3 min read.Updated: 14 Jan 2021, 06:15 AM ISTRenu Yadav
For AY21, the ITR forms require taxpayers to give details of long-term capital gains (LTCG) from any mutual funds or stocks sold in financial year 2019-20 (FY20)
As part of its pre-budget series, Mint Money is highlighting some pain points in taxation that the government may want to address. Today, we highlight the cumbersome requirement of filling details of gains from stocks and mutual funds in the income tax return (ITR) forms for assessment year 2020-21 (AY21).
Every year, new ITR forms are notified to incorporate changes to ensure better tax compliance. For AY21, the ITR forms require taxpayers to give details of long-term capital gains (LTCG) from any mutual funds or stocks sold in financial year 2019-20 (FY20). This is required in case the taxpayer wants to avail of the benefit of grandfathering clause, as per a clarification issued by the tax department in September 2020.
However, this is a tedious task for people who have done multiple transactions or have invested in mutual funds through systematic investment plans (SIPs). As the purchase date for each SIP will be different, the capital gains have to be computed separately and reporting the details of each SIP can be a pain, especially for small investors who want to file their ITR on their own. Even tax experts, who have to file ITR on behalf of the taxpayers, may find it difficult.
The details required include the name of the scrip, international securities identification number (ISIN), purchase price, sales price and the dates of transactions for each mutual fund and stock separately.
“In the ITR form, the details of purchase, sale, ISIN code, fair market value on 31 January 2018 and other details of each share or mutual fund from which LTCG arises have to be entered manually. This causes hardship to the taxpayers," said Prakash Hegde, a Bengaluru-based chartered accountant.
In the Finance Act, 2018, tax exemption to LTCG, earned till 31 January 2018, on listed shares and mutual funds was given through grandfathering. In other words, LTCG tax won’t be charged on LTCG till 31 January 2018 and the purchase price for calculating LTCG tax will be considered as on 31 January 2018 for stocks and mutual funds sold in FY20.
Experts feel all this has made the tax filing process cumbersome and painstaking for the taxpayers and the tax department should leverage technology to get the relevant details from various institutions. “I believe that the income tax department can leverage the power of technology and integrate data received from stock exchanges and KYC (know your customer) registration agencies on listed shares transactions and expand the scope of Form 26AS. The new format of 26AS (annual information report), effective from 1 June 2020, includes new areas such as specified financial transactions. Similarly, the scope can be expanded to pre-filled information on listed share transactions," said Harsh Bhuta, partner of Bhuta Shah & Co. LLP, a tax firm.
“Pre-filling of listed share transactions will automatically provide the taxpayer information on their capital gains from the sale of stocks and mutual funds and dividends received. While filing ITR, the individual won’t have to manually get the data from different sources. This budget announcement can lead to considerable ease of filing and would eliminate human error and inaccuracies in the return," he added.
Sonu Iyer, tax partner and people advisory services leader, EY India, said, “As it is only for only those who want the grandfathering benefit, those who don’t want to avail the benefit can give the consolidated figure. Also, the tax department can provide the details of the stock price or mutual fund net asset values on their website to ease the process for the taxpayers."
Experts hope that the budget will provide some relief to the taxpayers on this aspect.