Long term capital gains (LTCG) refer to profit generated by the sale of long term capital assets. These products are held for a particular period before the sale. LTCG is a taxable component. Recently, the norms for disclosing LTCG for ITR returns have been relaxed.
Read on to know the relaxations and the method of disclosure.
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How to disclose capital gains in your income tax return
Let’s understand what a capital gain is. Capital gains are profits or gains arising from the transfer of a capital asset. The capital asset could be any kind of property held by the assessee including equity investments and mutual funds. Capital assets can be short term or long term. The status is determined by the holding period of the assessee. Share, mutual funds, debenture and other securities which are held for 12 months are long term capital assets. To illustrate, Rahul purchased equity shares of a listed company in April 2017 and sold them in December 2018. The holding period was more than 12 months. Hence, gains from the sale will be LTCG.
Previously, LTCG on each equity investment required disclosure in the ITR returns. Central Board of Direct Taxes has recently simplified the process. The disclosure of the net consolidated amount of LTCG from different equity-oriented investments is sufficient. This applies when LTCG earned from equity investments is more than Rs 1 lakh FY 2018-19. In this case, LTCG should be from the sale of instruments held for more than 12 months. The applicable tax rate is 10 percent (excluding surcharge and cess). The securities transaction tax must be paid at the time of purchase and sale of the equity products.
You need to compute standalone LTCG arising from the sale of equity shares or units of equity-oriented mutual funds etc. However, for the ITR returns only aggregate amount of LTCG needs to be mentioned.
Central Board of Direct Tax (CBDT) has amended ITR-2 and ITR-3 forms to reflect the changes. You must disclose the aggregate LTCG the specified columns provided in these ITR forms. The various forms and sections of the form for disclosing LTCG is below:
-If you are a resident individual who has LTCG from equity, use Form ITR-2. HUFs that do not have income from profits and gains through a profession can also use this form. LTCG should be disclosed in Section B4 of the form.
-If you are an individual/HUF with income from profits through a profession, use Form ITR-3. LTCG should be disclosed in Section B5 of the form.
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-If you are a non-resident assessee, LTCG should be disclosed in Section B7 and B8 of Forms ITR-2 and ITR-3.
-If you are not an individual, HUF, company or file your returns through Form ITR-7, use Form 5 to disclose LTCG.
The updated forms are available on the IT Department’s website.
FAQs
Can you treat listed equity shares?
No, the minimum holding period should be 12 months or more for classification as a long term capital asset.
Is a stock in trade considered as a capital asset?
Stock in trade is specifically excluded from the definition of capital asset under the IT Act.
How is a long-term capital gain calculated for a resident tax payer?
LTCG is calculated by deducting the cost of acquisition from the full value of consideration on transfer of the long-term capital asset.
How is a long term capital gain calculated in case of FIIs?
The manner of deterring the LTCG is the same as in the case of a resident tax payer.
What will be the tax treatment of any transfer made on or after April 1, 2018?
LTCG exceeding Rs 1 lakh will be taxed at 10 percent. However, there will be no tax on gains accrued up to January 31, 2018
What will be the treatment of long-term capital loss from a transfer made on or after April 1, 2018?
A long-term capital loss arising from such transfer will be allowed to be set-off and carried forward. The IT Act provides the same. The losses can be set-off against any other long-term capital gains. Any unabsorbed loss can be carried forward to eight years for set-off against long-term capital gains.
Is there any tax deduction at source in case of payment of long-term capital gains by Foreign Institutional Investors (FIIs)?
There is no deduction of tax at source from payment of long-term capital gains to a Foreign Institutional Investor. This is as per section 196D of the Act.
Is there any tax deduction at source in case of gains by the resident taxpayer?
There will be no deduction of tax at source from the payment of long-term capital gains to a resident taxpayer.
