Archive / Investment Adviser (Level 2) / Capital Gains

nism-series-xb-125-lakh-exemption-aggregate-multiple-equity-transactions[ INVESTMENT ADVISER (LEVEL 2) ]

How does the ₹1,25,000 (₹1.25 Lakh) annual exemption under Section 198 of the Income-tax Act, 2025 (the erstwhile Section 112A of the Income-tax Act, 1961) operate across multiple equity shares and equity mutual fund transactions?

[ A ]It is a separate ₹1.25 Lakh exemption for every single stock trade executed.

[ B ]It is an hourly exemption.

[ C ]Section 198 (the erstwhile Section 112A) exemption applies only to foreign citizens.

[ D ]It is an AGGREGATE ANNUAL EXEMPTION applied once per financial year across the sum total of all Long-Term Capital Gains from listed equities and equity mutual funds (only net gains exceeding ₹1.25 Lakhs are taxed at 12.5%).[ CORRECT ]

Takeaway

The correct answer is D: the ₹1.25 Lakh exemption under Section 198 (the erstwhile Section 112A) is a single aggregate annual figure applied once per financial year across the total of all equity LTCG realized by the taxpayer, not a separate exemption per trade.

Derivation

An investor may sell equity shares across multiple brokers, demat accounts and mutual fund folios throughout the year; Section 198 of the Income-tax Act, 2025 (the erstwhile Section 112A of the Income-tax Act, 1961) requires all of these long-term equity gains to be pooled together into one number for the financial year. Only the amount by which this pooled total exceeds ₹1,25,000 is taxed, at 12.5%; the first ₹1,25,000 of aggregate gains stays exempt regardless of how many individual transactions produced it. This 'once per year, across everything' framing is the key distinction the question tests, since candidates sometimes assume each sale or each folio gets its own separate exemption.

Why the others fail

A — It is a separate ₹1.25 Lakh exemption for every single stock trade executed.

Directly contradicts the statute; the ₹1.25L exemption is one aggregate annual figure across all transactions, not a repeat per-trade exemption.

B — It is an hourly exemption.

Absurd; capital gains exemptions operate on an annual financial-year basis under the Income Tax Act, not hour by hour.

C — Section 198 (the erstwhile Section 112A) exemption applies only to foreign citizens.

False; Section 198's exemption applies (the erstwhile Section 112A) to all assessees earning equity LTCG in India, resident or non-resident, not only foreign citizens.