Filing Equity LTCG in ITR2 (AY 2019-2020) is messy! Here is a way out!

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From the financial year 2018-2019, long term capital gains above Rs. one lakh from stocks and equity mutual funds are taxed at the rate of 10%. The assessment year 2019-2020 is the first time when taxpayers will have to report equity LTCG in schedule CG of ITR2. However, since the income tax department did not make the form flexible enough, reporting equity LTCG can be challenging. Here is a way out. The revised guide to file ITR2 for AY 2019-2020 is now available (linked below)

Update 19th July 2019 from income tax dept: “Schedule 112A and 115AD(1)(iii) of long term capital gain are provided in the Income Tax Return software as per the Instructions to the Notified ITR form and based on taxpayer feedback. Taxpayers have an option to either enter the Scrip wise details of long term capital gains in Schedule 112A and 115AD(1)(iii) so that the correct values are populated in the CG Schedule or enter the self-calculated aggregate value of long term capital gains directly under respective items in schedule CG in terms with Sec 112A or 115AD(1)(iii) without entering scripwise details. Taxpayers may exercise either option based on their convenience”.

Update 15th June 2019: Revised forms are now available  with this note: In case of long term capital gains (LTCG) arising on sale of equity shares or unit of equity oriented fund or unit of business trust on which STT is paid, separate computation of capital gains should be made for each scrip or units of mutual fund sold during the year and aggregated amount should be provided in item No. B4 (ITR 2)/B5( ITR 3) (in case of residents) or item No. B7 (ITR 2)/B8(ITR3)(in case of non-residents). The Utility has been updated and relevant validation rules are relaxed. Please download the latest utility available under Downloads. The updated utility of ITR-5 for the same change will be available shortly.

First, it is important to understand how the tax rule is applicable. I have already explained this for first-time taxpayers here: Equity LTCG Tax With Grandfathering Explained: Video + Calculator and provided several examples here: Equity LTCG Taxation: How much tax do I need to pay? Illustration part 1. Also since investors wanted to “book profits up to the tax-free limits of Rs. one lakh”, we also discussed, Should I book profits each year to lower Equity LTCG Tax?

Filing Equity LTCG in ITR2 (AY 2019-2020) is messy! Here is a way out!

Equity LTCG Tax example

For the purpose of this post, let us consider a purchase, let us consider a purchase made in July 2016 for Rs. one lakh. For the, we need to know the value of the units or stocks redeemed later as on Jan 31st 2018. Suppose this was Rs. 2 lakh.  The gain of Rs. one lakh up to that point is tax-free and is known as grandfathered LTCG. That is the old rule applies up to that point. Suppose the redemption was made in April 2018 for an amount of Rs. 4 lakh.

The effective LTCG = 4L – 2L = 2L. Now out of this, Rs. 1L is tax free. So the taxable effective LTCG is Rs. 1L on which 10% + cess tax will apply.

Equity LTCG taxation example how to file equity LTCG in ITR2

What is the problem in ITR2 form for AY 2019-2020?Equity-LTCG-tax-with-grandfathering-example-1Equity-LTCG-tax-with-grandfathering-example-1

Suppose you have long term capital gains to report from two stock sales and one mutual fund sale. Each of them will have a different purchase date, each of them will have a different value on Jan 31st 2018 and each of them will have a different sell date.

Each of them will have a different grandfather LTCG value and each of the effective taxable LTCG. Unfortunately, the ITR2 form does not account for this! Here is a screenshot. The full guide on how to enter values is here: Guide to efile Income Tax Return: ITR2, ITR3 and ITR5 for AY 2019-2020

This issue was raised by a friend (who prefers anonymity) with the authorities:

Issue Description: Sir, Kindly refer to the excel / java utility for ITR2 AY2019-20 – Schedule CG – “Section B4 – From sale of equity share in a company or unit of equity oriented fund or unit of a business trust on which STT is paid under section 112A” In the above section (B4), I find that there is provision to enter the values of “one” asset only. Suppose I have sold shares of 10 different companies, the fair market value of each share will be different and thus the calculation of Capital Gains will be different too. If I add up all the values together, and then enter in the sheet, the final result will be different. I believe that there must be a provision to add multiple rows to this section so that each set of values shall be entered separately. Kindly guide me. regards,

This was the response received:

Resolution Inputs: “The utility has been prepared based on the notified form. Your request for provisioning of add multiple rows for capture scrip wise details may not be a feasible solution as some taxpayer may have transacted in numerous scrips and find it problematic in filling of ITR. The matter is escalated with the appropriate authority for clarification. However, you may also consider the option of consolidating all the scrip values and provide the details so as to ensure the value at “Cost of acquisition without indexation” at ‘bi’ match with the figure computed manually” ITR2 AY 2019-2020 Bug in LTCG calculation

What is the way out?

Compute the effective LTCG by taking the total of calculations (before the 1L tax-free limit is applied, the sheet will do that for you). This value should be equal to the number in 4c  (see screenshot above).  Enter a cost of acquisition (4iA), the fair market value ( value on Jan 31st 2018) (4iB1) and the full value of consideration (4a and 4iB2) so that the right number is found in cell 4c.

So if the effective LTCG is Rs. 1.75L. Make sure this is the number in cell 4c. Then the 1L deduction will be applied in cell 4d.  You will have suitably set values in 4iA, 4a and 4iB2 such that 4c gives the right value!! This is not pretty, but as of now, there is no other alternative.

You can check out different examples of equity LTCG here: Equity LTCG Taxation: How much tax do I need to pay? Illustration part 1. Also use the full guide to efile Income Tax Return: ITR2, ITR3 and ITR5 for AY 2019-2020

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31 Comments

  1. Sir, thank you for the post. If due to grand-fathering and LTCG in equity is less than 1 lac, do we need to still file ITR 2? I tried to search if this was covered but could not find it.

  2. Could you guide me about how the sell of Preference shares will be treated? For example, if the preference shares sold after one year,should i take grandfather rate of 31st Jan or should i take indexation or i will have to take the actual cost only? Please guide.

  3. If a salaried person earns less than 1 lakh as LTCG from equity/equity mutual funds can he/she file ITR 1 and claim exemption u/s 112A under exempt income(exempt income drop down column others)

  4. What if one gets a negative LTCG (ie a long term capital loss ) as effective LTCG ? Can it be carried forward for off-setting in the next 7 or so years against TAXABLE LTCG (ie over and above the one lakh threshold ) of those years? Does the form have necessary in-built provisions for taking such negative figures to the relevant portion of the return where carry-forward details appear?

    1. Mr Venkat, I have that problem. My effective long term capital gain from shares in Negative. But then the value it puts, automatically, is 0 (Zero). Which is ok. But when you upload xml, it gives error, ” B4C balance is not equal to B(4a – biv). Which it can not be as actual value was negative- it computed as zero. Im in fix.

  5. I made raw LTCG in one security of Rs. 1,75,000.00 and LTCL of Rs 95,000/-. Which amount should I use for set off of LTCL – raw LTCG -Rs. 1,75,000 or Net LTCG of Rs. 75,000.

  6. If a salaried person earns less than 1 lakh as LTCG from equity/equity mutual funds can he/she file ITR 1 and claim exemption u/s 112A under exempt income(exempt income drop down column others)

  7. ITR2 excel as well as java utility for AY 2019-20 as on July 14, 2019 has the following bug: For LTCG computation, Schedule CG Part B column 4f should be computed as 4d-4e; But column 4d is greyed out and not changing whatever value is there in 4c, and the formula for column 4f is given as 4c-4e. So for LTCG does not get the exemption of Rs. 1 lakh.

    1. I have Long-Term Capital loss from shares. While reporting that in ITR2, I put higher of Full Consideration and Cost of acquisition (higher), the value is negative (4a-biv). But it automatically puts it as 0 (zero). When I file the return, I get the error that ” B4C balance is not equal to B(4a -biv)”. What to do? Am I making a mistake?
      It might also be a bug, as it doesnt allow you to put a negative value in 4C- it greys. I downloaded utility today (dated 12th July).

    2. I too see this same issue; 4d is grayed out and hence the 1 lakh exemption is not taken into account.

      Also, in 112A schedule, it doesnt accept a MF Folio No. It only seems to accept a ISIN number. That is also another bug.

    3. You are correct. Same issue I faced with my CA’s software and I checked excel as well as java utility, both have same bug.
      The 4f formula is incorrect and so is 4d calculation which always remains 0 (greyed out) even if my LTCG is 2 lakhs

    4. Sir, were you able to find any workaround for this issue? I have filled the values as mentioned in the blog/post above and I am getting LTCG of 13k in 4c, which is matching with LTCG calculators given on various sites. But this 13k is NOT getting exempted from Income tax calculation. Any solution to this??

  8. I see 2 issues in latest version of ITR2 (dated 11th July):

    1) In CG schedule, 4d is grayed out and hence the 1 lakh exemption is not taken into account for LTCG.

    2) In the new 112A schedule, it doesnt accept a MF Folio No. It only seems to accept a ISIN number.

    1. I wrote to IT helpline and got this reply on 4d greyed out issue: Do not worry if income is not reduced. Schedule SI actually calculates the tax at special rates and this makes the tax appropriate by reducing LTCG by Rs. 1 lakh. So Income is shown all the way, but as it is a special rate tax, it is computed to be less. For me it worked.

      1. I faced the same issue but the so-called special rate tax mechanism does not work. I have a STCL of 1,05,000 from direct equity and LTCG of 95,000 from equity mutual funds. I expected that the complete LTCG of 95,000 to be covered by the 1L tax-free threshold under section 112A. That way, I would have been able to carry forward the complete 1,05,000 STCL to next year. But because the field 4d is grayed out, the STCL is getting set off against LTCG. Effectively, this is allowing me to carry forward only 10,000 of STCL to next years as the benefit of section 112A is not considered correctly. Can you please let me know how did you contact the IT helpline?

          1. After a short delay, I finally got the following response from IT helpdesk. As per the same, the current logic in the IT-return filing utility is intended, effectively dashing my hopes of getting a bug-fix. I guess, we just need to accept the argument from IT dept. and move on 🙁

            Response from helpdesk: “Dear Taxpayer, Thank you for contacting e-Filing Helpdesk. With respect to t he e-Nivaran request raised by you, As p er the provisions of Income Tax Act, 196 1 theexemption of Rs.1,00,000 should be provided while calculating Tax and not for the purpose of computing Income. Therefore for complying with the same in Utilitythe exemption field of Rs.1,00, 000 provided in Schedule CG has been gre yed-off(Tag “LessLTCGThresholdLimit” has been removed and the same shall be prov idedwhile computing Tax in Schedule SI so that the true intention of law can be complied with.”

        1. This is the exact issue I am also facing. I contacted IT by submitting a grievance in the incometaxfiling website (after logging in). Somebody called and I explained the issue. Still awaiting a resolution from them.

        2. Hello Mr Sagar, as luck in getting any solution from IT department. I have the same concern and looking forward for the resolution. Regard

      2. Thanks. Yes, if only LTCG equity is being claimed it is taken care of in SI tab & the Part B TI tabs for the 1 lakh exemption. However, this works ONLY if all we have is this equity related LTCG. If in CG tab we have other losses like short term capital loss or a LTCL for a property sale, then those losses are setoff against this equity LTCG and only the balance losses is carried forward. Ideally as per 112A, the 1 lakh deduction should be applied to the equity LTCG, and then only the setoffs against other losses like STCL & LTCL for property etc should be done. IMO, IT should still fix this to deduct the 1 lakh exemption in 4d itself in CG.

        1. Hi ,I had a word with help desk team of IT . As per them exemption under section 112A will happen only after netting of gain & losses coming from long term or short term investments . Is that correct ? I had the older utility(PR1.4) in which the calculation is done as what is being discussed in the forum ..exemption of 122A is applied first and then net off happens with STCL . .However upload of return old utility is no more valid.

          Can some one guide the right way how this is to be done.

  9. People like me, who are doing STP from equity to equity on multiple funds; and that too say with daily frequency; filling Schedule 112A is not practical as number of rows will be > 3000 !!

    Any solution on that?

  10. 1. Is this new schedule 112A is mandatory. I am able to generate XML without filling this schedule, though I have filled the CG schedule.
    2. Should we include all line entries, including those that have NIL LTCG/ LTCL or only those that have positive or negative LT values
    3. For each entry in schedule 112A, the computation of effective cost could be different – either actual acquisition cost or sale consideration or fair value. Under these circumstances, the total of schedule 112A will not tally with the relevant entries in schedule CG

    The ideal solution should have been to provide 4-5 aggregate options in schedule CG – one each for NIL CG, post-31.01.18 purchases, and the 3 effective cost options

  11. Update 19th July 2019: Schedule 112A and 115AD(1)(iii) of long term capital gain are provided in the Income Tax Return software as per the Instructions to the Notified ITR form and based on taxpayer feedback. Taxpayers have an option to either enter the Scrip wise details of long term capital gains in Schedule 112A and 115AD(1)(iii) so that the correct values are populated in the CG Schedule or enter the self-calculated aggregate value of long term capital gains directly under respective items in schedule CG in terms with Sec 112A or 115AD(1)(iii) without entering scripwise details. Taxpayers may exercise either option based on their convenience.

  12. When filling the Tool 112A section of ITR2 using the Java app I found out that in the sections values cannot be a decimal with more than 2 decimals. Since I’m taking this info from my CG statement it comes in amounts of 3 decimals. What is the rule for rounding these numbers?

    e.g. my statement shows no. of shares as 72.385 should I enter it as 72.38 or 72.39?

  13. Thank you for explaining how to adjust the nos in ITR-2 utility to get the proper LT capital gains (on equity) in B 4 (c). The exemption for 1 lakh is applied to get the no in item B 4 (d). so far so good. But the total taxable gain is calculated from item B 4(f), which is basically equal to B 4 (c). For example, I have LTCG in B 4(c) of Rs. 53,000 which is less than 1,00,000. B 4 (d) does not show any no., and B 4(f) is calculated by the utility as 53,000. Then this number goes on in other calculations. It seems that the (JAVA) utility is not giving me the exemption, even though my LTCG on equity MFs is less than 1,00,000. Can you please clariy this for me? Thank you!

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