Analysts have expressed concern over the income tax department’s move to actively start tracking capital gains arising from the sale of mutual funds and shares and dividend received on shares.

The information will be provided to the income tax department beyond a limit but without any ceiling. The details will now come pre-filled in the tax returns to ensure ease of filing, according to the latest income tax department notification.

Certain entities, including financial institutions such as banks, mutual fund houses, registrars and bond issuers are required to report transactions beyond a specified limit in the financial year to the tax department. These transactions are known as specified financial transactions under the 114E of the Income Tax Act 1962.

“These details will be captured in the pre-filled income-tax forms and any discrepancy may invite queries. It will be interesting to see how ‘capital gains’ reporting actually pans out as it includes certain finer nuances,” Vinita Krishnan, director of Khaitan & Co, said.

Narayan Jain, tax advocate and chairman, CCI Professionals Forum, said: “The monetary limits should be prescribed under the newly inserted sub rule (5A) in Rule 114 E of Income Tax Rules for reporting of capital gains, dividend and interest. Such limits are there, for instance, in case of cash deposit in a bank or post office limit if an amount aggregates to Rs 10 lakh or more in a fiscal”.

“The reporting agency may not be in a position to compute capital gains or loss in the absence of cost of listed securities or units of mutual fund and date of its acquisition. In case of LTCG, one may claim the benefit of indexation. These issues need to be addressed.”

“The new rule prescribed multiple agencies for reporting capital gains, it should be specifically prescribed to avoid unnecessary duplication of reporting,” Jain said.

The notification said for making pre-filled income tax returns, agencies like stock exchanges, depositories, clearing corporations, registrars, banks, companies, Post Master General and non-bank lenders have to issue statements of financial transactions by their clients “in such form, at such frequency, and in such manner, as may be specified" by a designated official.

Principal Director General of Income Tax (Systems) or the Director General of Income Tax (Systems), are authorised to seek such information with the approval of Central Board of Direct Taxes (CBDT), said the notification. The change brought out by the Income-tax (4th Amendment) Rules, 2021, is effective immediately, the notification said.

Narayan Jain, Tax Advocate and Chairman, CCI Professionals Forum said “the monetary limits should be prescribed under newly inserted sub rule (5A) in Rule 114 E of Income Tax Rules for reporting of capital gains, dividend and interest. Such limits are there for instance, in case of cash deposit in a bank or post office limit is an amount aggregating to Rs. 10 Lakhs or more in a financial year.”

“The reporting agency may not be in a position to compute capital gains or loss in absence of cost of listed securities or units of mutual fund and date of its acquisition. In case of LTCG one may claim the benefit of indexation. These issues need to be properly addressed. The new rule prescribed multiple reporting agencies for reporting capital gains, it should be specifically prescribed to avoid unnecessary duplication of reporting,” Jain added.

Till now around 16 kinds of high-value transaction such as cash deposited to saving bank accounts, purchase of shares, debentures, mutual funds, buyback of shares worth more than Rs 10 lakh on an aggregate basis during a financial year, credit card payments of Rs 1 lakh or more in cash or in any mode of Rs 10 lakh or more during a financial year, were reported.