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The income tax return (ITR) form that taxpayers must use for filing income tax returns depends on their residency status and the sum of their various sources of income. ITR Form 2 must be used to file IT returns for HUFs and individuals with income not classified as “Profit and Gains from Business or Profession.”Taxpayers may file ITR-2 forms with income from salaries, rental income, capital gains, overseas assets, and other sources.
What is capital gains tax?
A capital gain is any profit realized from the sale of a capital asset. The category of income includes the profit that is made. As a result, the income that is received must be taxed. Long-term or short-term capital gains taxes are the types of taxes that are paid. Tax rates for both long-term and short-term gains begin at 10% and 15%, respectively.
Types of capital gains
The following is a list of the two categories of capital assets:
1. Long-term capital asset: When someone owns a property for over 36 months, it qualifies as a long-term asset. This category will comprise debt-oriented mutual funds, jewellery, etc., held for more than 36 months; the 24-month reduction term does not apply in such circumstances.
If any of the following assets are held for a period longer than a year, they are regarded as long-term assets:
- Bonds with zero coupon rates (independent of whether or not they are quoted)
- Units in the Unit Trust of India (UTI), regardless of whether they are quoted.
- Units of equity-based mutual funds (regardless of whether or not they are quoted)
- Securities listed on an Indian stock exchange that is accredited by government securities, bonds, and debentures are a few examples of these securities.
- Preference shares are securities owned by a business listed on an Indian-recognized stock market.
2. Short-term capital asset: Assets kept for 36 months or less fall under short-term capital assets. However, the period has been shortened from 36 to 24 months for immovable assets like real estate, buildings, and land.
As a result, if someone decides to sell a piece of property they’ve owned for more than 24 months, the money they make from it is considered a long-term capital gain. When deciding whether a piece of property can be classified as a short-term or a long-term capital asset, it is also considered whether the property was inherited or given as a gift and how long the previous owner owned it. When deciding which category bonus shares or right shares belong to, the date the bonus shares were allocated is considered.
Calculation of capital gains tax
Following are some key details that people should be aware of when calculating capital gains:
- Cost of improvement: If any costs have been incurred by the seller due to improvements or renovations made to the property, any enhancements made before April 1, 2001, however, cannot be considered.
- Acquisition cost: The sum of cash the seller pays to purchase the property.
- Full value consideration: The sum of money given to the seller due to the sale. Even though the money wasn’t received in that year, capital gains are still assessed from the year the transaction was done.
Example of calculating long-term capital gains
An example of how to compute long-term capital gains is shown below:
The price paid for the house: Rs. 35 lakh
Financial years 2011–2012: purchased a home
Financial year: 2019–2020; house sold
Price of the home sold: Rs. 60 lakh
Cost after inflation: (289/184) × 35 = 54.97 lakh
Long-term capital gains: 60,000,000 – 54,97,000,000 = about Rs. 5,03,000
Calculation of short-term capital gains
Individuals must adhere to the following approach to compute short-term capital gains:
- The person must first take into account the property’s whole value.
The following points must then be subtracted:
- Charges incurred to make improvements to the property
- The costs related to purchasing the property
- Any out-of-pocket costs related to the property transfer
- The short-term capital gain is the amount determined after the deduction.
The whole consideration, less the costs incurred for the transfer, less the price paid for purchasing and developing the property, is the method for calculating short-term capital gain.
Steps to e-file income tax returns for individuals with capital gains
Every year, tax returns for individuals who receive capital gains from the sale of equity must be filed. Through the official Income Tax Department website, one can complete it online. Here is a detailed instruction sheet for the same.
Step 1: First, go to the Income Tax Department’s official website and log in using the required information.
Step 2: They need to follow this path: e-File> Income Tax Returns> File Income Tax Returns.
Step 3: Individuals must choose the assessment year, the status, and the form type. The next step is to choose “Taxable income is more than the basic exemption limit” as the ITR filing reason.
Step 4: The five types of timetables are displayed on the following page: The ‘General’ option must be chosen before selecting the ‘Income Schedule’ option. They must then select the sort of capital asset from the offered list by tapping on “Schedule Capital Gains.”
Step 5: There are two different kinds of capital gains: short-term capital gains and long-term capital gains. Under Section 111A, short-term capital gains on the sale of listed equity shares are subject to a 15% tax. The STCG will make up any gap if a person’s total taxable income, excluding STCG, is less than the minimum taxable income of Rs. 2.5 lakh. The remaining STCG will be subject to a 15% tax and a 4% cess.
‘Add details’ must be clicked to report STCG. Then they must include the COA (Cost of Acquisition) for a specific FY and the consolidated amount realised from the sale of short-term assets.
Step 6:Under Section 112A, long-term capital gains (LTCG) are taxed. 10% tax is applied to the long-term capital gains (LTCG) from the sale of equities and equity-related securities. LTCG is not taxed, though, up to a ceiling of Rs. 1 lakh.
Until FY2017–18, long-term capital gains from the sale of listed shares, mutual funds, etc., were exempt from taxation.
When filing ITR 2, people must include scrip-by-scrip information for long-term capital gains. This will include the ISIN, the selling and buying prices, the dates of the various transactions, and more.
One must click “Add” after entering these facts in “Schedule 112A.”
Step 7:People must examine Part B TTI and then tap on ‘Preview Return’ after the relevant schedules have been ‘confirmed.’ They must now download the ITR and start the declaration process.
Step 8:Taxpayers must provide specified information on the declaration tab before tapping “Proceed to Validation.” The ITR submission needs to be confirmed after validation. People can confirm electronically or by delivering a printed copy of their signed ITR-V to the Bengaluru office of the Income Tax Department.
Remember that you must verify your ITR within 120 days of filing.
Follow the instructions as mentioned earlier for a hassle-free ITR 2 capital gains filing experience for taxpayers. Remember that each area must have accurate data, which must be double-checked before submitting the ITR form.
Penalties for non-filing or late-filing of income tax returns for individuals with capital gains
Individuals must pay a 5,000 rupee fee in addition to their tax debt if they file their income tax returns after the deadline but before December 31. In other situations, such as when the income tax return is filed on or after January 1st, the fine is 10,000.
The income tax officer may charge you with a crime and impose a sentence of 3 months to 2 years in prison and a fine if you knowingly fail to file the ITR for the required financial year.
You can choose to use the Chennai-based Kanakkupillai.com, the website of Govche India Pvt. Ltd., to ensure that your income tax return filing online is accurate and hassle-free, which helps you in the following ways:
- Establishes whether a tax return must be documented.
- Compiles your tax-filing documentation.
- Submitting your Form 16
- To cover unpaid taxes, checks and claims for missed deductions are required.
- Sends an ITR-V or e-confirms your ITR.
- Keeps a record of any refunds you may get.
1. Who needs to file income tax returns for capital gains?
To file the ITR-2 form, you must meet the following requirements: Any salaried or retired citizen of India or a member of the HUF (Hindu Undivided Family) financial gains from many homes, properties, and other sources like horse racing, lottery winnings, etc.
2. What is the deadline for filing income tax returns for individuals with capital gains?
According to the Capital Gains Account Scheme, 1988, capital gains not being invested by the deadline for filing returns (often the 31st of July of the fiscal year in which the property is sold) may be placed in PSU banks or other banks.
3. How can I calculate my capital gains tax liability?
You can determine your short-term capital gains on shares by subtracting the transfer and purchase costs from the sale price of the equity share. When calculating long-term capital gains, the transfer and indexed acquisition costs should reduce an equity share’s total sale value.
4. Can I revise my income tax return for capital gains?
Any errors, omissions, or incorrect statements should be reported as soon as possible after submitting the return, 3 months before the end of the assessment year or before the assessment is finished, whichever comes first. A return may be changed at any time.
5. What documents are required for e-filing income tax returns for individuals with capital gains?
The following documents are required in this regard:
- If you make money from land or structures, you may need to provide stamp duty documentation, sales and purchase deeds, improvement cost information, etc.
- If you make money from securities, provide P&L statements from brokers, stock ledgers, contract notes, and trading statements.
- Expense information related to transferring capital assets, acquisition costs, etc., if you receive income from other capital assets
- To get tax exemptions, you must supply investment information.
- Provide information about your capital gains account if you have one.
As a seasoned tax professional with extensive expertise in income tax matters, particularly capital gains, I aim to provide comprehensive insights into the concepts discussed in the article. My deep understanding of taxation laws and regulations enables me to convey complex information in a clear and accessible manner.
The article discusses various aspects related to income tax returns (ITR), with a specific focus on ITR Form 2 and the filing process for individuals with capital gains. Let's break down the key concepts:
ITR Form 2:
- It is specified that HUFs (Hindu Undivided Families) and individuals with income not classified as "Profit and Gains from Business or Profession" must use ITR Form 2.
- The form is designed for taxpayers with income from sources such as salaries, rental income, capital gains, overseas assets, and other avenues.
Capital Gains Tax:
- Defined as the profit realized from the sale of a capital asset.
- Two types of capital gains taxes: long-term and short-term, with tax rates starting at 10% and 15%, respectively.
Types of Capital Gains:
- Long-term Capital Asset: Owned for more than 36 months, includes various assets like debt-oriented mutual funds, jewellery, and specific securities.
- Short-term Capital Asset: Held for 36 months or less, with exceptions for immovable assets like real estate (shortened to 24 months).
Calculation of Capital Gains Tax:
- Factors considered include the cost of improvement, acquisition cost, and full value consideration.
- Long-term capital gains are exemplified with a calculation based on the purchase and sale prices of a property.
Steps to E-file Income Tax Returns for Individuals with Capital Gains:
- Detailed steps provided for e-filing, including selecting the appropriate assessment year, form type, and schedules for reporting capital gains.
Penalties for Non-filing or Late-filing:
- Late filing penalties outlined, with specific amounts depending on the time of filing after the deadline.
- A suggestion to use a specific platform for accurate and hassle-free online income tax return filing, emphasizing the importance of proper documentation and adherence to deadlines.
- Common questions answered, covering topics like who needs to file, filing deadlines, calculation of tax liability, revising returns, and required documents for e-filing.
In summary, the article provides a comprehensive guide for individuals with capital gains, covering the nuances of taxation, filing procedures, and potential penalties for non-compliance. This overview should serve as a valuable resource for individuals navigating the complexities of income tax returns in relation to capital gains.