Sold shares, property or crypto? What to know before filing income tax return
The first step in capital gains taxation is to identify the asset sold and determine whether the resulting gains are taxable. (Image source: Magnific) Eight
The first step in capital gains taxation is to identify the asset sold and determine whether the resulting gains are taxable. (Image source: Magnific) Eight common capital gains mistakes taxpayers make Missing one or more buy or sale transactions across multiple brokers, funds. Applying the wrong holding period and misclassifying gains as short-term or long-term. Relying only on brokerage statements without reconciling the figures with AIS. Ignoring gains from foreign shares, overseas ETFs or global investment platforms. Reporting cryptocurrency transactions only on a net-profit basis. Missing exemption deadlines under Sections 54, 54F or 54EC. Failing to disclose foreign assets, where applicable. Losing the benefit of carry forward losses because the ITR was not filed within the due date. Start by identifying the nature of capital gains The cost of acquisition; Eligible improvement costs; Expenses directly connected with the transfer; and Applicable exemptions, where the law permits reinvestment. Capital gains: 8 mistakes to avoid Why correct classification matters Capital gains: Key Holding Periods and Tax Rates Shares and mutual funds: Similar investments, different tax consequences Understanding grandfathering and the end of indexation Residential property has an important exception: A practical illustration Tax at 12.5% without indexation; or Tax at 20% with indexation. Unlisted Shares, Foreign investments, ESOPs and RSUs require special attention Maintain foreign broker statements; Retain proof of foreign taxes paid; Keep currency conversion workings; Evaluate eligibility for foreign tax credit; and Report foreign assets, where applicable. Investments that require extra attention Crypto: One of the most misunderstood areas of taxation Gains are taxed at a flat rate of 30%, regardless of income level; Only the acquisition cost is allowed as a deduction; Losses cannot be set off against other income or carried forward; Crypto received as a gift may be taxable for the recipient; Transactions must be reported separately in Schedule VDA; and A 1% TDS may apply in specified cases. Investment or business income? Intraday trading profits are generally treated as business income, not capital gains; and Gains or losses from Futures and Options transactions are generally treated as non-speculative business income. Ta saving opportunities that taxpayers often miss Section 54 Section 54F Section 54EC Do not ignore capital losses Inherited assets and gifts: A frequently misunderstood area Capital gains reporting is no longer routine compliance Maintain complete transaction records; Verify holding periods; Reconcile figures with AIS and Form 26AS; Evaluate applicable Exemptions before filing; and Preserve documents relating to foreign investments and assets. (The author, Ravi Jain, is Tax Partner at Vialto Partners. Vikas Narang, Director, and Teja T C, Associate, at Vialto Partners have also contributed to this article. Views are personal.) Many individual taxpayers view filing an Income Tax Return (ITR) as a straightforward task—declaring salary income, updating investment details and paying any balance tax. However, capital gains can turn an otherwise straightforward tax return into a complicated exercise.Post Covid, it has become common for salaried employees to invest in and trade equities and similar assets.
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