Computation of Tax on Long-Term Capital Gains Clarified u/s 112; Net Gains Taxed After Loss Adjustments.

Circular No. 721, dated September 13, 1995, clarifies the computation of tax on long-term capital gains under section 112 of the Income-tax Act, 1961. It addresses confusion regarding whether the set-off of losses from other income sources affects the taxation of long-term capital gains. The circular confirms that only the net long-term capital gains, after setting off losses as per sections 70 to 80, are subject to tax at the prescribed flat rate. Illustrations demonstrate that only the remaining amount of long-term capital gains, after loss adjustment, is included in the total income for tax purposes.