The income tax department has introduced changes in the Income Tax Return (ITR) forms for Assessment Year (AY) 2025–26 on capital gains reporting. An assessee has to segregate capital gains based on the date of asset sale — before or after July 23, 2024. This distinction is crucial due to the mid-year amendments in tax rates and indexation rules.
If shares or units of equity-oriented mutual funds were sold on before July 23, 2024, long-term capital gains (LTCG) tax (holding period more than 12 months) will be levied at 10% on gains above Rs 1 lakh in a financial year. If sold after July 23, it will be 12.5% on gains above Rs 1.25 lakh. Short-term capital gains (holding period less than 12months) will be taxed at 15% if sold before July 23, 2024 and 20% after that date.
To calculate capital gains from immovable property acquired before July 23, 2024, taxpayers can choose: 12.5% without indexation, or 20% with indexation. As the tax computation will differ for both periods, individuals need to ensure that the transactions reported in the ITR are accurate.
Revised ITR-1 and ITR-4
For small investors and salaried individuals, the ITR-1 (Sahaj) and ITR-4 (Sugam) forms have been revised to include the reporting of long-term capital gains (LTCG) up to `1.25 lakh from listed equity shares or equity-oriented mutual funds. Previously, such taxpayers were required to file ITR-2, which is a detailed form. While filing their income tax returns, individuals must first identify the correct ITR form applicable to them, including capital gains. Capital Gains are to be reported in Schedule CG of the ITR.
However, individuals with STCG or LTCG exceeding `1.25 lakh are required to file ITR-2 or ITR-3, whichever applicable. It is essential to report all capital gains accurately in Schedule CG. Proper documentation, use of brokerage statements, and reconciliation with AIS/Form 26AS are key to avoiding discrepancies.
Vishwas Panjiar, partner, Nangia Andersen LLP, says one of the most critical aspects to consider is the bifurcation of capital gains treatment based on the date of transfer —before and after July 23, 2024. “Since capital gains arising during these two periods are subject to different tax rates and provisions, individuals must maintain accurate and date-wise records of their transactions,” he says. This would require maintaining proper documentation to ensure correct reporting and tax computation.
Maintain proper records
While filing the ITR, individuals must now disclose the exact date of transfer for each asset to determine which tax rate applies. Amit Maheshwari, tax partner, AKM Global, a tax and consulting firm, says mistakes in reporting the transfer date could lead to incorrect tax calculations and possible notices from the tax department at the time of processing of tax return under section 143(1). “Individuals should maintain proper records of each asset sale and review the ITR schedules carefully before submission.”
To avoid errors, individuals must maintain comprehensive documentation including mutual fund/broker statements, sale/registry deeds, demat account summaries, date of acquisition and sale, etc. The ITR utility auto-calculates tax payable once the details are entered into. Filing incorrect data may result in interest and penalty.
The new ITR forms require reporting of the specific section under which TDS has been deducted in the Schedule TDS. This enhances transparency and helps in accurate verification against Form 26AS and AIS. It helps the tax authorities in mapping TDS credits to the appropriate income head and speed up processing and reducing mismatch notices.
Each section code corresponds to a specific nature of payment under the Income Tax Act, such as payments to contractors (Section 194C), professional fees (Section 194J), or interest (Section 194A). Taxpayers should match TDS entries with Form 26AS and ensure correct section codes are selected for seamless credit claim.