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Calculation of  LTCG

LTCG on transactions in listed equity and equity mutual fund units in FY 2018-19 is to be calculated as per a new tax regime introduced in Budget 2018.

To report long term capital gains on listed equity or equity mutual funds for FY2018-19 in ITR-2, taxpayers can either provide transaction wise details or enter the aggregate capital gains/loss.

Earlier on July 11, ITR-2 was modified to include the requirement of transaction wise details. However, it has now been clarified that this is optional and instead a taxpayer can provide aggregate amounts relating to such long-term capital gains. Reporting LTCG in tax returns for FY 2018-19 assumes importance as this is the first year for which the gains/losses would have to be reported based on the new tax regime introduced in Budget 2018 for gains from listed equity and equity mutual fund units.

On July 11, 2019, the income tax department inserted a schedule 'Section 112A' in ITR-2 to capture transaction-wise details of all sale transactions of listed equity shares or equity oriented mutual funds where the gains are long term in nature.

The schedule requires the taxpayers to provide the following information:-

1. ISIN Code 
2. Name of the Share/Unit (Auto populated if ISIN is provided)
3. No. of Shares/Units 
4. Sale-price per Share/Unit
5. Cost of acquisition per Share/Unit
6. Fair Market Value per share/unit as on 31st January,2018
7. Cost of improvement without indexation
8. Expenditure wholly and exclusively in connection with transfer

These are extensive details, and many taxpayers may not have the ISINs of the shares/units they hold. Further, it could be cumbersome to provide transaction-wise details in the tax return.

However, it has now been clarified that this schedule is not mandatory. It is important to note that this schedule was not part of the notified form, and probably due to this the newly inserted schedule (through schema changes) has not been made mandatory for this year.

It appears that the income tax department really wanted to help taxpayers by providing a tool for transaction-wise calculation of LTCG. The amounts calculated in this schedule go directly into the main Capital Gains schedule. However, taxpayers are also allowed to enter the final LTCG calculations directly into the Capital Gains schedule.

Therefore, to report LTCG in ITR-2, the taxpayers have two options:-

a) Insert details in 'Section 112A schedule' with details such as ISIN No, name of share and so on as mentioned above, or;
b) Calculate the capital gains for each transaction and enter the aggregate amount directly in 'CG' schedule (Part B- 4) of the ITR-2 form. 
It is, however, possible that this very schedule is made mandatory next year. It may also happen that in the coming years the income tax department pre-populates this schedule based on data obtained from stock exchanges. This should actually help the taxpayers in making correct calculations.

The long term capital gain tax (LTCG) on transactions in listed equity and equity mutual fund units in FY 2018-19 is to be calculated as per a new tax regime introduced in Budget 2018.

As per this new regime, LTCG in excess of Rs 1 lakh on sale of listed equity shares and equity oriented mutual fund was made taxable effective April 1, 2018 at the rate of 10 per cent without indexation benefit.

On February 1, 2018, the Finance Minister announced removal of the earlier tax exemption for LTCG from sale of listed equity shares or equity oriented mutual funds (if STT is paid at the time of sale).

However, to protect small investors, such capital gains of an amount up to Rs 1 lakh in a financial year have been made exempt from tax. Remember even if your long-term capital gains does not exceed Rs 1 lakh in a financial year, then also you are required to report such gains while filing your ITR.

Grandfathering clause

Further, a grandfathering clause was inserted to ensure that the tax is only prospective in nature, and effectively only the gains from the date of announcement were made taxable. Therefore, cost of acquisition is required to be calculated as per a specified formula to ensure investments made before February 1, 2018 remain tax-exempt.

The cost of acquisition of such investment is to be calculated as follows:

A)The actual cost of acquisition of asset and

1)Take the Lower of - (i) Fair market value (FMV) of asset as on January 31, 2018 or (ii) Sale proceeds received.
2)Then take the higher of the above at 1 or the actual cost of acquisition.

The result of (2) above will be the cost of acquisition

This can be further explained with an example.

Let's say A made a lump-sum investment of Rs. 10 lakh in shares of a listed company in July 2006. Its market value on January 31, 2018 was Rs. 50 lakh. A redeems his entire investment in May 2019 for Rs. 52 lakh netting a gain of Rs. 42 lakh. Due to grandfathering clause, however, A's taxable gain would be only Rs. 2 lakh.

A had made another lump-sum investment of Rs. 10 lakh in shares of another listed company in January 2016. The fair market value of the investment on January 31, 2018 was Rs. 4 lakh, and he ultimately sold all these shares in June 2019 for a sum of Rs. 5 lakhs. In this transaction A incurred a loss of Rs. 5 lakh calculated for tax purposes as per the above mentioned formula. 

Overall, A had a long-term capital loss of Rs 3 lakh (Rs 2 lakh minus Rs 5 lakh).

Remember as per income tax rules, capitals gains are required to be calculated for every transaction undertaken during the financial year. As mentioned in the example above, A has undertaken two transactions during FY 2018-19, therefore, capital gains are required to be calculated separately for each transaction.

Reporting of LTCG in ITR-2 for FY 2018-19

Once you have calculated long-term capital gains for each transaction, then you have an option of directly reporting the LTCG on aggregate basis as follows:-

In the above table, you would see that Cost of acquisition is considered as Higher of A and B. However, just by looking at the aggregate numbers the higher of A and B would be Rs 54 lakhs.

But since we are making transaction-wise calculations, the higher of A and B is calculated for both transactions separately, and then added up. For the first transaction it is Rs. 50 lakhs and for the 2nd it is Rs. 10 lakhs. The addition of the two is Rs. 60 lakhs which should reported in the schedule ..

Those who opt to fill up the schedule for reporting transaction-wise sale details would see that the income tax department's utility automatically calculates and populates the amount of Rs. 60 lakhs in the CG schedule as cost of acquisition.

Adjustment for Rs. 100,000 exemption

Under the law, income tax at the rate of 10% is to be calculated only on the gains in excess of Rs. 100,000. The amount of Rs. 100,000 is not to be reduced from the total amount of the capital gains. Therefore, the taxpayers should not make any adjustment for the same in the CG schedule. This has also been clarified by the income tax department in its FAQ section.

Under the Schedule SI (Special Income), the total amount of gains is reported in the columns income, and taxable income. However, in the last column, the income tax on such gains is calculated at the rate of 10% only after deduction Rs. 100,000 from the total amount of such capital gains. If the total amount of such capital gains is less than Rs. 100,000 then the tax on the same would be calculated as zero. Note that, all these numbers in Schedule SI are pulled from the CG schedule and automatically populated by the income tax department's software. The taxpayers, however, should review these numbers before finalizing their return.

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Category Income Tax, Other Articles by - CA Varsha Chopra