Things have change into troublesome for the traders investing in equities – together with fairness linked financial savings scheme (ELSS), which is likely one of the well-liked tax-saving choices, and different equity-oriented mutual fund (MF) schemes – after reintroduction of tax on long-term capital acquire (LTCG) from equities.
Not solely the traders have to pay 10 per cent tax on positive factors exceeding Rs 1 lakh from redemption of equities and equity-oriented funds in a monetary 12 months, however revealing the capital positive factors within the Income Tax Return (ITR) has additionally change into a frightening job.
Till January 31, 2018, the LTCG on equities have been tax free. So, the salaried traders solely have to reveal the positive factors in ITR-1 as exempted revenue. But on making redemption on or after February 1, 2018, salaried taxpayers can not file ITR-1, as there is no such thing as a provision of showing capital positive factors on this ITR Form.
As a end result, aside from paying tax on LTCG from sale of equity-oriented funds, such taxpayers have to file advanced ITR-2 as a substitute of a lot easier ITR-1.
If the items redeemed include investments made earlier than and after January 31, 2018 by systematic funding plan (SIP), they must segregate the investments made earlier than and after the cutoff date.
This is as a result of the closing NAV on January 31, 2018 shall be thought-about as buy worth of the items purchased earlier than the cutoff date, whereas for the items bought on or after February 1, 2018, precise buy worth shall be taken into consideration for calculation of LTCG.
Moreover, funding sensible separate entries are to be made within the web page 112A of ITR-2 (and different ITR Forms as relevant) to declare LTCG on redemption of equity-oriented funds.
Due to the double bother, many fairness traders are suspending the redemption resolution.
However, it’s higher to make redemption in smaller portions yearly as no tax is payable on LTCG as much as Rs 1 lakh in a monetary 12 months.
So, whereas the ache of submitting ITR-2 (or different relevant ITR Forms aside from ITR-1) can’t be averted, traders might at the very least avoid wasting capital acquire tax by making smaller redemption yearly.