Capital gains on equities: Here's all you need to know when filing tax returns this year
Mint gives you a handy guide on how to report capital gains from shares and equity mutual funds.
Choose the right ITR form
ITR-2 is the most common form for individuals and Hindu Undivided Families (HUFs) who have income from capital gains but no business income. For individuals or HUFs with income from profits and gains of business or profession who also have income from capital gains, ITR-3 is to be filled.
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Until last year, taxpayers with any capital gains couldn't use the simpler ITR-1 (Sahaj) and ITR-4 (Sugam) forms. However, for assessment year 2025-26 onwards, if your total long-term capital gains (LTCG) from listed equities or equity mutual funds don't exceed ₹1.25 lakh and you have no carry-forward capital losses, you can opt for ITR-1 or ITR-4, provided other requirements are fulfilled.
Gather documents
The ITR utilities have not been released yet, but if you have capital gains, you should start collecting these documents:
Capital gains statement: Your capital gains statement can be downloaded from a registrar and transfer agent (RTA) such as Kfintech and CAMS, or from the asset management company's website. The P&L statement can be downloaded from your brokerage account. It has details of the purchase date, purchase value, selling date, selling price and net gain or loss for each transaction that needs to be filled in the ITR.
Invoices for expenses: Any expenses incurred for the acquisition or sale of the asset, such as brokerage and stamp duty, can be claimed as a deduction. Abhishek Mundada, partner, Dhruva Advisors, said only expenses incurred in connection with the capital gains can be claimed as deductions.
'Broker charges, stamp duty and bank charges are allowed but securities transaction tax (STT) is not," he said. 'Charges in portfolio management services (PMS) are debatable as these are considered more as advisory fees, especially when lump sum or aggregate fees are agreed upon, which would not be allowed as a deduction. However, if these fees are transaction-specific and payable only when the transaction is consummated, they can be claimed as deductions."
Annual information statement: The AIS captures details of your financial transactions during the year, including securities and mutual fund transactions. You should cross-verify all the information in the AIS for accuracy. Sanjoli Maheshwari, executive director, Nangia Andersen India, said while the AIS can be a useful reference tool when reporting capital gains, taxpayers should not rely on it completely.
That's because often there are errors in the AIS owing to grandfathering provisions, mismatches in data reported by the broker and the depository, and duplication of entries by various reporting agencies.
Janhavi Pandit, a chartered accountant in Mumbai, explained how there may be mismatches in data reporting. 'If you bought shares through a demat account with broker A and shifted to broker B before selling the shares, broker B may not have correct cost of acquisition of the shares. Values reported in the AIS thus need to be confirmed with actual contract notes at the time of purchase," she said.
'Discrepancies in data reported in the ITR and the AIS can lead to delays in processing of the ITR or refunds, income tax notices, or even detailed scrutiny," Maheshwari said. 'To avoid this, taxpayers should reconcile the details provided by the stockbroker or PMS through which the actual capital-gain transactions were made with the AIS. Details must be as per the actual transaction documents, and AIS should only be used as a reference tool," she added.
Investment proofs: If you claimed any exemptions on your capital gains by reinvesting them under sections 54, 54EC, 54F, etc, keep the documents handy as you will need to fill in the details to avoid paying capital gains tax.
Determine the holding period and tax rate
It is important to correctly identify the holding period of the equity asset to classify it as short-term or long-term. 'For FY25, there is uniformity in the holding period to determine whether capital assets shall be short-term or long-term. For listed securities, including equity shares, debenture/ bonds, ReIT, invIT, and equity mutual funds, 12 or more months of holding makes them long-term assets. For unlisted securities, the holding period is 24 months," said Mundada.
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However, there is added complexity in the tax rates this year as there are two different tax rates for equity assets sold before and after 23 July 2024. For assets sold before that date, the STCG and LTCG rates are 20% and 10%, respectively. For assets sold after that the STCG rate is 20% and LTCG rate is 12.5%. The ITR forms require you to report capital gains made before and after 23 July 2024 separately. Calculating and reporting capital gains on equity will be slightly more complicated as the tax and holding period needs to be calculated separately for each equity asset.
How to fill in Schedule CG
Capital gains have to be reported under Schedule CG in the ITR form. Schedule CG asks for several details such as the date and cost of acquisition, the date and amount of sale, expenses related to the transfer, and the indexed cost of acquisition (for LTCG on non-equity assets). For long-term stock and mutual fund holdings, scrip-wise details are to be filled in for each transaction under Schedule 112A. To report STCG on equity, you only need to provide the total sale amount and cost of acquisition, not individual scrip-wise details.
The system will calculate the LTCG or STCG based on the dates and amounts you enter. However, scrip-wise reporting of each LTCG transaction can be tedious.
Last year there were two ways of reporting LTCG scrip-wise – manually filling in the data or uploading a comma separated values (CSV) file. Manual filing is fine if there are only a few transactions, but uploading a CSV helps save time if there are several transactions.
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'The CSV format template can be filled in from the capital gain statements (Excel format) provided by brokers. The detailed instructions and coding to be used are provided by the income tax portal," said Pandit.
It is not yet known if transaction details of shares and mutual funds, as they appear in the AIS, will be pre-filled in the ITR utility or not. 'If such pre-filled data is provided to taxpayers, it will be easier to review and edit it for Schedule 112A," said Pandit.
Stock splits, demergers and Esops
While filling in the details, you should be extra careful in cases of stock splits, demergers and employee stock options (Esops). 'As a shareholder, you should consider the company announcements with respect to demerger, share split, etc. This will have an impact on your reporting in case you have sold those shares," Pandit added. When selling shares received through Esops, their fair market value should be considered in the year they were exercised.
After you have filled in the details and the utility calculates capital losses on your equity assets, these are set-off and carried forward. 'Once the taxpayer enters all the transactions in Schedule CG, the income-tax utility automatically sets-off the STCL and LTCL against eligible capital gains, if any, during the year. The utility will then reflect the net capital gains, if any, after applying the set-off in Schedule CG," said Maheshwari.
If capital losses are not set-off in the current year, the utility will automatically populate Schedule CFL (carried forward losses) with the unabsorbed losses, showing the amount that can be carried forward to subsequent years.
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