If you redeemed your mutual funds or sold shares in the financial year 2019-20, you will have to give the details of each sale transaction while filing your income tax return (ITR) while reporting the capital gains or losses in ITR. The taxpayers will be required to give out details such as the international securities identification number (ISIN), share or mutual fund name, quantity, sale and purchase price as well as fair market value (FMV) at the end of January 2018, in all cases.
“Schedule 112A was introduced in AY 2019-20 as an optional schedule. Taxpayers had the alternative to fill consolidated data of capital gains or losses from listed equity shares and equity-oriented mutual funds. However, for the AY 2020-21, it is compulsory to fill schedule 112A to provide details of each transaction of sale or redemption,” said Archit Gupta, founder and CEO, Cleartax.
Long -term capital gains in equities above ₹1 lakh are now taxed at the rate of 15%. Also, the investments made until 31 January were grandfathered exempting gains earned up to 31 January 2018 for investments made earlier. Therefore, taxpayers have to disclose the value of shares and mutual funds as on 31 January 2018 as well.
Let’s understand what this change means for you and how to deal with it.
What does this change mean?
The basic idea behind asking finer details is basically catching those taxpayers who don’t disclose their transactions. The tax department will verify the details which it receives from various sources, including the tax detected at source or tax collected at source statements and specified financial transaction statements, among others, with the details provided by the taxpayers in the income tax return.
“In case there is a mismatch, the tax department will be able to detect any evasion by the taxpayer,” said Gautam Nayak, a chartered accountant.
As many new investors started investing in mutual funds in the past and some have also entered the stock markets, the tax department wants to ensure that they disclose the gains arising from these investments.
Some experts also feel this will make the tax filing process lengthy and time taking as instead of giving the cumulative of the gains or losses now one will have to give finer details of all the transactions.
“The format in which the details are available from mutual fund companies or brokerage houses makes it difficult to copy or upload the details in the ITR-2, ITR-3 or other ITRs. The taxpayer needs to enter the data manually for each redemption or sale transaction which is quite tedious,” said Gupta of Cleartax.
However, Nayak believes it could be a short-term phenomenon. “Capital gains have to be calculated separately for each transaction anyway, now it is just that the person will need to give the details in the tax return. I believe that the tax department may provide pre-filled details to the taxpayers going forward. So, it may be a short-term hassle, but the taxpayers need to ensure they disclose all the transactions correctly,” he added.
However, in case a person has done multiple transactions and has redeemed funds from different fund houses, it will be a time-consuming process to manually enter the details of each transaction.
What can taxpayers do?
If you are investing through any of the investment portals in mutual funds, some of them do provide a report on the capital gains tax statements. “Various fund transfer agencies provide a statement of both short-term and long-term capital gains for the full financial year. Also, various brokerage houses provide capital gains reports. The details are available transaction wise with the corresponding purchase cost and purchase dates,” said Gupta.
These statements can come handy file filing the details. “Yes we provide a capital gains report for all mutual fund transactions in that year,” said Gaurav Rastogi, CEO, Kuvera, an investment platform.
If you are investing directly with fund houses you will have to look from the statements from those fund houses separately.
Some of the tax filing portals, including Cleartax also provide the facility to upload capital gains statement in case the person uses their platform for tax filing.