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The Journey of GST in India
Taxpayers are required to report long-term capital gains (LTCG) on the sale of listed equity shares and equity mutual funds in the income tax return for AY 2019-20 (FY 2018-19). One has to pay tax at 10% on the gains (without indexation) on these long-term capital gains above Rs 1 lakh. Similarly, one has to compute and report the long-term capital losses if any.
In case of listed equity shares and mutual funds purchased before 31 January 2018, the LTCG has to be calculated based on the fair market value (FMV) as on 31 January 2018. The gains and losses are calculated by comparing the aggregate values of the sale price, cost, and FMV as on 31 January 2018.
In the income tax returns (ITRs) notified for various taxpayers, the income tax department allowed for the calculation of the LTCG on an aggregate basis.
Subsequently, the ITRs were amended to include scrip wise computation of capital gains and losses. Taxpayers are also required to quote the ISIN codes of the scrips or securities.
Calculation of capital gains based on aggregate value vis a vis scrip-wise:
The calculation of long-term capital gains is complicated due to the grandfathering of capital gains until the cut-off date of 31 January 2018. In case of shares acquired before 1 February 2018, the computation of the gains is done through a comparison of:
- Sale price
- FMV as on 31 January 2018.
- Purchase cost.
Let us explain this complex calculation in the paragraphs below.
Example 1: Mr A has sold the following scrips during the FY 2018-19 out of those bought before 1 February 2018.
| Multiple scrips | |||||
| A | B | C | D | E | F |
| Sale price | Cost | FMV | Lower of A and C | Cost of acquisition – Higher of B and D | Capital gain |
| 10,000 | 5,000 | 6,000 | 6,000 | 6,000 | 4,000 |
| 6,000 | 5,000 | 3,500 | 3,500 | 5,000 | 1,000 |
| 13,000 | 12,000 | 10,000 | 10,000 | 12,000 | 1,000 |
| 29,000 | 22,000 | 19,500 | 19,500 | 23,000 | 6,000 |
| AGGREGATE COMPARISONS | 19,500 | 22,000 | 7,000 |
In the example above, Mr A has made long-term capital gains on multiple scrips sold by him during the FY 2018-19. However, while calculating the LTCG, the calculation based on aggregate values results in an incorrect capital gain of Rs 7,000 as against the correct capital gain of Rs 6,000 calculated scrip wise and transaction wise.
Also Read: Mandatory disclosing of LTCG making ITR filing tough
The importance of entering transaction wise details for each scrip is highlighted in the example below:
Example 2: Mr A sold the shares of the scrip XYZ Ltd on various occasions during the FY 2018-19. Mr A had bought units of the scrip before 1 February 2018. We discuss a sample calculation of XYZ Ltd:
| Scrip XYZ Ltd | |||||
| A | B | C | D | E | F |
| Sale price | Cost | FMV | Lower of A and C | Cost of acquisition – Higher of B and D | Capital gain |
| 10,000 | 5,000 | 10,000 | 0 | 5,000 | 5,000 |
| 15,000 | 8,000 | 10,000 | 10,000 | 10,000 | 5,000 |
| 8,000 | 9,000 | 10,000 | 10,000 | 10,000 | (2,000) |
| 9,000 | 12,000 | 10,000 | 10,000 | 12,000 | (3,000) |
| 14,000 | 11,000 | 10,000 | 10,000 | 11,000 | 3,000 |
| 56,000 | 45,000 | 50,000 | 40,000 | 48,000 | 8,000 |
| AGGREGATE COMPARISONS (incorrect) | 50,000 | 50,000 | 6,000 |
As seen in the example above, Mr A has made gains on certain transactions while he has incurred losses on other transactions. The transaction wise computation results in a long-term capital gain of Rs 8,000.
However, a comparison of the aggregate value of cost, sale price, and FMV of all the transactions aggregated results in an incorrect LTCG of Rs 6,000. In a case Mr A furnishes self-calculated aggregate values, he would report an incorrect capital gain of Rs 6,000.
Hence, taxpayers should enter the details transaction wise for each scrip. The individual losses would be adjusted or reduced against the gains. The net gain or loss arrived at would be the correct capital gain or loss of the taxpayer.
Details required for reporting of long-term capital gain in the income tax return:
While reporting your long-term capital gains, you need to ensure you have the following data in place:
- ISIN of the scrip or security bought and sold (easily obtained from https://www.bseindia.com/ or https://www.nseindia.com/).
- Sale price transaction wise (from your transaction statement).
- No. of units sold of the scrip (from your transaction statement).
- Purchase cost relevant to the units of the scrip sold (from your transaction statement).
- Fair market value as on 31 January 2018 (for scrips bought before 1 February 2018 from https://www.bseindia.com/ or https://www.nseindia.com/).
- Expenditure incurred wholly and exclusively in connection with the transfer, i.e. brokerage, securities transaction tax (from your transaction statement).
Taxpayers can also avail the facility of direct upload of transaction data through the tax e-filing platforms. The e-filing platforms provide the facilities such as auto-uploading of CAMS report in an easy to use manner. These facilities are helpful to taxpayers who are facing difficulty reporting this information.
I am a Chartered Accountant by profession. I specialise in personal taxes and corporate income tax matters. I am an avid reader and track developments in financial markets, economy and other market developments.
