Getting your income tax return (ITR) right can be tough, especially when you’ve made money from capital gains on things like stocks, mutual funds, or property. Tax experts are warning that a simple mistake, like picking the wrong ITR form or misreporting your gains, could lead to frustrating tax notices, delayed refunds, and penalties.
Thank you for reading this post, don't forget to subscribe!“People often think any ITR form will do, but that’s risky,” says CA Nitin Kaushik, a leading tax expert. “If you have capital gains, your form depends on the nature and amount of those gains.”
Why Capital Gains Make ITRs Tricky
Capital gains happen when you sell an asset for a profit. These are split into short-term and long-term categories, and each is taxed differently. For example, selling listed shares you’ve held for less than 12 months incurs a 15% short-term capital gains tax. Hold them longer, and you generally pay a lower 10% tax on gains over Rs 1 lakh under Section 112A.
“It’s crucial to classify gains correctly and pick the right form,” Kaushik stresses. If you don’t, mismatches with your Annual Information Statement (AIS) or Form 26AS could trigger notices from the tax department.
For first-time filers, navigating capital gains can feel overwhelming. CA Dr. Suresh Surana explains, “Understanding the intricacies of capital gains reporting within the ITR framework is essential to ensure accuracy, avoid litigation, and optimize available exemptions.”
Picking the Right ITR Form: A Quick Guide
Choosing the correct form is your first critical step:
- ITR-1 (Sahaj): Ideal for salaried individuals with up to Rs 1 lakh in long-term gains from listed shares or mutual funds. Not for traders or those owning multiple properties.
- ITR-2: For salary, property income, and all capital gains, but not for F&O (Futures & Options) or intraday trading income.
- ITR-3: This is the one for you if you have business income, including F&O and intraday trades.
- ITR-4 (Sugam): For salaried taxpayers with presumptive business income plus up to Rs 1 lakh in LTCG. It’s not for detailed capital gains reporting.
Beyond Forms: The Nitty-Gritty of Reporting
Once you’ve got the form, the actual reporting needs precision. You’ll need to fill out Schedule CG in your ITR form, detailing the acquisition cost, sale proceeds, holding period, and any exemptions claimed. “Errors in reporting can trigger notices, demand tax payments, or even lead to penalties. Always reconcile your disclosures with AIS or Form 26AS,” advises Dr. Surana.
Don’t Miss Out on Tax Exemptions!
Several exemptions can help reduce your tax burden:
- Section 54: If you sell a residential property and reinvest the gains into another residential property, you might get relief.
- Section 54EC: You can invest up to ₹50 lakh in specified bonds (like NHAI or REC) within six months of selling an asset, shielding those gains from tax.
“These exemptions are powerful tools to reduce tax, but they require precise compliance,” Kaushik points out.
Watch Out for Special Cases
Unique situations like ESOPs, bonus shares, or property sales demand extra care. ESOPs are taxed as salary when you exercise them, but selling those shares later creates capital gains. Bonus shares are considered acquired at zero cost, which can increase your taxable gains when you sell them.
Real estate transactions can also be complex. “If the property’s sale price is lower than the stamp duty value, the higher value is often deemed your sale consideration,” Dr. Surana explains. This can unexpectedly hike your tax liability.
The Power of Good Records
Keeping thorough records is non-negotiable. Hang on to your demat statements, broker contract notes, property deeds, and receipts for improvement costs. “These documents not only help in calculating accurate gains but also serve as proof in case of scrutiny,” says Kaushik.
The tax department is getting stricter about matching your reported gains with data from AIS, which compiles extensive transaction details. Any mismatch, even an unintentional one, can trigger a notice.
File Smart, Not Hard
With the ITR deadline for non-audit taxpayers extended to September 15, 2025, it’s tempting to procrastinate. However, both experts urge against last-minute filing. “Choosing the right form and reporting gains accurately is half the battle,” Kaushik says. “A small mistake can cost you big—and peace of mind.”
Dr. Surana concludes, “Filing your ITR correctly when capital gains are involved isn’t just about paying tax—it’s about protecting yourself from unnecessary stress, notices, and financial loss. Take the time to get it right.”
For taxpayers, a little extra effort now can save a lot of headaches (and money) later. What steps are you taking to ensure your ITR is accurate this year?
