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

Published: May 15, 2019 at 10:21 am

Last Updated on December 3, 2020

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 the 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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