Reporting Capital Gains

Gains from property:

Gains from stocks and funds:

Gains from gold, gold bonds:

Reporting Rent Income

Income from Other Sources

NEW DELHI: When you file your income tax return , Form 16 may not be the only document you will need. Income from selling capital assets, property and interest on deposits needs to be disclosed in your ITR form . “Most residual incomes are taxable and you can no longer get away by misreporting them,” says Sudhir Kaushik, CFO and founder, Taxspanner.A lot of income from investments is tax free but has to be declared. For instance, savings bank interest is tax free up to ₹10,000 but must be reported under the ‘income from other sources’ schedule. Even tax exempt investments such as interest from PPF and bonds at time of maturity should be declared under schedule EI (exempt income).This week, we explain how you should calculate capital gains, rent and interest income and disclose them in the returns.Profits arising from the sale of capital assets like mutual funds, stocks, gold and immovable property are capital gains. Taxpayers have to report capital gains in schedule CG of ITR forms. “Taxpayers who do not have taxable income but have booked long term capital gains (LTCG) over the basic exemption limit must file their income tax returns ,” says Archit Gupta, founder and CEO, Cleartax.Capital gains are calculated by deducting the total consideration value (sale value) of the asset from its cost of acquisition (purchase price). The method varies across assets. Tax rates on capital gains depends on whether the gain is short-term or long-term.LTCG on sale of property enjoys indexation benefit. For arriving at the indexed cost of acquisition, multiply the purchase price with the cost inflation index (CII) of the year in which the property is sold and then divide it with the CII of the purchase year. If property was bought before April 2001, consider the fair market value (FMV) of the property as on April 1, 2001 to calculate indexed acquisition cost.Get your property valuation done by a registered valuer to arrive at the accurate FMV. “One way is to take the stamp duty value as on April 1, 2001. However, the stamp duty value may not reflect the actual cost. A better option would be to get a valuation report from an income tax approved valuer,” says Karan Batra, a chartered accountant.For inherited or a gifted property, the date of acquisition for the purpose of calculating gains will be when the original owner bought the property. “Transfer date has no bearing on the period of holding and computation of capital gains,” says Sandeep Sehgal, director — tax and regulatory, Ashok Maheshwary & Associates LLP.Expenses related to improvement of the house can be added to the cost of acquisition. “Renovation or modifying the structure to add more space can be claimed as deduction. Maintenance and repair costs do not qualify,” says Gupta. Cost of improvement should also be indexed in the case of LTCG.Expenses involved in selling the property, such as brokerage, stamp duty, legal fees, registration fees etc can also be added to the cost of acquisition for deduction. While reporting your capital gains on sale of immovable property, you have to submit name, PAN and percentage share of the buyer along with address, amount and pin code of the property.This year onwards, LTCG above ₹1 lakh made on sale of equity will be taxed. Long-term gains on stocks or equity funds till January 31, 2018 are grandfathered and are tax-exempt. For an asset bought before February 1, 2018, the cost of acquisition will be considered as higher of its actual purchase price and FMV. However, if the FMV of the stock is higher than its sale price, then the latter will be taken in place of FMV. For a stock, FMV is its highest trading price as on January 31, 2018 whereas FMV of a mutual fund is its NAV as on January 31, 2018.The process can be tedious for MF investors investing through SIPs as there will be multiple dates of investments. A new tool launched by ET Money app will be useful here. You can upload the statement of your MF investments on the app, which will auto generate your capital gains summary within seconds.You can claim deduction on brokerage or commission and securities transaction tax paid during sale of asset. Long-term gains from bonds or equity investments used in buying a house are deductible under section 54F. If a portion of sale proceeds are used, gains in proportion to reinvested amount is deducted.Capital gains on gold has to be reported in ‘sale of other assets’ section. LTCG on gold investment also gets indexation benefit. Gains made on selling any form of gold is taxed at the same rate. However, if held till maturity of eight years, capital gains on sovereign gold bonds (SGBs) are tax free. If sold before maturity, the tax treatment is same as gold funds. Also, interest from SGBs is taxable.Rent income from any house property apart from one self-occupied house has to be declared under income from house property head. If the second house is vacant, it is treated as ‘deemed to be let out’ and you will have to report notional rent. Experts say you should declare the house with higher annual value as self-occupied to maximise tax benefits.Municipal taxes and unrealised rent can be deducted from the gross rent to arrive at net annual value. If the tenant pays the municipal tax on the property, you can’t claim deduction on it. After claiming the standard 30% deduction on the net annual value, you can also claim deduction on interest on home loan taken for same property. There is no limit on the deduction of loan interest. After claiming all deductions, if the net income is negative it’ll be treated as loss under house property. This loss can be set off against income from another property or partially against income from any other head. “A maximum loss of ₹2 lakh can be adjusted against salary or interest income. The remaining loss will be carried forward to be set off only against income from house property in the next eight years,” says Kaushik.For a jointly owned property, the rent is taxable in the hands of each co-owner in proportion to the share of each owner.Income from dividends, gifts, interest from deposits and non-recurring incomes from lottery, horse racing, gambling, etc are to be reported under this section. Some of these incomes enjoy tax benefits but they still have to be reported.Dividend income from shares of foreign companies is fully taxable, whereas income from domestic companies above ₹10 lakh is taxed at 10%. For fixed deposits, even if 10% TDS has been deducted, you may have to pay additional tax if you fall in a higher tax slab.Starting this year, interest income from savings bank, fixed deposit and post office deposits, income tax refund and pass-through income has to be reported separately under specific sources.ITR 2 and ITR 3 have mandated detailed disclosure of gifts. In case of immovable property gifts, its fair market value has to be filed.