1. The ITR ( Income Tax Return ) filing season is at its busiest, and the author wants to make the ITR filing process easier and less stressful for taxpayers. One area that often confuses is reporting Capital Gains from shares bought before 31.01.2018. This article aims to explain the rules clearly, helping taxpayers understand and correctly report such gains in their ITR.
2. Grandfathering Rule – The sale of shares acquired before 31.01.2018 is subject to a special provision, popularly known as Grandfathering.
2.1 The long-term capital gains from the sale of listed equity shares, mutual fund units, and business trusts were exempt until FY 2017-18 (AY 2018-19). The exemption for long-term capital gains (LTCG) on the sale of listed shares was eliminated by the 2018 Budget, which also introduced a 10% tax on such gains.
2.2 The then finance minister, Mr. Arun Jaitley, announced that gains up to January 31, 2018, would be grandfathered. This meant that the extent of such gains up to that date would not be taxed. A specific method for determining the Cost of Acquisition (COA) has been established for specified securities purchased before February 1, 2018. Let us try to understand this method with the help of an illustration.
3. Illustration: Mr. Anupam bought 1000 shares at Rs. 150 each in 2005. On 17.09.2021, he sold the shares at Rs. 300 each. The fair market price of these shares as of January 31, 2018, was Rs. 160 per share.
| (a) | Sale Price (S) | 300*1000 | 3,00,000 |
| (b) | Original Cost of Acquisition (P) | 150*1000 | 1,50,000 |
| (c ) | Fair market value as on 31.01.2018 (F) | 160*1000 | 1,60,000 |
Since Fair Market Value is more than the original cost of acquisition, the Capital gain will be calculated by subtracting the fair market value from the sale proceeds, i.e., (3,00,000 – 1,60,000) = 1,40,000.
3.1 Illustration 2
| Sale Price (s) | 1,00,000 |
| Fair market value as on 31.01.2018 (F) | 1,60,000 |
| Lower of (F) & (S) = L | 1,00,000 |
| Original Cost of Acquisition (P) | 1,50,000 |
| Adjusted Cost of Acquisition C =( higher of L & P) | 1,50,000 |
| Capital Gain / Loss: CG/ CL = (S-C) | ( 50000) |
4. Reporting in ITR (Income Tax Return) – Step-by-Step Procedure: Reporting of Long-Term Gain on shares purchased before 31.01.2018 needs a little extra attention. For such cases, each share has to be reported separately with key details like the name of the share, ISIN, purchase price, sale price, and the date of transactions.
5. Many taxpayers find it challenging to furnish script-wise details, as several brokers do not include ISIN codes in their transaction statements. Additionally, most demat and mutual fund statements are available only in PDF format, which means taxpayers often have to manually copy and paste each transaction detail while filing their return.
6. A simple way to overcome this challenge is to download transaction details in Excel format from the AIS (For a complete step-by-step guide, read the article: How to Extract Capital Gain Details from AIS. https://taxguru.in/income-tax/extract-capital-gain-details-ais-step-by-step-guide.) and then cross-check them with the demat statement. This not only saves time but also ensures accuracy while filing Income Tax Return (ITR)
7. The next step is to download the CSV Template. Copy and paste the details from the AIS statement into the CSV Template.
CSV Template
1(a) |
1(b) |
2 |
3 |
4 |
5 |
6 |
7 |
Share / Unit acquired (1a) |
Share / Unit Transferred (1b) |
ISIN Code(2) |
Name of the Share/ Unit (3) |
No. of Shares/Units(4) |
Sale-price per Share / Unit (5) |
Full Value of Consi-deration (Total Sale Value) (6) = 4 * 5 |
Cost of acquisition without indexation (7) |
8 |
9 |
10 |
11 |
12 |
13 |
14 |
|
Cost of acquisition (8) |
If the long-term capital asset was acquired before 01.02.2018 (9) |
Fair Market Value per share/unit as on January 31, 2018 (10) |
Total Fair Market Value of capital asset as per section 55(2)(ac)(11) = 4 * 10 |
Expenditure wholly and exclusively in connection with transfer (12) |
Total deductions(13) = 7 + 12 |
Balance (14) = 6 – 13 |
|
Important Note: In Column 1(a): Write BE for scripts purchased before 31.01.2018 & AE for scripts bought after 31.01.2018 & in Column 1(b): Write BE for scripts sold before 23.07.2024 & AE for scripts sold after 23.07.2024.
The summary from Schedule 112A automatically flows into Schedule Capital Gains, where the final computation is carried out.
8. Reporting LTCG on shares acquired before January 31 requires careful application of grandfathering provisions to ensure correct computation. It may look complex, but by understanding the methodology and aligning disclosures in the ITR accordingly, taxpayers can avoid errors, minimize scrutiny, and comply confidently with the law.
Disclaimer: The article is for educational purposes only.
The author may be approached at caanitabhadra@gmail.com
Author Bio
Nicely explained LTCG on shares & units of MF
Thank you for your humble comment.
can u please tell me how ltcg is calculated on shares allotted to me on an amalgamation / sale of a company in a different company after the grandfather date. what will be the price that should be adopted in such a case
While compiling ITR2, have losses under both short term and long term. But after validation, I find in Schedule CFL that the losses are clubbed and reflected under long term losses, which is disadvantageous and incorrect. Though the problem is reported to efiligwebmanager, they couldn’t resolve the issue. Please suggest your views.
This is not a problem that the e-filing manager can resolve. I agreed that it is disadvantageous, but not incorrect reporting in the portal.
If you have short-term losses, they will first be set off against long-term gains. If there are long-term losses, short-term losses will be clubbed with long-term Term.
Very nicely explained CA Anita. However, I have a query. Imagine I bought 100 shares of a company ‘A’ at a NAV of “X” in 2015 that gave me bonus in ratio of 1:1 in 2024. So, my total quantity now is 200. If I sell them now, what should be the NAV that is to be considered as the buy price ? Please guide.