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.
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.
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