ITR for capital gains — stocks, mutual funds, and property
Capital gains from selling shares, equity mutual funds, debt funds, or property must be reported on ITR-2 (or ITR-3 if you also have business income). Equity shares and equity mutual funds held over 12 months qualify for long-term capital gains treatment; property and debt funds generally need to be held over 24/36 months respectively. Rates and exemption thresholds differ significantly by asset type and holding period.
Equity shares and equity mutual funds
Gains on listed equity shares and equity-oriented mutual funds held for more than 12 months are treated as long-term capital gains, taxed at a preferential rate above a specified annual exemption threshold. Gains on holdings of 12 months or less are short-term, taxed at a separate, higher flat rate. Both rates and exemption thresholds have changed across recent budgets, so confirm the current applicable rate for the relevant financial year with a CA before filing.
Debt mutual funds
Following changes to the tax treatment of debt mutual funds, gains on many debt fund categories are now taxed at your applicable slab rate regardless of holding period, rather than getting the indexation benefit and lower long-term rate that used to apply. This is a significant change from older rules and catches many investors who assume debt funds are automatically taxed favourably after three years.
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Talk to a CA →Sale of property
Property held for more than 24 months qualifies for long-term capital gains treatment, with indexation benefit (adjusting the purchase cost for inflation) reducing the taxable gain. Exemptions are available under Section 54 (reinvestment in another residential property), Section 54F (reinvestment of net sale consideration from a non-residential asset), and Section 54EC (investment in specified capital gains bonds) — each with its own conditions and reinvestment timeline.
Reporting requirements: scrip-wise and transaction-wise detail
ITR-2 and ITR-3 require detailed, often scrip-wise or transaction-wise reporting of capital gains, particularly for equity transactions. Most brokers and mutual fund platforms provide a consolidated capital gains statement in a format that maps closely to the ITR schedule, which significantly simplifies this otherwise tedious reporting requirement.
Set-off and carry-forward of capital losses
Short-term capital losses can be set off against both short-term and long-term capital gains; long-term capital losses can only be set off against long-term capital gains. Unabsorbed losses can be carried forward for eight assessment years — but only if the original return reporting the loss was filed on or before the due date, making timely filing especially important for anyone with a loss year to carry forward.
Can I carry forward a capital loss to set off against future gains?
Yes, capital losses can be carried forward for up to eight assessment years — short-term losses can be set off against both short-term and long-term gains in future years, while long-term losses can only be set off against long-term gains. The critical condition: the return declaring the loss must be filed on or before the original due date. A belated return forfeits this carry-forward right for capital losses (other than certain house property losses), so timely filing matters even in a loss year.
This article is for general information only. For your specific situation, consult a practicing CA.
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