Tax liability on long term capital gains (LTCG) at the rate of 10% will accrue only when the shares or mutual funds are sold after April 1, 2018.
In the Budget 2018, Union Finance Minister Arun Jaitley had introduced long term capital gains (LTCG) on sale of equity and mutual funds, which will be taxed from April 1 onwards. One must remember that any capital gains arising out of sale of shares in this financial year (2017-18), which means prior to March 31 this year, will not attract any long term capital gains tax.
Seven Things To Know About Tax On LTCG Arising On Equity/ Mutual Funds Sale
1. Tax liability on long term capital gains (LTCG) at the rate of 10% will be charged only when the shares or mutual funds are sold after April 1, 2018.
2. The tax liability will not arise if the shares or mutual funds are sold, at whatever premium, before the beginning of April since the new legislation will come in force with effect from the next financial year, which is April 1.
3. For the tax on LTCG to get liable, there must be a difference of at least Rs. 1,00,000 between the cost of acquisition and the amount of sale.
4. The time period of one year will be calculated from the date of acquisition even if the time period falls in the previous financial year, which is 2017-18.
5. Any gains prior to January 31 are grandfathered. This means the capital gains will be zero if the sale price is more than the cost of acquisition but less than the value on March 31.
For instance, an equity share is acquired on January 1, 2017 at Rs. 100, its fair market value is Rs. 200 on January 31, 2018 and it is sold on April 1, 2018 at Rs. 150.
In this case, the actual cost of acquisition is less than the fair market value as on January 31, 2018. However, the sale value is also less than the fair market value as on 31st of January, 2018. Accordingly, the sale value of Rs. 150 will be taken as the cost of acquisition and the long-term capital gain will be NIL (Rs. 150 – Rs. 150).
6. The tax payer will stand to gain when the shares market price on January 31 was lower against the acquisition cost. Since the higher of two values is chosen (between the cost of acquisition and the price on January 31), the investor stands to gain. Sample this. An equity share is acquired on 1st of January, 2017 at Rs. 100, its fair market value is Rs. 50 on 31st of January, 2018 and it is sold on 1st of April, 2018 at Rs. 150.
In this case, the fair market value as on 31st of January, 2018 is less than the actual cost of acquisition, and therefore, the actual cost of Rs. 100 will be taken as actual cost of acquisition and the long-term capital gain will be Rs. 50 (Rs. 150 – Rs. 100).
7. When the selling price is lower than both cost of acquisition and price on January 31, then instead of the higher of the two values, one has to take the lower of two values for computing the capital gains. Sample this. An equity share is acquired on 1st of January, 2017 at Rs. 100, its fair market value is Rs. 200 on 31st of January, 2018 and it is sold on 1st of April, 2018 at Rs. 50. In this case, the actual cost of acquisition is less than the fair market value as on 31st January, 2018. The sale value is less than the fair market value as on 31st of January, 2018 and also the actual cost of acquisition. Therefore, the actual cost of Rs. 100 will be taken as the cost of acquisition in this case. Hence, the long-term capital loss will be Rs. 50 (Rs. 50 – Rs. 100) in this case.
The date you actually need to focus on is March 31, because that is the last day to file revised and belated income tax returns (ITR) for assessment years (AY) 2016-17 and 2017-18, with interest, if any, for late filing. This is not to be confused with the deadline for filing taxes for the current financial year, which is on or before July 31. Last year this deadline was extended till August, but the gesture may not be repeated.
So if you are yet to file older ITRs, “there’s still time” to “come clean” as a recent advertisement put out by the income tax department reminds folks. The ad goes on to exhort companies, firms, LLPs, trusts, associations and political parties (whose income prior to claim of exemptions exceeds the minimum chargeable to tax) to file taxes. Similarly, individuals earning over Rs 2.5 lakh have to pay income tax while the exemption limit for senior citizens (aged 60-80 years) is Rs 3 lakh and that for very senior citizens (over 80 years) is Rs 5 lakh.
“If you have deposited large amounts of cash in your bank account or made high value transactions, please consider the same while filing income tax returns,” says the communication, adding that “Non-filing or incorrect filing of return of income may result in penalty and prosecution”. The easy way to do it is online, either by logging into the tax department’s e-filing website (incometaxindiaefiling.gov.in) or the likes of Cleartax.com and Taxspanner.com, which are far more user friendly. Keep in mind that failure to file returns for the AY 2017-18 by March 31 means no second chances.
Belated filing, of course, poses serious drawbacks. Not only do you lose the opportunity to avail of select exemptions and carry forward losses (other than house property loss) for the assessment years for which ITR were not filed, you may have to shell out extra as interest under section 234A, perhaps even sections 234B and 234C, which deal with advance tax. The latter is applicable on all individuals with a tax liability exceeds Rs 10,000 after your employer has deducted the TDS.
For any defaults in filing your ITR, according to Cleartax, “you will be charged an interest amount of 1% per month (simple interest) on the tax amount outstanding. This interest will be calculated from the due date applicable to you for filing of return of the applicable year till the date that you actually file your return.”
Here’s an example. Assume your total tax outstanding is Rs 1 lakh and you forgot to file your return. Your tax liability will calculated at 8% (8 months late till the end of the assessment year on March 31) of Rs 1 lakh, or Rs 8,000, over and above the tax amount that you are due to pay in any case.
That apart, “a penalty of Rs 5,000 shall be levied under section 271F”, says the FAQ on the income tax website. With effect from AY 2018-19, a new section 234F will come into play, under which the penalty for ITRs furnished on or before December 31 is Rs 5,000, but double that amount for later filings. However, penalty “shall be levied @ Rs 1,000 if total income does not exceed Rs 5,00,000” and if the tax evaded “exceeds Rs 25 lakh the punishment could be 6 months to 7 years” adds the website.
Also keep in mind that silly mistakes often creep in when one is trying to beat a deadline, like erroneously leaving a mandatory field empty or forgetting to report interest income. So make sure no discrepancies creep in while filing your returns, else you could be staring at a demand notice from the taxman, which means extra paperwork for you.
Thankfully, at least this headache will disappear from the next assessment year on. Earlier this month the CBDT announced that demand notices won’t be issued in cases of a minor mismatch between a taxpayer’s ITR and the corresponding tax credit data collected from banks and other financial institutions.
The soon-to-be rolled out pan India e-assessment system for scrutiny cases of taxpayers will not be applicable to instances where a raid has been conducted against an assessee by the Income Tax (IT) department, the CBDT has said.
It has added that the current system of manual assessment will continue in cases, where the books of accounts or original documents have to be examined, the taxman has to conduct a third-party investigation and where the tax officer has to examine a witness.
It will also be applicable to cases where the taxman has issued a show-cause notice to the assessee, “contemplating any adverse view”, and cases where the taxpayer has requested for a “personal hearing” to explain the matter to the assessing officer.
The Central Board of Direct Taxes (CBDT), the policy- making body of the IT department, issued an instruction yesterday to further explain how the system would work, once fully operational.
“…It is hereby directed that except for search-related assessments, proceedings in other pending scrutiny assessment cases shall be conducted only through the e-proceeding facility…,” the instruction said.
It added that in ranges where the IT offices were not equipped with computer infrastructure and Internet services as of now, the taxman should “complete only 10 per cent of the scrutiny cases having the potential to effect recovery during the current year itself”.
If an assessee objects to the electronic assessment, it may be “kept on hold” for the time being, the instruction said.
Finance Minister Arun Jaitley had, in his budget speech, announced that the process of electronic assessment of tax returns would be launched in the country, which would “almost eliminate person-to-person contact, leading to greater efficiency and transparency”.
CBDT Chairman Sushil Chandra, during a recent interview with , had said the e-assessment procedure would henceforth be handled by two officers, instead of the current system involving a single assessing officer (AO).
The functionality to conduct the e-proceedings would be available for all types of notices, questionnaires and letters issued under various sections of the I-T Act, the CBDT had said earlier.
The department said it was the final call for filing of belated or revised ITRs for assessment years 2016-17 and 2017-18
The Income Tax Department on Friday urged those who deposited “large amounts of cash” post demonetisation and all companies to file their returns by March 31, failing which they may face penalty and prosecution.
It also cautioned eligible trusts, political parties and associations to file their income tax returns by this final deadline and “come clean”.
The department, in public advertisements issued in leading dailies, said it was the final call for filing of belated or revised ITRs for assessment years 2016-17 and 2017 -18.
It underlined that there was still time for these categories of taxpayers and that they should avoid last minute rush and file the ITRs well before the deadline.
“If you have deposited large amounts of cash in your bank account/made high value transactions, please consider the same while filling your ITRs.
“Non-filing or incorrect filing of return of income may result in penalty and prosecution,” the public advisory said. It said all companies, firms and limited liability partnership concerns were also required to do so.
The deadline is also applicable, it said,to trusts, associations and political parties whose income prior to claim of exemptions exceeds the minimum chargeable to tax. Individuals and Hindu Undivided Families having income more than Rs 2.5 lakh and senior citizens with income of over Rs 3 lakh (60-80 years of age) and Rs five lakh (over 80 years of age) too need to file their returns for the mentioned assessment years, it said.
Budget 2018 has been presented by the Finance Minister Arun Jaitley and here are the key takeaways:
Personal tax
While the personal income tax structure remains the same-that is no new tax slab and no higher exemption limits-as a as a small concession, Jaitley has announced a standard deduction of Rs 40,000 for salaried taxpayers. This will be in lieu of the existing transport allowance and medical expense reimbursement. However, other medical reimbursements in case of hospitalisation will continue.
According to him, the existing allowances amount to Rs 30,000 so the actual tax benefit here on would be Rs 10,000 more for each taxpayer. This move is expected to benefit 2.5 crore people-25-30% of the total taxpayer base–and reduce paperwork along the way. The revenue cost of this concession is pegged at Rs 8,000 crore.
But if he is putting money in your wallets, his other hand is also taking cash away. The education cess levied on the tax you pay (also applicable on corporation tax) has gone up by 1%. The new 4% Health and Education Cess is expected to help the government collect an additional amount of Rs 11,000 crore.
Senior citizens
Apart from farmers and the gareeb nagrik, it is the older demographic that stands to gain the most from the latest Budget. To begin with, tax exemption of interest income from bank deposits has been raised to Rs 50,000 from the current Rs 10,000. He has also proposed to raise the deduction under health insurance premium under Section 80D of the Income Tax Act to Rs 50,000 (from Rs 30,000 currently). In case of senior citizens with critical illnesses the deduction will be Rs 1 lakh. Moreover, Fixed Deposit/Post office interest to be exempt till Rs 50,000. These concessions are expected to give senior citizens extra tax benefit of Rs 4,000 crore.
In addition to tax concessions, the government has proposed to extend the Pradhan Mantri Vaya Vandana Yojana up to March 2020 under which an assured return of 8% is given by Life Insurance Corporation of India (LIC). The existing limit on investment of Rs 7.5 lakh per senior citizen under this scheme is also being enhanced to Rs 15 lakh.
Corporate tax
Jaitley has announced that companies with a turnover of up to Rs 250 crore will now be taxed at 25% (from 30%). According to him, this move will benefit 99% of companies and the revenue foregone is pegged at Rs 7,000 crore in 2018-19. After this, out of about 7 lakh companies filing returns, only about 7,000 companies will remain in 30% tax slab.
The other bit of bad news is that the FM proposed to tax long term capital gains exceeding Rs 1 lakh on sale of equity shares/units of Equity oriented Fund at 10%, without allowing any indexation benefit. To justify his move, he pointed out that the total amount of exempted capital gains had surged to nearly Rs 360,000 crore, as per returns filed for assessment year 2017-18, and that the return on equity was attractive even without exemptions. A major part of this gain has reportedly accrued to corporates and LLPs. So while retail investors will also be hurt by this move, the impact will be most felt by corporates.
However, existing investors will be exempted from capital gains tax up to January 31, 2018. All gains made thereafter this cut-off date will be taxed. This move could earn the government Rs 20,000 crore in revenue in the first year. The revenues in subsequent years may be more.
Petrol/diesel prices
In a rejig of excise duty on petroleum products, the union government has cut basic excise duty on petrol and diesel by Rs 2. The Modi government has also abolished additional excise duty on fuel by Rs 6. Despite that petrol prices are likely to remain the same as a new road cess of Rs 8 per litre has been introduced.
Farmers
The Union Budget 2018 seems to have been the shot in arm it was predicted to be for the slowing agricultural sector of India. Staying true to government’s electoral promise of doubling farmers’ income by 2022, Jaitley kept the minimum support price (MSP) of kharif crops and all rabi crops at one and a half times the production cost of the crops. Currently, most of the rabi crops get that benefit.
In addition, an Agri-Market Infrastructure Fund of Rs 2000 crore will be set up for developing agricultural markets. Jaitley further allotted Rs 500 crore under Operation Greens-to be launched on the lines of ‘Operation Flood’-to address price volatility of perishable commodities and to promote Farmer Producers Organizations (FPOs), agri-logistics, processing facilities and more.
As per provisions of Budget 2018, government will encourage organic farming by FPOs and Village Producers Organizations (VPOs) in large clusters, preferably of 1000 hectares each. Women Self Help Groups will also be encouraged to take up organic agriculture in clusters under National Rural Livelihood Programme. Also, a sum of Rs 200 crore have been allocated to support organized cultivation of highly specialized medicinal and aromatic plants and aid small and cottage industries that manufacture perfumes, essential oils and other associated products.
Significantly, calling bamboo “green gold”, the finance minister announced the launch of a restructured National Bamboo Mission with an allocation of Rs 1,290 crore. The government will also set up two new funds for the fisheries sector and animal husbandry sector with a total corpus of Rs 10,000 crore.
Explaining that India’s agri-exports potential is as high as $100 billion against current exports of $30 billion, Jaitley wants export of agri-commodities to be liberalized. “I also propose to set up state-of-the-art testing facilities in all the forty two Mega Food Parks,” he added.
Lastly, the Budget not only proposed to raise institutional credit for agriculture to Rs 11 lakh crore for 2018-19 (up from Rs 10 lakh in the current fiscal) but also addressed the issue of air pollution due to burning crop residue. The Finance Ministry said that a special scheme will be implemented to support the efforts of the governments of Haryana, Punjab, Uttar Pradesh and the NCT of Delhi to address air pollution and to subsidize machinery required for disposal of crop residue.
The icing on the cake is the announcement of 100% tax deduction for first five years to companies registered as farmer producer companies with a turnover of Rs 100 crore and above.
Poor families
“From ease of doing business, our government has moved to ease of living for the poor and middle class,” Jaitley said in his speech. But he actually meant only poor families, who have been extended a plethora of schemes and allocations. Take the new National Health Protection Scheme under which annual health coverage of up to Rs 5 lakh per family will be offered for secondary and tertiary care hospitalization. This is expected to benefit over 10 crore vulnerable and under-privileged families. “This will be the world’s largest government funded health care programme,” Prime Minister Narendra Modi said in his address soon after the Budget speech.
The government will also establish 1.5 lakh Health and Wellness Centres under the Ayushman Bharat programme to provide comprehensive health care-including for non-communicable diseases and maternal and child health services-free essential drugs and diagnostic services. The Budget has earmarked Rs 1200 crore for this flagship programme.
In line with the government’s “Housing for All by 2022” promise, Jaitley announced that a dedicated Affordable Housing Fund will be set up, funded from priority sector lending shortfall and fully serviced bonds authorized by the government.
Also on the cards are free LPG connections to 8 crore poor women-up from the initial target of 5 crore beneficiaries-under the Ujjwala Scheme; two crore more toilets under Swachh Bharat mission, and a whopping Rs 16,000 crore allocation for the Saubhagya Yojana, under which four crore poor households are being provided with electricity connection free of charge.
Railways
Jaitley has proposed an ambitious plan for Indian Railways with a focus on modifications and safety rather than new train lines. He announced a capital expenditure allocation of Rs 1.48 lakh crore-the highest ever-for capacity expansion, maintenance of tracks, transforming almost the entire network into broad gauge, redevelopment of railway stations, producing upend coaches, the bullet train project, safety policies and more.
The FM announced that Wi-Fi, CCTVs will be provided in every station and escalators will be provided in stations with more than 25,000 footfalls. In the coming year, there will be a focus on upgradation of signalling and use of fog safety devices. He added that 600 railway stations across the country have been picked for modernisation and 4,000 km of railway network is set to be commissioned for electrification.
According to him, the coming year will be dedicated to building world-class trains and a railway institute will be set up in Vadodara, where the workforce behind high speed railway projects would be trained. There will also be a special focus on the upliftment of suburban trains in Mumbai and Bengaluru.
Education
“In order to further enhance accessibility of quality medical education and health care, we will be setting up 24 new Government Medical Colleges and Hospitals by upgrading existing district hospitals in the country. This would ensure that there is at least one medical college for every three parliamentary constituencies and at least one government medical college in each state,” said Jaitley.
Significantly, by 2022, every block with more than 50% scheduled tribe population and at least 20,000 tribal people will have ‘Ekalavya’ school at par with Navodaya Vidyalas. Jaitley also announced a new scheme for revitalizing school infrastructure, with an allocation of Rs 1 lakh crore over four years. He added that an integrated BEd programme will be initiated for teachers, to improve the quality of teachers.
Custom duties
Custom duty on mobile phones increased from 15% to 20%. The duty applicable on some mobile phone parts and accessories has been hiked to 15% and that on certain parts of TVs to 15%. “To help the cashew processing industry, I propose to reduce customs duty on raw cashew from 5% to 2.5%,” added Jaitley.
Significantly, Budget 2018 has levied a “social welfare surcharge” at 3-10% on imports in place of the Education Cess and Secondary and Higher Education Cess currently in place.
Non-corporate taxpayers operating in IFSC to be charged alternate minimum tax at concessional rate of 9% at par with minimum alternate tax applicable for Corporates.
In order to promote trade in stock exchanges located in International Financial Services Centre (IFSC), the Union Finance and Corporate Affairs Minister Arun Jaitley proposed to provide two more concessions for IFSC.
Presenting the General Budget 2018-19 in Parliament Jaitley proposed to exempt transfer of derivatives and certain securities by non-residents from capital gains tax. Further, the Finance Minister added that non-corporate taxpayers operating in IFSC shall be charged Alternate Minimum Tax (AMT) at concessional rate of 9% at par with Minimum Alternate Tax (MAT) applicable for corporates.
The Government had endeavored to develop a world class international financial services centre in India. In recent years, various measures including tax incentives have been provided in order to fulfil this objective.
A monthly collection of around ₹80,000 cr appears sufficient to meet the Centre’s and States’ needs
The Goods and Services Tax (GST) collections for December 2017 show an increase, but despite this there are concerns that the tepid collections since July could pose a problem on the fiscal deficit front.
However, a closer look at the numbers shows that these fears are misplaced. The Centre’s tax collection, as per the CGA (Controller General of Accounts), appears to be on track to achieving the Budget estimates for 2017-18. There are, however, many trouble spots in the new regime.
The complexity of the GST, which combines many of the indirect taxes of the Centre and States, has made it quite difficult to estimate the expected monthly collection target.
At a press conference in August 2017, Finance Minister Arun Jaitley said that the collections in July were better than the target of ₹91,000 crore for that month. This figure has been used since then as a ball-park figure for measuring monthly GST collections.
If we use this figure, GST collections in October (₹83,346 crore), November (₹80,808 crore) and December (₹86,703 crore) are well short of the target. But that may not really be the case.
To estimate the targeted monthly GST collection, we worked backward to see the projected revenue in the Budget estimate for 2017-18 from goods and services that have been put under GST. While service taxes have mostly moved under GST, only about a third of excise duty collections are under GST since the taxes on many petroleum products are still outside the new regime. Under Customs duty, almost 64 per cent of the collections are now under GST.
Using this basis, around ₹43,000 crore of GST need to be collected by the Centre monthly towards its indirect tax collections. A portion of this will devolve to the States as part of their share in the Centre’s revenue.
States totally have to be disbursed ₹43,000 crore every month, assuming 14 per cent annual growth from their 2015-16 revenue. Working with these numbers, a monthly GST collection of around ₹80,000 crore appears sufficient to meet the Centre’s and States’ needs.
Actual numbers
The fact that the Centre has not fallen short in its indirect tax collections is borne out by the numbers from the CGA. Gross tax revenue of the Centre for the period between April to November 2017 was ₹10,87,302 crore, up 16.5 per cent from the amount collected in the same period in 2016-17.
Interestingly, gross indirect tax collection of the Centre in this period was up 18.2 per cent, having risen from ₹5,08,924 crore to ₹6,01,904 crore.
While the devolution to States was 25 per cent higher, the Centre’s net tax revenue has managed to increase 12.59 per cent, showing that the Finance Minister will not have too much difficulty in balancing the fisc.
The catch
While the Centre’s collections are on track, allocations to States can pose a problem. “Due to the fact that IGST revenue is disbursed over a period of time, there is a thinking amongst States that there is a revenue shortfall,” explains Gautam Khattar, Partner, Indirect tax, PwC.
Disputes on input-tax credit claimed by businesses in the provisional GSTR 3B form are another issue that could impede calculations. “Definitely, this is the major concern for the Department because invoice matching is the backbone of GST,” says Vishal Raheja, DGM, Taxmann.
