Guide to calculate tax on capital gains from stocks, mutual funds

It is that time of the year again when you file your income tax return. With the income tax department getting tough on defaulters, it's best to mention income from all sources in the return form.

Many people make capital gains from stock and mutual fund investments. An individual who has sold shares or mutual fund units in the previous financial year must mention the gains, if any, in the return. While doing so, he must remember the following points.

Which capital gains are taxable:

Long-term capital gains on stocks and equity mutual funds are not taxed. But short-term gains are taxed at 15%.

In case of debt mutual funds, both short-term and long-term capital gains are taxed. Short-term capital gains are added to the income and taxed as per the individual's income tax slab. Long-term capital gains from debt mutual funds are taxed at 20% with indexation and 10% without indexation. Indexation is adjusting the purchase price for inflation. This increases the purchase cost and, thus, lowers the gain.

Where to get the capital gains statement:

Calculating capital gains is not easy. Imagine you invested in an equity fund through a systematic investment plan, or SIP, till December 2013 and redeemed the investment in March 2014. You might have made decent profits on your total investment, but a part of it could be short-term gains (each SIP instalment must complete one year if it is to be considered a long-term investment for tax purpose), which are taxable at 15%.

Will you be able to calculate the short-term gains on your own? You can, if you are financially savvy, get the net asset value, or NAV, of the fund on each SIP date and calculate the profit/loss on each SIP to arrive at the net gain. Most retail investors will find the process tedious. Even if they are able to do the calculation, they would rather not take any chance lest they make a wrong disclosure in the return.

It's better to get the figure from a trusted source. Mutual fund investors can get the capital account statement on demand from the fund house. However, some fund houses send the statement after the end of each financial year.

Alternatively, one can go to the websites of Registrar and Transfer Agents such as CAMSOnline and Karvy and get the statement through their mailback services. All you have to do is enter the email id registered with the fund house. However, it is not easy for investors in direct equity, as not all brokerage houses give the statement.

Alok Aggarwala, senior vice president and head, Just Trade, the online share-trading platform of Bajaj Capital, says, "It is not mandatory for brokerages to give capital gains/tax statements. However, as part of value-added services, most reputed brokerage houses give capital gains statements at regular intervals, usually at the end of the financial year."

However, when we checked with some well-known brokers, they said they did not give such statements.

So, what can an investor do in such a case? He can seek transaction details from the brokerage and calculate the gains made during the year.

If you have made capital gains during the year, you need to fill ITR Form 2, as Form 1 is only for income from salary/pension, one house property and other incomes (excluding from lottery).

ITR Form 2, on the other hand, is for declaring income from (sources other than the one declared in Form 1) capital gains, all house properties and other sources (including lottery).

How can you calculate the liability if advance tax is not paid:

If you have made capital gains during a financial year, you need to pay advance tax, partially or fully, depending upon when the gains have been realised.

"If the gains are realised before September 15, one has to pay at least 30% of the total tax on or before September 15, at least 60% before December 15 and 100% before March 15," says Kuldip Kumar, executive director, tax and regulatory services, PwC India.

If the gains are realised after the dates mentioned above, the payment should be made as per the next schedule. If an individual fails to do so, he/she has to pay the tax along with an interest of 1% per month.

"The process of tax payment in case of delay is the same as in a normal scenario. You can fill the ITR form online, which automatically calculates the tax payable," say Kumar of PwC.

Sudhir Kaushik, co-founder and CFO, Taxspanner.com, an online tax payment and return filing platform, says they have applications which automatically calculate not just the tax liability but also the penalty.