An individual taxpayer is required to report long-term capital gains on the sale of listed equity shares and equity mutual funds in the income tax return for AY 2019-20 (FY 2018-19). One has to pay tax at 10 percent on the gains on these long-term capital gains in excess of Rs 1 lakh. Similarly, one has to compute and report the long-term capital losses if any.
There was an issue in the computation of the capital gains resulting from the reporting of the aggregate amount of the sale price, purchase cost and fair market value (FMV) as on January 31, 2018. The gains arising from the computation based on the aggregate values were incorrect as against a scrip-wise and transaction-wise computation.Hence, the income tax returns (ITRs) were amended to include scrip-wise computation of gains and losses to facilitate computation of correct values of
long-term capital gains and losses. Taxpayers are also required to quote the ISIN codes of the scrips or securities. Further to the amendments, the Income Tax Department clarified that taxpayers have an option to either enter the scrip-wise details of long-term capital gains in a newly introduced Schedule 112A or enter the self-calculated aggregate value of long-term capital gains directly for the purpose of calculation of capital gains.
Calculation of capital gains based on aggregate value
The calculation of long-term capital gains is complex due to the grandfathering of capital gains until the cut-off date of January 31, 2018. In the case of shares acquired before February 1, 2018, the computation of the gains is based on a comparison of the sale price with the fair market value as on January 31, 2018, and the purchase cost. We will explain this complex calculation in the paragraphs below.
You may have bought and sold many scrips, as well as you may have sold the same scrip you bought before February 1, 2018 on different occasions during FY 2018-19. You may have made gains on certain transactions while you may have incurred losses on certain transactions.
A sample calculation of XYZ Ltd is discussed below:
A single scrip is bought and sold multiple times. In the calculation below, the transaction-wise computation results in a long-term capital gain of Rs 8,000. However, a comparison of the aggregate value of cost, sale price and FMV of all the transactions aggregated results in a long-term capital gain of Rs 6,000. When a taxpayer chooses to furnish self-calculated aggregate values in the income tax return, the taxpayer would furnish the aggregate sale price, purchase cost and FMV, thus resulting in a capital gain of Rs 6,000.
As seen in the example above, a long-term capital gains computation based on aggregate values results in an incorrect computation of Rs 6,000 as against the correct capital gain of Rs 8,000. Similarly, when you have sold multiple scrips in the FY 2018-19, you need to enter details transaction wise for each scrip sold during FY 2018-19.
Hence, taxpayers should make transaction-wise computation of capital gains and losses, and then net the individual losses against the gains. The net gain or loss arrived at would be the correct capital gain or loss of the taxpayer.
While reporting your long term capital gains, you need to ensure you have the following data in place:
Reporting of long term capital gain in the income tax return: ISIN of the scrip or security bought and sold (easily obtained from https://www.bseindia.com/ or https://www.nseindia.com/) Sale price transaction wise (from your transaction statement) No. of units sold of the scrip (from your transaction statement) Purchase cost relevant to the units of the scrip sold (from your transaction statement) Fair market value as on January 31, 2018 (for scrips bought before February 1, 2018 from https://www.bseindia.com/ or https://www.nseindia.com/) Expenditure incurred wholly and exclusively in connection with the transfer i.e., brokerage, securities transaction tax (from your transaction statement).
A taxpayer can also choose to file ITR through one of online ITR filing providers that allow auto-uploading of CAMS report or uploading through an excel file; by doing so correct gains are automatically calculated. This can be really helpful to taxpayers who are facing difficulty reporting this information.
Archit Gupta is the Founder and CEO of ClearTax.