Avoid Errors: How to Report Capital Gains in ITR for AY 2025-26 Under New Rules

Reporting Capital Gains in ITR (AY 2025-26): Shares, Mutual Funds, Property & New Tax Rules

Filing your Income Tax Return (ITR) for Assessment Year (AY) 2025-26 involves reporting all income earned during the Financial Year 2024-25 (April 1, 2024, to March 31, 2025). One crucial, and often complex, area is reporting Capital Gains. This includes profits (or losses) from selling assets like shares, mutual funds, property, gold, etc.

The FY 2024-25 saw significant changes in capital gains taxation rules, introduced via the Finance (No.2) Act, 2024 (presented in July 2024), primarily effective from July 23, 2024. This makes accurate reporting for AY 2025-26 even more critical.

This guide will walk you through how to classify, calculate, and report capital gains correctly in your ITR for AY 2025-26.

1. What are Capital Gains?

• Capital Asset: Any property held by you, whether connected to your business or not. Examples include land, buildings, house property, vehicles, patents, trademarks, leasehold rights, jewellery, shares, mutual funds, bonds, gold, etc.
• Capital Gain/Loss: The profit or loss arising from the transfer (sale, exchange, relinquishment, etc.) of a capital asset.

2. Types of Capital Gains: Short-Term vs. Long-Term (Based on Holding Period)

The holding period determines whether your gain/loss is Short-Term Capital Gains (STCG)/Short-Term Capital Loss (STCL) or Long-Term Capital Gains (LTCG)/Long-Term Capital Loss (LTCL). The periods applicable for AY 2025-26 are:

(Note: If the holding period is less than or equal to the period mentioned, it's STCG/STCL).

*Some sources suggest 24 months for Debt MFs acquired pre-April 2023 post Budget 2024 changes, aligning with unlisted shares. However, the standard pre-amendment rule was 36 months. For reporting clarity, stick to the specific asset class rules unless official ITR instructions state otherwise. The tax rate applied post July 22, 2024 might be uniform regardless.

3. Calculating Capital Gains

The basic formula is:

Capital Gain/Loss = Full Value of Consideration (Sale Price) - Cost of Acquisition - Cost of Improvement - Transfer Expenses

• Full Value of Consideration: What you received (or will receive) from the sale.
• Cost of Acquisition (COA): Your purchase price.
  • Grandfathering (Sec 112A Assets): For listed equity/equity MFs acquired before Feb 1, 2018, the COA for calculating LTCG is the higher of your actual cost OR the lower of [FMV as on Jan 31, 2018] and [Actual Sale Price].
• Cost of Improvement (COI): Capital expenditure incurred to add value to the asset after purchase.
• Transfer Expenses: Brokerage, commission, stamp duty, registration fees, etc., directly related to the sale.

4. The Big Change: Indexation Benefit Curtailed (Post July 22, 2024)

• Indexation: Adjusts the COA and COI for inflation using the Cost Inflation Index (CII) notified by the CBDT. Formula: Indexed Cost = Actual Cost * (CII of Sale Year / CII of Acquisition Year). This reduces taxable LTCG.
• Finance (No.2) Act, 2024 Impact: For most capital assets transferred on or after July 23, 2024, the benefit of indexation has been removed.
• Major Exception - Immovable Property: If you acquired land/building before July 23, 2024, and sell it on or after July 23, 2024, you have an option. Your LTCG tax will be the lower of:
  • Tax calculated at 12.5% on the gain (without indexation).
  • Tax calculated at 20% on the gain (with indexation benefit).
• For property acquired on or after July 23, 2024, only the 12.5% rate (without indexation) applies to LTCG.

5. Capital Gains Tax Rates (AY 2025-26 / FY 2024-25)

Tax rates depend on the asset type, holding period, AND the date of transfer:

Tax Regime Impact: While the special flat rates (111A, 112, 112A) generally apply under both Old and New Regimes, gains taxed at slab rates will be affected by your chosen regime's slabs. The indexation option for property (acquired pre-July 23) is available under both regimes. Deductions under Chapter VI-A (like 80C) are generally not available against capital gains income.

6. Set-off and Carry Forward of Capital Losses

• Short-Term Capital Loss (STCL) can be set off against both STCG and LTCG in the same year.
• Long-Term Capital Loss (LTCL) can ONLY be set off against LTCG in the same year.
• Losses from capital gains cannot be set off against income from other heads (like Salary).
• Unadjusted STCL and LTCL can be carried forward for 8 assessment years.
• Carried forward STCL can be set off against future STCG or LTCG.
• Carried forward LTCL can ONLY be set off against future LTCG.
• Important: You cannot carry forward losses if you haven't filed your ITR by the original due date (July 31, 2025, for most).

7. How to Report Capital Gains in ITR Form (AY 2025-26)

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  Which Form? If you have capital gains, you generally cannot use ITR-1 or ITR-4. You'll need:
  • ITR-2: If you have capital gains but NO income from Business or Profession.
  • ITR-3: If you have capital gains AND income from Business or Profession.
• Key Schedules:
  • Schedule CG (Capital Gains): This is the main schedule. You need to report details for each type of capital asset sold during FY 2024-25.
    • Breakdown by holding period (Short-term/Long-term).
    • Provide details like Full Value of Consideration, Cost of Acquisition, Cost of Improvement, Transfer Expenses.
    • Crucially: You will likely need to report transactions that occurred before July 23, 2024, separately from those on or after July 23, 2024, due to the changes in tax rates and indexation rules. The ITR utility should guide this segregation.
    • Calculate gain/loss for each transaction/asset type.
    • Claim applicable exemptions (Sec 54, 54F, 54EC) within this schedule by providing relevant details (amount invested, date, etc.).
  • Schedule 112A: Specifically for reporting LTCG from the sale of listed equity shares or equity-oriented MF units (where STT is paid) and the gain is taxed under Sec 112A (i.e., gain > ₹1.25 Lakh for transfers post July 22, 2024).
    • Requires scrip-wise/unit-wise details: ISIN, Share/Unit Name, Number Sold, Sale Price, Cost of Acquisition, FMV as on Jan 31, 2018 (for grandfathering calculation). You can often import this data from broker statements via the ITR utility.
  • Schedule SI (Special Income): This schedule aggregates income chargeable to tax at special flat rates (like STCG u/s 111A, LTCG u/s 112A, LTCG u/s 112). The calculated tax on these gains feeds into your main tax computation.
  • Schedule BFLA (Brought Forward Losses Adjustment) & Schedule CFL (Carry Forward Losses): Use these to report and adjust losses brought forward from previous years and determine losses to be carried forward to future years.
• Check AIS/TIS: Your Annual Information Statement (AIS) and Taxpayer Information Summary (TIS) on the income tax portal will contain information about your share/MF/property transactions reported by third parties (brokers, registrars, sub-registrars). It is vital to reconcile the information in your ITR with AIS/TIS to avoid discrepancies and potential notices. Report all gains, even if not reflected in AIS, and correct any inaccurate information in AIS via the portal's feedback mechanism.

8. Claiming Capital Gains Exemptions (Brief Overview)

You can reduce your taxable LTCG by reinvesting the gains/proceeds under specific sections (primarily for property/other long-term assets):

• Section 54: Reinvest LTCG from selling a residential house into buying/constructing another residential house within specified timelines (purchase 1 year before or 2 years after sale; construct within 3 years). Capped at ₹10 Crore exemption.
• Section 54F: Reinvest net sale consideration from selling any long-term asset other than a residential house into buying/constructing one residential house within specified timelines. Capped at ₹10 Crore exemption. (Requires you not to own more than one other residential house).
• Section 54EC: Reinvest LTCG from selling land or building (or both) into specified bonds (like NHAI, REC, PFC, IRFC) within 6 months of sale. Capped at ₹50 Lakh investment per financial year.

These exemptions must be claimed in Schedule CG with relevant details.

Conclusion

Reporting capital gains for AY 2025-26 requires careful attention due to the mid-year changes in tax rates and indexation rules effective from July 23, 2024.

• Classify gains correctly based on asset type and holding period.
• Calculate gains accurately, considering the correct cost, grandfathering (if applicable), and indexation (only where specifically allowed, like property acquired pre-July 23).
• Apply the correct tax rate based on the asset type AND the date of transfer (before or after July 23, 2024).
• Report meticulously in the correct ITR form (ITR-2/ITR-3) and schedules (CG, 112A, SI, BFLA, CFL).
• Reconcile with your AIS/TIS data.
• Claim exemptions properly if applicable.
• File your ITR by the due date (July 31, 2025, for non-audit cases) to carry forward any losses.

Given the complexity, especially with the recent changes, consider using reliable tax software or consulting a tax professional to ensure accurate reporting and compliance.

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