
Practical Checklist
- Separate pre-1 February 2018 acquisitions from later purchases.
- Preserve the original acquisition cost and quantity.
- Retain support for the prescribed 31 January 2018 FMV.
- Reconcile Schedule 112A with broker capital-gain statements.
Related Capital Gains Questions
- What Is Capital Gain in Income Tax?
- What Is Short-Term and Long-Term Capital Gain?
- How to Calculate Capital Gain From Shares?
- What Is Cost of Acquisition for Capital Gains?
