By CA Geetanshu Bhalla
Income tax return forms notified for AY 2020-21 sought the script wise details of each transaction attracting the provision of section 112A of Income tax Act, 1961 (“the Act”). However, after getting several representations, CBDT has clarified that the disclosure of script wise details in the income tax returns are required only in cases where the concept of grandfathering is applicable and not in all cases.
This clarification seems to be a big relief to the taxpayers as it will certainly reduce the time to furnish the income tax return. However, CBDT clarification seems not to be aligned with the notified income tax return namely ITR-2, ITR-3, ITR-5, ITR-6.
1. No Column to furnish consolidated LTCG
No Column is provided in the relevant ITR Forms for furnishing the consolidated details of long term capital gain in cases where section 112A is applicable but the concept of Grandfathering is not applicable in the notified income tax returns.
The government has introduced section 112A under the Act to levy tax @10 per cent on the long-term capital gain (LTCG) arising out of sale of listed equity shares, equity oriented mutual funds or business trust provided the satisfaction of certain conditions w.e.f April 01, 2018.
Earlier, such long-term capital gain was exempt from income tax, hence, to provide relief to the investors who hold the investments on January 31, 2018, Govt has introduced the concept of grandfathering. The grandfathering concept implies that all the gains on mutual funds/ equity until the introduction of new section (i.e. January 31, 2018 in this case) will be exempt from taxation.
Any gains prior to January 31 are grandfathered. In simple words, it means the capital gains will be zero if the sale price of equity/ mutual funds is more than the cost of acquisition but less than the fair market value on January 31.
CBDT clarified that only in the cases of grandfathering, script wise details need to be furnished and remaining all cases, aggregate amount of sale consideration, selling expenses, cost of acquisition meet the purpose.
The issue is there are two set of transactions which attract the provision of section 112A of the Act, namely transactions which attract grandfathering and transactions which does not attract grandfathering, but there is only one column for furnishing the details attracting the provision of section 112A of the Act which is automatically mapped with the schedule – 112A which requires script wise disclosure and no column is provided for second category of transaction.
Take the case of Mr. Gupta who bought the listed equity shares on May 22, 2018 and sold the same on March 26, 2020. The gain on such a transaction is long term capital gain as the period of holding is exceeding 12 months. Mr. Gupta did hundreds of such transactions during AY 2020-21. CBDT Clarification requires Mr. Gupta to compute the capital gain in aggregate on such transactions and disclose it accordingly, however, Mr. Gupta has no option to disclose such gain in aggregate as no option is available under the Income tax Return.
Hence, the income tax return forms need to be notified after correction.
Hardship to the taxpayers
In the absence of specific column, assesses either have to show the second set of transaction in some other column of long-term capital gain which may cause non-reconciliation with the data available with the income tax department for such column and ultimately may result in initiation of assessment and unnecessary requisition of several information and documents from the honest taxpayers.
Recommendation
CBDT should re notify the income tax return after incorporating the relevant column in the said Income tax Return forms.
2. Fair Market value as on January 31, 2018
Many taxpayers do not have the details of FMV of their holding on January 31, 2020 as the information was not provided by the Trading Account service provider or asset management service provider, etc to them. Hence, taxpayers are facing the difficulty in computing their capital gain.
Hardship to the taxpayers
Collecting the Fair Market Value as on January 31, 2018 for and every script attracting the provision of section 112A of the Act is a cumbersome process for the taxpayers which requires significant time devotion from the taxpayers.
Recommendation
CBDT should either request the SEBI to ask all the stock exchanges to declare the Fair market value of all securities listed on their exchanges on January 31, 2018 on their website or directly ask the exchanges to do so. Alternatively, the Income Tax Department can host such information on their website after collecting from the Stock exchanges.
3. Script wise Disclosure
It seems that CBDT inadvertently states that the disclosure is required at script wise level for the given cases, however, the details including sale price per unit, quantity sold asked in the notified income tax return appearing to the details at the transaction level rather than script wise.
Hardship to the taxpayers
There is no provision to import the transaction level details from any other excel sheet in the income tax return form which not only make the filing of income tax return a cumbersome process as transactions may be in hundred or thousand in numbers but also increase the possibility of clerical or typo error.
Recommendation
CBDT should revise the income tax return utilities for incorporating the provision of import of details from any other excel file.
