Alert for salaried! Are you investing in equities, MFs and ELSS? Get ready to file a different ITR form this time
By: Amitava Chakrabarty | Published: April 10, 2019 5:59 PM The Financial Express
LTCG arising on transfer of equity shares or units of equity-oriented mutual fund (including ELSS) was exempt from tax earlier, provided securities transaction tax (STT) was paid at the time of transfer.
Till last year, salaried persons investing in equity shares, equity-oriented mutual funds (MFs) as well as tax-saving Equity Linked Savings Schemes (ELSS) and having total income up to Rs 50 lakh from salary, income from single house property and income from other sources used to enjoy filing income tax return in a simple way through the ITR-1 form even if they had redeemed their equity investments resulting in long-term capital gain (LTCG).
This is because LTCG arising on transfer of equity shares or units of equity-oriented mutual fund (including ELSS) was exempt from tax u/s 10(38) of the Income Tax Act, provided such transfer took place after at lease one year from the date of acquisition and securities transaction tax (STT) was paid at the time of transfer. As equity and equity-oriented investments are considered long-term assets after expiry of one year from the date of acquisition, salaried persons need only to mention such tax-free LTCG on “Taxes Paid and Verification” page as exempt income only for reporting purposes.
But in his budget speech on February 1, 2018, Finance Minister Arun Jaitley declared that the LTCG on equities and equity-oriented funds will no longer be tax free and 10 per cent capital gain tax will be charged on any LTCG in excess of Rs 1 lakh, arising out of redemption of such assets in a financial year. Accordingly, the slot to report tax-free LTCG has been removed from this year’s ITR-1 form.
“The exemption granted by Section 10(38) of the Income Tax Act, 1961 (I-T Act) was withdrawn by the Finance Act, 2018 and parallel provisions imposing tax on long-term capital gains arising on sale of listed equity shares at a flat rate of 10 per cent (plus applicable surcharge and cess) without the benefit of indexation under Section 112A were introduced,” said Dr Suresh Surana, Founder of RSM Astute.
“A salaried individual having LTCG on equity shares exceeding Rs 1 lakh is required to report the same in ITR-2. Accordingly, ITR-2 has been modified to incorporate amendments brought by Section 112A by adding sub – item 4 in Part B of Schedule CG. The details of cost of acquisition of shares, fair market value of shares and full value of consideration need to be filled in to determine the cost of acquisition of equity shares according to the amended provisions of Section 48 of IT Act. As such, the revised ITR also provides for the reduction of exemption threshold of Rs 1 lakh so as to derive the exact amount of long term capital gains liable to tax,” he added.
Explaining the method of calculation of LTCG, Dr Surana said, “The provisions of Section 48 of the Income Tax Act, 1961 (I-T Act) which provides for the mechanism for computation of cost of acquisition for the purposes of determining capital gains were also amended by the Finance Act, 2018. By virtue of amended provisions, for equity shares purchased on or before January 31, 2018 higher of actual cost of acquisition and lower of fair market value (FMV) of shares on January 31, 2018 or full value of consideration shall be considered as cost of acquisition for the purposes of Section 112A of I-T Act.”
So, in case you have made any redemption in 2018-19, get ready to file ITR-2, which last had 21 pages in its Excel Utility, unlike just 4 pages in ITR-1, even if your source of earning is salary.