The capital gains tax has been in the news recently as the Indian Finance Minister Nirmala Sitharaman made numerous changes to the capital gains holding period and the capital gains tax rate. Since the introduction of the capital gains tax in 2018, the regime has seen numerous changes to ensure it aligns with investor interests as much as possible. One of the most significant changes that occurred for the capital gains tax was in 2019 when the Central Board of Direct Taxes (CBDTs) provided relaxation in the process of disclosing LTCG. The relaxation has helped investors disclose their long-term capital gains from equity and related investments more easily while filing their Income Tax Returns (ITRs). If you are an Indian taxpayer, it is important to know the changes made in 2019 by the CBDT have shaped the disclosure process for LTCG by investors. This blog will help you understand the simplification of disclosure of LTCG from stocks and equity mutual funds.

• The Central Board of Direct Taxes announced the simplification of the LTCG disclosure process in ITR in June 2019.
• The simplification allowed investors with LTCG in equities and equity-oriented mutual funds to disclose LTCG through a consolidated amount.
• The simplification has helped taxpayers reduce errors while disclosing LTCGs in their ITRs.

The long-term capital gains (LTCG) tax on equity shares and equity-oriented mutual funds was reintroduced in India in the Budget of 2018, effective from April 1, 2018. This reintroduced tax applied to LTCG exceeding Rs. 1 lakh at a rate of 10% without the benefit of indexation. Before this, LTCG on equity investments held for more than one year was exempt from tax under Section 10(38) of the Income Tax Act. However, to disclose the LTCG, investors were required to manually provide the amount of long-term capital gains for each stock or each equity-oriented mutual fund scheme individually while filing their ITRs. This was a lengthy and complicated process and resulted in many human errors.

The Central Board of Direct Taxes realised that disclosing the long-term capital gains individually in the ITR was creating complexity for investors, forcing them to spend a lot of time filing their ITRS. Hence, in 2019, after one year of introducing the LTCG tax, the CBDT simplified the process of disclosing the LTCG for investors. CBDT clarified in its circular released on June 14, 2019, that investors are no longer required to individually disclose LTCG and are now only required to disclose LTCG as a consolidated amount from stocks and equity-oriented mutual funds.

When the CBDT announced the simplification of LTCG tax disclosure, investors and taxpayers lauded the move. It drastically changed the process of filing ITRs when the gains were more than Rs. 1 lakh for equity and equity-oriented mutual funds. Now that the Finance Minister has changed the LTCG tax regime with a new tax rate of 12.5% without indexation and has also decreased the holding periods from three to two, the changes made by the CBDT will continue to benefit the investors and taxpayers.

Since 2019, when the CBDT changed the disclosure process for LTCG, it has hugely benefited investors with LTCG tax in the process of filing their ITRs. After the simplifications, investors have been able to report their LTCGs from the sale of equity and equity-oriented mutual funds easily by just entering the overall consolidated amount without calculating the individual LTCG from every equity and equity-oriented mutual fund. Since no grandfathering is involved, there are negligible errors while reporting the LTCGs in the ITR.

When the CBDT announced the changes, it also announced the ITR forms that investors must use to utilise the simplified disclosure process for LTCG. As per CBDT, investors and taxpayers must use ITR-2 and ITR-3 to disclose the consolidated LTCG amount if it is above Rs. 1.25 lakh (as per the latest 2024 budget). 

Capital gains tax (STCG and LTCG) has become the fundamental tax when it comes to investing in the stock market. The CBDT announced the biggest capital gains tax reforms in 2019 by simplifying the disclosure process for LTCG in ITR. Now, suppose your LTCG is higher than 1.25 lakh (previously 1 lakh). In that case, you only have to disclose the consolidated LTCG amount without having to individually disclose the LTCG amount for each equity and equity-oriented mutual fund.