By Neeraj Agarwala
If you are a retail investor with taxable income below Rs 7 lakh, don’t just assume that your total income is tax free. Even if your income is below the rebate limit, capital gains and certain transactions still need to be reported.
ITR forms
Many taxpayers continue to file ITR-1 without realising its restricted scope. For FY 2024–25, ITR-1 may be used to report long-term capital gains (LTCG) under Section 112A of up to Rs 1.25 lakh, which remain exempt from tax.
However, if your LTCG exceeds Rs 1.25 lakh, involves other types of LTCG, or includes short-term capital gains (STCG), you must file ITR-2 (for all income other than business/profession) or ITR-3 (if you have business or professional income).
Applicable tax rates
The income tax rates applicable to capital gains was amended mid-year on July 23, 2024. Accordingly, the tax rate will depend on the date of transfer of capital asset: For transfer before July 23, 2024, the LTCG on equity-oriented products will be 10% and for others it will be 20%. The STCG on equity will be 15% and for others at the slab rate. For transfer after July 23, 2024, the LTCG on equity instruments will be 12.5% and STCG will be 20%.
Debt mutual funds acquired on or after April 1, 2023, market linked debentures and unlisted bond or an unlisted debenture transferred or redeemed or maturing on or after July 23, 2024 are deemed to be STCG, irrespective of the holding period.
Tax P&L statement
A Gain & Loss statement, or tax P&L, is available with your broker or securities portal. This statement provides a detailed record of each security sold, including purchase date, acquisition cost, and related charges. Cross-check these figures with your Annual Information Statement (AIS) to ensure completeness and accuracy. Preparing an independent tax computation before filing your ITR is advisable to confirm that the figures reported in the return are correct.
Schedules for capital gains
Capital gains in the ITR are reported under two separate schedules. For LTCG from equity shares, units of equity-oriented funds, or units of a business trust, taxpayers must complete Schedule 112A. All other capital gains are to be reported in Schedule CG. Both schedules now include separate columns for transactions before and after July 23, 2024. Taxpayers should ensure that these entries match the information in their Annual Information Statement (AIS) and tax P&L statement.
Section 87A rebate
No rebate under Section 87A is available for LTCG covered under Section 112A. As per the newly released ITR forms, this rebate will also not apply to income taxable at special rates, including STCG and other LTCG, under the new tax regime. The income tax department’s stance on this matter is debatable, as observed by the Bombay High Court. Make a considered decision on whether to claim the rebate, keeping in mind the potential risk of litigation.
The writer is partner, Nangia & Company.
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