Things have become difficult for the investors investing in equities – including equity linked savings scheme (ELSS), which is one of the popular tax-saving options, and other equity-oriented mutual fund (MF) schemes – after reintroduction of tax on long-term capital gain (LTCG) from equities.
Not only the investors need to pay 10 per cent tax on gains exceeding Rs 1 lakh from redemption of equities and equity-oriented funds in a financial year, but revealing the capital gains in the Income Tax Return (ITR) has also become a daunting task.
Till January 31, 2018, the LTCG on equities were tax free. So, the salaried investors only need to reveal the gains in ITR-1 as exempted income. But on making redemption on or after February 1, 2018, salaried taxpayers can no longer file ITR-1, as there is no provision of revealing capital gains in this ITR Form.
As a result, apart from paying tax on LTCG from sale of equity-oriented funds, such taxpayers need to file complex ITR-2 instead of much simpler ITR-1.
If the units redeemed contain investments made before and after January 31, 2018 through systematic investment plan (SIP), they have to segregate the investments made before and after the cutoff date.
This is because the closing NAV on January 31, 2018 will be considered as purchase price of the units bought before the cutoff date, while for the units purchased on or after February 1, 2018, actual purchase price will be taken into account for calculation of LTCG.
Moreover, investment wise separate entries are to be made in the page 112A of ITR-2 (and other ITR Forms as applicable) to declare LTCG on redemption of equity-oriented funds.
Due to the double trouble, many equity investors are postponing the redemption decision.
However, it’s better to make redemption in smaller quantities every year as no tax is payable on LTCG up to Rs 1 lakh in a financial year.
So, while the pain of filing ITR-2 (or other applicable ITR Forms other than ITR-1) can’t be avoided, investors may at least save some capital gain tax by making smaller redemption every year.
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Author: Amitava Chakrabarty