CBDT makes long-term capital gain painful

 Never before in the past, Indian income tax payers, especially those who earned long-term capital gain (LTCG) during the last financial year, had  felt so frustrated as this year. It is all due to defective design of the income tax returns (ITRs) and defective utilities (short programmes). Most of those taxpayers who boasted that they were able to fill ITRs and upload on the IT website have passed on their problems to tax consultants. The tax consultants themselves are unable to solve all the problems.

 Never before in the past, the CBDT (Central Board of Direct Taxes) had publicly expressed displeasure at the complaints of the taxpayers. In a press release dated July 16, 2019  (https://www.incometaxindia.gov.in/Pages/press-releases.aspx), the CBDT referred to “reports on social media that taxpayers were facing difficulties in filling” ITRs 2 and 3 “due to large-scale changes’ on July 11, 2019”. Denying any large-scale changes, it has stated that only utilities have been updated which is a continuous process. In support of its claim that everything is alright, the CBDT has pointed out that more than 1.38 crore taxpayers have already filed their returns – more than 85 lakh in ITR-1 – by using the utility.

However, the press release has omitted to mention specific problems faced by the taxpayers. Nor has it mentioned the difficulties in entering data regarding long-term capital gains (LTC G).

On July 19, in a notification the CBDT claimed that Schedule 112A and 115 A.D. (1) (iii) of LTCG were provided in the ITRs on “the taxpayer feedback”. The notification clarified that “taxpayers have an option to either enter the scrip wise details of LTCG in Schedule 112A and 115 A.D. (1) (iii) so that the correct values are populated in the CG schedule or enter the self-calculated aggregate value of LTCG’s under respective items in Schedule CG’ without entering scrip -wise data. (All references are to Microsoft Excel utilities)

 Three days later, on July 22, CBDT issued another notification that “ITR-2 and ITR-5 (Java utility) are modified to fix bugs identified while filling schedule F A in ITR-2 (Java utility).

Notwithstanding, all these claims, taxpayers have faced and are facing problems. In an earlier article “Faulty utility for ITR2 for AY 2019-20” (https://www.devendranarain.com/faulty-utility-f…2-for-ay-2019-20/), I discussed several problems I myself faced. Subsequently, several friends, acquaintances and even unknown persons told me that they too were facing problems. When I tried to seek online help from a group of chartered accountants, some of them confessed that they too were facing problems. One salaried person rang up to say that when he tried to ‘validate’ the duly filled salary sheet, he got the message that he has to pay alternative minimum tax! Till last year, if a friend sought my help to fill and upload ITR-2, I gladly helped him. However, this year I had to say no to everybody because I myself have not been unable to fill my return correctly. I must add that ITR-2 (Microsoft Excel) released on July 11, removed some of the irritants but kept some and added one more.

In this article I am concentrating on problems I have faced in filling data regarding LTCG in Schedule CG and Schedule 112 A of ITR-2 (Microsoft Excel). In all probability, I will have to upload the return I have filled and which will cause me some loss.

 Common problem

A common problem in both the Schedules is that one cannot enter data regarding shares or units of mutual funds acquired between February 1, 2018 and March 31, 2018 and sold after one year but by March 31, 2019. The design of B4 part of Schedule is such that data regarding such shares are not accepted. In fact, there is no column to enter data regarding shares purchased after January 31, 2018 and sold by March 31, 2019. If one enters full value of consideration (sale price) of such shares in column ‘a’ and cost of acquisition in column ‘bi’, an Error message pops up:

“Error(s)!

Please enter the Cost of acquisition If the long term capital asset was acquired before 01.02.201 8 in Point B4.

Please enter the Fair Market Value of capital asset as per section S5(2)(ac) in Point B4.

Please enter the Full value of consideration in Point B4.

Please ensure that the Total of the values in Table F(5) in Sheet CG for LTCG 10% is equal to item 3(vii) of schedule BFLA”  

Similarly, in Schedule 112A also there is no provision to enter data regarding shares and units of mutual fund purchased between February 1, 2018 and March 31, 2018 and sold after one year but by March 31, 2019.

Luckily, I am not facing this problem because all the shares and units of mutual fund which I sold were purchased before January 31, 2018.

Specific problem in Schedule part B4 of CG

 (a) The CBDT Notification of July 19, 2019 gives an option to the tax payers to “enter the self-calculated aggregate value of long term capital gains directly under respective items in schedule CG in terms”. I tried this option. I manually calculated LTCG on sale of each share/unit of mutual fund.  The LTCG worked out to ₹ 536,680/-.

When I entered the self-calculated aggregate value, as advised in the CBDT circular, in B4, the result was quite different. Please see the table below.

a Full value of consideration a 1917133
b Deductions under section 48
bi Cost of acquisition without indexation (higher of iA and iB) bi 1608514
iA Cost of acquisition biA 653106
iB If the long term capital asset was acquired before 01.02.2018, Lower of Bl and B2 biB 1608514
Bl) Fair Market Value of capital asset as per section 55(2)(ac) bi Bl 1608514
B2) Full value of consideration bi B2 1917133
bii Cost of improvement without indexation bii 0
biii Expenditure wholly and exclusively in connection with transfer biii 0
biv Total deductions (bi + bii + biii) biv 1608514
c Balance (4a – 4biv) 4c 308619
d LTCG after threshold limit as per section 112A (4c – Rs. 1 lakh) 4d

Obviously, entry of aggregate data is not the correct procedure. When I entered the script -wise details in schedule 112A, the data transfer to BG gave correct amount of LTCG (₹ 536,680/-)

(b) Another serious problem, not reflected in the table above, is that Item 4d (LTCG after threshold limit as per section 112A i.e. gross LTCG less ₹ 1 lakh) is blocked. I downloaded ITR-2 several times.  Though this does not make a difference in computation of tax payable (the utility deducts  ₹ 1 lakh while calculating tax liability), it makes difference when LTCG is to be set off against short-term capital loss, current or carried forward. The entire LTCG (without deduction of ₹ 1 lakh) is set off against current and carried forward losses which is a loss to taxpayer in the long run.

Schedule 112A has its own shortcomings

  • The Schedule requires assessee to furnish ISIN (International Securities Identification Number) Code/folio number. Most of the taxpayers investing in shares may not even be aware of ISIN. The country’s National Numbering Agency allocates this code to identify a specific security. The information is available on Internet. Money control.com is one of the sites were ISIN could be obtained. Why is the CBDT bothering taxpayers to get ISIN of each equity share? Is it not enough to get the name of the company?
  • Folio number is used for keeping a record of units of mutual fund. Since Column 2 of the Schedule mentions both the options (ISIN code/Folio No.), the natural tendency is to enter Folio No. However, the utility recognises only ISIN code of mutual fund. Again, most of the investors in MFs would not have bothered about ISIN code. It is mentioned in the statement of purchase or redemption sent by the mutual fund asset management company. Those who have not preserved these statements may get the requisite information from the website of NSDL. NSDL has a list of mutual funds with ISIN codes running in 297 pages. Those familiar with working on Excel sheet and keeping full name of the fund can, with some effort, find out ISI. Another problem is that sometimes mutual fund managements change names of the scheme. Unless assessee is aware of the new name, it cannot find ISIN and even from the NSDL list. Again, my question is why make it so complicated?
  • I filled Schedule 112 A correctly, though it took a lot of time. The data transferred from Schedule 112A to B4 in Schedule CG gave correct amount of LTCG though one of the entry (in column iA) is beyond understanding and ₹ 1 lakh is also not deducted from the total LTCG. Please see the table below.

 

a Full value of consideration a 1917092
b Deductions under section 48
bi Cost of acquisition without indexation (higher of iA and iB) bi 1380425
iA Cost of acquisition biA 286
iB If the long term capital asset was acquired before 01.02.2018, Lower of Bl and B2 biB 1380425
Bl) Fair Market Value of capital asset as per section 55(2)(ac) bi Bl 1608514
B2) Full value of consideration bi B2 1917092
bii Cost of improvement without indexation bii 0
biii Expenditure wholly and exclusively in connection with transfer biii 0
biv Total deductions (bi + bii + biii) biv 1380425
c Balance (4a – 4biv) 4c 536667
d LTCG after threshold limit as per section 112A (4c – Rs. 1 lakh) 4d

Legality of changes, major or minor, in ITRs and Utilities, questionable

Whatever the CBDT may say in justification of its actions, the changes made since July 11, 2019 are in violation of the order of the Delhi High Court order dated September 21, 2015 in the case of Avinash Gupta Vs. UOI W.P.(C) No. 9032/2015. Taking cognizance of cognizance of delay by CBDT in release of ITR forms, the High Court said:

“There appears to be no justification for delay beyond the assessment year in prescribing the said forms. Accordingly, though not granting any relief to the petitioner for the current assessment year, the respondents are directed to, with effect from the next assessment year, at least ensure that the forms etc. which are to be prescribed for the Audit Report and for filing the ITR are available as on 1st April of the assessment year unless there is a valid reason therefor and which should be recorded in writing by the respondents themselves, without waiting for any representations to be made.”

What is the problem with the CBDT?

The million dollar question is, why has the CBDT done such a perfunctory work? After the Finance Bill, 2018 was introduced on February 01, 2018, the CBDT had sufficient time design user-friendly appropriate ITR and develop utility. Does the CBDT lack professionals combine knowledge of both the ITs, Income Tax and Information Technology? It appears, the CBDT released new ITRs (I am especially referring to ITR-2 and ITR-3) with utilities without verifying its effectiveness and user-friendliness. A parallel I recall (I had dealt with long back as a project appraisal professional in the erstwhile Planning Commission) is when a public sector drug making company used a formula for mass production even before the laboratory scale technology was upscaled for mass production. Out of seven stages involved in up scaling the technology  for mass production, only first three had been tested and approved. The result was that the plant could utilise only 25% of its installed capacity.

In my opinion, the CBDT has committed blunder after blunder and must come out with effective corrective measures. The CBDT has extended the due date for filing ITRs from July 31, to August 31. However, that alone will not solve the problems. I would like to make three suggestions:

  • New ITR-2 should be issued without the existing columns of B4 in Schedule CG and without schedule 112A.
  • In the revised B4, there should be provision for entering data about LTCG earned from sale of the shares purchased before February 01 2018, as well as the shares purchased between February 01 2018 and March 31, 2018.
  • Fresh instructions should be issued along with the revised ITR to explain to the taxpayers how to compute LTCG of shares/units of mutual fund purchased before February 01, 2018.

Devendra Narain

IRS (R)

(Former head of the Project Appraisal Division of the Planning Commission of India)

@narain41

Please read an earlier article about more problems.

Faulty utility for ITR2 for AY 2019-20

Link:

https://www.devendranarain.com/faulty-utility-f…2-for-ay-2019-20/

PS

 Filing ITR2 with long-term capital gains on sale of shares is much more difficult than I had expected. XML document generated cannot be uploaded. A message is displayed on the screen “At line No 265 invalid content was found starting with element ‘ITR Form deduction Us 54F. One of ‘{http://incometaxindiaefiling.gov.in/master Exemption of deduction Us 54F is expected.”

This is even after Schedule CG is validated. In the Schedule I entered zero (0 ) in column line B4 (e) i.e. No deduction under section 54F. The website http://incometaxindiaefiling.gov.in/master is not found.

 

PS 

On 01/08/2019, CBDT issued a new notification:   

  ”CBDT has extended the due date for filing Income Tax Returns for certain category of assesses from July 31, 2019 to August 31, 2019. Accordingly the IT return preparation software are modified to update the 234A interest calculation along with certain other minor corrections and the same is available for download.”

However, the CBDT has completely ignored the hardship being faced by the assesses who earned LTCG on sale of shares/units of mutual fund.

I wonder, how can the CBDT be so insensitive to the problems of common taxpayers who have been e-filing their ITRs without the help of income tax professionals.

 

Disclaimer: I have criticised the CBDT but I assure everyone that my loyalty to the IRS remains intact, as ever.

 

 

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Written by Devendra Narain
Date of birth: January 1, 1941 Educational qualification: Master of Arts (First Class) in Political Science Visiting Fellow: (one year, 1978-79), University of Oxford, UK. Job Experience: Teaching job: Lecturer in Political Science, Patna University (February 1963 to October 1965) Indian Revenue Service: November 1965 to December 2000. Important positions held in Government of India: Head of the Project Appraisal Division (Planning Commission), Head of the Project Monitoring Division and Joint Secretary/Additional Secretary (Department of Programme Implementation), Chief Commissioner of Income Tax and Member, Appellate Tribunal for Forfeited Property. Retired from Government of India on December 31, 2002, as Member, Appellate Tribunal for Forfeited Property. Experience as trainer: more than 50 national and international training programmes on project management International Experience: Indian member of Inter-governmental committee on project management system by the Commonwealth Secretariat in 1985; Member of Indian delegation to the (erstwhile) Soviet Union (1986) Area of expertise: Project Management (ex-ante Project Appraisal, CBA, Monitoring, ex-post evaluation). Experience as author: Co-author of a book on Indian Constitution in 1970 (now out of print); More than two dozen articles on different aspects of project management; 11 stories (10 satirical and one serious) in English and Hindi, published in leading magazines and a leading Hindi newspaper. Presently writing articles on social, political, economic and administrative issues available on my website and LinkedIn. Website: https://www.devendranarain.com Present on social media (Facebook, LinkedIn, Instagram, Twitter, etc.) Published collection of short stories in Hindi: "ये टेढ़े मेढ़े रास्ते". Paperback available on Amazon and Flipkart; ebook available on Amazon.