Section 112A- The New Ordeal for Traders
Under Budget 2018, the Finance Minister, Shri Arun Jaitley, removed the exemption under Section 10(38). He also introduced a new Section 112A with a 10% tax on LTCG in excess of INR 1 lac in the case of a capital asset on which STT is paid. The new Section 112A was applicable from FY 2018–19 (AY 2019–20).
The controversy surrounding Section 10(38) & its removal
Up to FY 2017–18 (AY 2018–19), Long Term Capital Gain (LTCG) on the sale of a capital asset on which STT (Securities Transaction Tax) is paid was exempt under Section 10(38) of the Income Tax Act. Thus, profit on the sale of listed equity shares, equity-oriented mutual funds, and units of business trust held for more than a year was exempt from income tax.
Since investors already paid STT on listed securities, provisions u/s 10(38) provided relief from double taxation to such investors. However, there was a growing sentiment that the provision encouraged diversion of funds from sectors such as manufacturing & infrastructure into capital markets. Read in detail over here.
Confusion Galore: Grandfathering Rule Section 112A
Many investors invest in equity markets with an intention to earn tax-free profits in the form of Long Term Capital Gains. For such investors, CBDT introduced the grandfathering rule to ensure that gains up to 31st January 2018 are not taxed.
ITD Utility & Reporting woes of Section 112A
The grandfathering rule and Section 112A has increased complexity and confusion for the investors to Compute Capital Gains and file Income Tax Return. In the ITR utility, the IT department added a new Schedule 112A to calculate LTCG on trade wise basis after applying grandfathering rule.
P&L Reports from Brokers (Inadequate)
Investors/traders can download the Tax P&L report from their brokers. Brokers like Zerodha provide both FMV as on 31st Jan 2018 and the cost of acquisition as per grandfathering rule in their Tradewise Tax P&L Report. However, the reports of many other brokers do not reflect such details making it extremely challenging for the traders and investors to file their Income Tax Returns.
With such reporting requirements in the ITR and missing information in the broker’s reports, the process of tax filing has become drastically complicated for traders and investors this year. Let us hope that the Income Tax Department comes out with a solution that makes tax filing less tedious for the taxpayers.
