Return filing season likely to be longer due to structural changes in capital gains tax

Time of India

a day ago

Pune: Tax experts and chartered accountants are expecting a prolonged tax season for the fiscal year 2024-25 (Assessment year 2025-26) because of several structural and technical modifications to the short-term and long-term capital tax.
Many income tax return forms were uploaded late and hence it is likely to extend the filing process for chartered accountants and taxpayers.
The income tax department has extended the deadline for filing returns to Sept 15 from July 31 for FY 2024-25 to account for the complexity.
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"The return filing may extend till the festive season, followed by the GST filing deadline of Dec 31. This is expected to be a busy tax season," said Sukrut Deo, a chartered accountant.
Tax experts said the calculation of short-term capital gains tax (STCG) and long-term capital gains (LTCG) tax is impacted after structural changes that came into effect on July 23, 2024. As per the new rules, the rate of STCG incurred before July 23, 2024, would be 15%, while investments redeemed after the date would attract a tax rate of 20%.
Similarly, LTCG on mutual fund and stock investments before July 23, 2024, would be 10%, while after the date, it would be 12.5%.
Long-term gains on property will now be taxed at 12.5% without indexation or at 20% with indexation benefits, depending on the option chosen by the taxpayer.
The benefit of indexation, which was previously included in long-term capital gains tax computation, will no longer be available for gains arising after July 23, 2024. The forms now demand that capital gains be split into two periods, before and after July 23, 2024, with different tax calculations and reporting formats, said Saee Sumant, chartered accountant and assistant professor at MIT-WPU.
Over the past three to four years, the work of tax professionals has increased significantly, as major taxpayers are investing in mutual funds and stocks. It is an extremely time-consuming process with the amount of filing involved with LTCG and STCG to be done, said Pravesh Advani, a chartered accountant.
To assist taxpayers in accurately filing their taxes, the department has released revised tools and validation guidelines.
In order to detect 'Category-D' faults, which could result in disallowances, and 'Category-A' defects, which prohibit return upload, these new validation rules are essential, a tax consultant said.
The department uploaded the form 'ITR-2' earlier this week, significantly late than usual upload period of May. In addition, 'ITR-3' was also not uploaded properly, experts said.
Form 'ITR-1' is for salaried individuals with earnings within Rs 50 lakh, 'ITR-2' for capital gains, 'ITR-3' for business income, 'ITR-4' for small business and professions, 'ITR-5' and 'ITR-6' for companies, and 'ITR-7' is for charitable trusts.
For the last fiscal year, i.e. 2023-24 (AY 2024-25), 7.28 crore returns were filed. Of these, 45.77% are 'ITR-1' (3.34 crore), 14.93% are 'ITR-2' (1.09 crore), 12.50% are 'ITR-3' (91.10 lakh), 25.77% are 'ITR-4' (1.88 crore), and 1.03% are 'ITR-5' to 'ITR-7' (7.48 lakh), as per govt data released earlier.