On 14 June, the Central Board of Direct Taxes (CBDT) relaxed the
rules on how to disclose long-term capitals gains (LTCG) from
equity-oriented investments while filing
income-tax returns
(ITR) for assessment year 2019-20 (AY20). Until now, you were required
to disclose LTCG on each equity investment separately in the ITR
returns, CBDT has now clarified that you only need to disclose the
net
consolidated amount of LTCG from different equity-oriented investments
in the ITR. This change will simplify the tax-filing process if you have
earned LTCG amounting to more than
₹1 lakh from equity investments in financial year 2018-19 (FY19).
LTCG on equity
The Finance Bill 2018 reintroduced
tax
on LTCG made from listed shares and equity-oriented mutual funds.
Effective 1 April 2018, LTCG arising from the sale of these instruments
that are held for more than 12 months are taxable at the rate of 10%
(excluding surcharge and cess), if such LTCG exceeds
₹1
lakh in the given FY, provided securities transaction tax (STT) has been
paid both at the time of purchase and the sale of the shares or mutual
funds.
When calculating the
tax liability on LTCG, you need to consider two things—the exemption for LTCG up to
₹1 lakh, and the grandfathering provision.
If you had invested in
equity mutual funds
or shares before 31 January 2018, any gains till that date will be
considered as grandfathered and thus will be exempt from tax. No changes
were made in the rules for taxation of short-term capital gains (STCG)
from equity investments. STCG continues to be taxed at 15% (excluding
cess and surcharge).
Disclosing LTCG in ITR
Those
who made LTCG from equity investments during FY19 will be disclosing
the gains for the first time in their tax returns to be filed by July
this year.
According to
CBDT,
asssessees need to compute separately LTCG arising from the sale of
equity shares or units of equity-oriented mutual funds or units of
business trusts, on which STT has been paid, but mention the aggregate
amount in the ITR.
“Earlier, taxpayers were facing issues with
reporting gains from sale of equity shares due to the manner in which
calculations were to be made in the online form. This was happening
since there was grandfathering involved and the resulting values from
the selection of the fair market value (FMV) or the purchase price were
not accurate. Now this error has been corrected," said Archit Gupta,
founder and chief executive officer, ClearTax, an online tax and
investing platform.
However, problems persist in the way long-term
capital loss (LTCL) needs to be reported. “The online form still has a
problem in case of a loss, as the values for carry forward of loss on
sale of equity instruments is not getting reflected properly. Hopefully,
the department will resolve this issue soon," said Gupta.
Disclosure
of LTCL in ITR is also important. Remember, any LTCL incurred upon the
sale of a capital asset can be utilised to set off against LTCG arising
from any asset in the current FY. If the loss is more than the gains,
which means there is residual or unutilised loss even after the set-off
with gains, you can carry it forward and set it off against capital
gains earned in up to eight subsequent FYs.
Where to disclose
ITR-2
and ITR-3 forms have been amended and updated to accommodate the
changes, according to CBDT. You need to disclose the aggregate LTCG or
LTCL in the specified columns and spaces provided in these ITR forms.
For
instance, resident individuals, who have LTCG from equity and need to
file their returns in ITR-2 (for individuals and Hindu Undivided
Families or HUFs not having income from profits and gains through a
business or profession), need to disclose LTCG in Section B4. Similarly,
those filing their returns in ITR-3 (for individuals and HUFs having
income from profits and gains through a business or profession) need to
disclose LTCG in Section B5 of the form. Non-resident income tax
assessees, need to disclose LTCG in Sections B7 and B8 of
ITR-1
and ITR-3 forms, respectively. You can get the latest forms from the
download section of the Income-tax department’s website and upload it
after filling it.
Online ITR-5 form (for those who do not fall in the categories of individual,
HUF, company and any person filing return in ITR-7 form) will get updated shortly, according to CBDT.