Must Knows

Claiming exemption from capital gains tax with no taxable income? You still have to file your ITR

[] The Union Budget 2019 has proposed to make it mandatory, for those who claim exemptions on long-term capital gains tax, to file income tax returns. We look at the instances where this will be applicable

Presently, less than 4% of the entire population of India files its income tax return (ITR). Consequently, successive governments have been introducing various measures, to enhance the tax payers’ base. Finance minister Nirmala Sitharaman, in the Union Budget 2019, has proposed certain measures, to expand the base of the persons required to file the ITR. A major portion of the provisions, cover the case of property transactions on which you have claimed exemption from long-term capital gains tax. Now, even persons who have claimed exemption from the payment of long-term capital gains tax and not having any tax liability, will have to file their ITRs.

You are reading: Claiming exemption from capital gains tax with no taxable income? You still have to file your ITR


Who has to file Income Tax Returns

Before we proceed to discuss the proposals in the budget, let us understand who needs to file an ITR, presently. All companies, partnership firms and LLPs, are required to file their ITRs, even if they do not have any income during the previous year. Among the other categories, persons whose income from all the sources taken together is more than the exemption limit, are also required to file their ITRs. The exemption limit for different categories of individuals, is different. It is Rs 2.50 lakhs, for individuals who have not yet completed 60 years of age. For individuals between 60 and 80 years of age, the same is higher at Rs 3 lakhs. Individuals who have completed 80 years of age, enjoy an even higher exemption limit of Rs 5 lakhs. For the purpose of arriving at this number, you have to consider the aggregate of taxable income from all sources, before any deduction under various sections, like 80C, 80 CCD, 80 D, 80G, 80 TTA, 80TB, etc., of chapter VIA are taken into account. These deductions comprise of various items of investments and expenditures, such as life insurance premium, medical insurance premium, donations, home loan repayments, tuition fees, bank interest, NPS, PPF, EPF contributions, etc.

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Moreover, you also have to file an ITR, even if you do not have taxable income exceeding the exemption limit, if you are a tax resident of India and have earned any income from outside India or own any asset outside India or are a signatory to any account maintained outside India.


Budget 2019 proposals: Additional categories of persons who will have to file ITRs

In order to expand the tax payers’ base, the finance minister has proposed to expand the categories of persons who will be required to file their ITRs. Two categories of persons are proposed to be included among those required to file their ITRs. The first category covers persons who have either deposited an amount of over Rs 1 crore or have spent more than Rs 2 lakhs on foreign travel or have incurred an amount of Rs 1 lakh on electricity charges. The other category includes those who have sold or bought property and have claimed exemption from payment of long-term capital gains tax.

[] How to avail exemptions and save on long-term capital gains tax, from the sale of a residential house

Applicability of mandatory filing of ITRs, for those claiming exemption from long-term capital gains tax

The finance minister has proposed that while computing the threshold exemption limit presently applicable, the amount of long-term capital gains that is claimed as exempt by a person, shall also be included. Persons covered under this category include individuals or HUFs, who are claiming exemption from tax on long-term capital gains accruing from the transfer of any asset, by investing in a residential house or are planning to acquire a house within the specified time limit. These are covered under Section 54 and 54F of the Income Tax Act.

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Moreover, even if you have claimed exemption under Section 54EC, by investing in capital gains bonds of specified companies, to claim exemption for any long-term capital gains arising from the sale of a land or building, you will have to include such exempt long-term capital gains in the threshold limit. The proposals also include cases of exemption claimed by owners of agricultural land, who have transferred the land and are claiming exemption from long-term capital gains, by virtue of having bought another agricultural land within the specified time limit under Section 54B.

Similarly, an industrial undertaking that has invested in acquiring land and building, to claim exemption from long-term capital gains arising on the compulsory acquisition of its land and building under Section 54D, is also covered under the proposed mandatory requirements of filing of an ITR. The amount of capital gains claimed exempt under Section 54GA, for shifting of industrial undertaking in an urban area to any Special Economic Zone (SEZ), shall also be taken into account for the above purpose. The new proposal will also cover the cases of exemption claimed on long-term capital gains on the sale of a residential house by an individual or an HUF, by making investment in a start-up company under Section 54GB, while computing the above threshold.

The new proposals will cover all the cases of isolated transactions of sale of property, which used to go unreported in cases where the seller did not have any taxable income to report and thus, were outside of the preview of scrutiny by the Income-Tax Department. The new provisions for mandatory filing of ITRs, will be applicable for returns that will become due on July 31, 2020, for the present financial year ending on March 31, 2020. It is not applicable for the returns that have to be filed by August 31, 2019.

(The author is a tax and investment expert, with 35 years’ experience)

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Category: Must Knows

Debora Berti

Università degli Studi di Firenze, IT

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