Reporting capital gains accurately in your Income Tax Return (ITR) is more critical than ever, given the Income Tax Department’s intensified monitoring. With advanced data-matching systems, the IT Department is closely scrutinizing disclosures of income from equities, mutual funds, and even buyback transactions. To avoid notices and penalties, diligent documentation and professional guidance are no longer optional but essential.
Niyati Shah, Vertical Head – Personal Tax at 1 Finance, emphasizes the updated tax landscape:
- Short-Term Capital Gains (STCG) on listed equity shares and equity-oriented mutual funds are now taxed at 20% for transactions executed on or after July 23, 2024. For transactions prior to this date, the rate remains 10%.
- Long-Term Capital Gains (LTCG) exceeding the ₹1.25 lakh exemption limit are taxed at 12.5% for gains realized post-July 23, 2024. The earlier 10% rate applies to gains realized before this cut-off.
How to Accurately Report Capital Gains in Your ITR:
- Classify Gains Accurately: Distinguish between short-term (assets held for ≤12 months) and long-term (assets held for >12 months) gains. Apply the correct tax rates based on the transaction dates.
- Match Data Meticulously: Reconcile all your broker statements with Form 26AS and the Annual Information Statement (AIS). This step is crucial to prevent discrepancies that could trigger scrutiny from the IT Department.
- Include All Transactions: Ensure all gains from equities, mutual funds, and buyback transactions are reported in Schedule CG of your ITR. Additionally, if you’ve used the Capital Gains Account Scheme (CGAS) and any amount remains unutilized after the specified reinvestment period, it must be reported as taxable capital gains in that year.
- Choose the Right ITR Form:
- Use ITR-2 if you are an individual without any business or professional income.
- Use ITR-3 if you have income from a business or profession in addition to capital gains.Within these forms, Schedule CG is where you’ll detail transaction-level information, holding periods, and applicable tax rates.
- Maintain Comprehensive Records: Keep detailed proofs of purchase, sale, and any exemptions claimed. These records are vital for responding to any future queries from the tax authorities.
Specific Considerations:
- Capital Gains from Property: If you sell a property and plan to buy or construct another property to claim a tax exemption, but haven’t done so by the ITR deadline, you can deposit the profits into a Capital Gains Account Scheme (CGAS). While withdrawals are not immediately taxed, any amount remaining unutilized after the allowed period (typically two or three years, depending on the exemption) becomes taxable as capital gains in that year and must be reported.
- Buyback Income: Income from share buyback transactions is now taxable in the hands of shareholders and must be reported under Schedule CG. Verify that broker statements align with Form 26AS and AIS to prevent assessment discrepancies.
In this heightened scrutiny environment, robust documentation and expert tax guidance are indispensable to ensure compliance and avoid penalties.