ITR filing becomes tougher for ELSS investors in FY 2018-19

Filing income tax return has become a tedious task, especially for salaried individuals who have invested in tax-saving mutual funds i.e. Equity Linked Saving Scheme (ELSS), for the financial year (2018-19).

Taxpayers have invested in ELSS for saving their taxes and getting higher tax returns in future. But, after the amendment made in Budget 2018, which announced the taxation of long-term capital gains over and above Rs 1 lakh earned in a financial year. 

The individuals who redeemed their tax-saving mutual funds, after the lock-in of three years, in the FY 2018-19 will have to report the long-term capital gains earned in their income tax return. 

ELSS is considered to be the best tax saving option under Section 80C, because of its higher returns as compared to other options and tax efficiency. Till FY 2017-18, ELSS investment had exempt, exempt, exempt (EEE) status, because such investment was covered under Section 80C, and the maturity amount and the long-term capital gains (LTCG) earned from redemption was tax-free.

In the Union Budget 2018, the LTCG earned on equities and equity-oriented mutual funds over and above Rs 1 lakh will be taxable at 10%. 

Although levy of 10% tax on LTCG from equities and equity-oriented fund affected the ELSS status of EEE, it still remains the best tax saving options under Section 80C for the salaried class, which will generate higher long-term returns.

This amendment has become a roadblock for the salaried people, who made investments in ELSS, as they will have to fill the redemption details made in the financial year 2018-19 in the ITR-2 form. Earlier, there was no such requirement of reporting the capital gains from ELSS redemption and the individuals filed ITR-1 with comfort. 

Also Read: Income tax department launches ‘e-Filing lite’ for taxpayers

Any redemption of tax saving mutual funds made after 12 months from the date of investment is treated as LTCG. So, with a 3-year lock-in, any withdrawal out of ELSS will be treated as LTCG or a long-term capital loss.

A new schedule 112A has been introduced in this year income tax return forms, that includes 16 columns to report the LTCG earned from the sale of equities or equity-oriented funds.

The columns include the sale price, date of sale and purchase, purchase price, and so on. The individuals having any LTCG or long term capital loss from equities in the financial year 2018-19 will have report the same in their tax returns. 

Recently, the income tax department has clarified that the taxpayers will have the option to either enter the transaction wise details of the LTCG or enter the consolidated value of such gains in the LTCG section directly under respective capital assets. 

It would have been much easier for the salaried class investors if the department had included a single page for LTCG, from equity or equity-oriented funds, reporting in ITR-1 form.