How to Report Capital Gains in ITR-2 (Schedule CG) Correctly
- PRITI SIRDESHMUKH
- 11 hours ago
- 9 min read
Reporting capital gains accurately in ITR-2 is critical for taxpayers who have sold assets like property, shares, or mutual funds. Even minor errors in Schedule CG can lead to defective return notices or delays in refund processing. ITR-2 is specifically designed for individuals and HUFs who earn income from capital gains but not from business or profession. The process involves identifying short-term and long-term gains, applying relevant exemptions, and ensuring precise reporting under respective sections. Correct reporting ensures transparency, compliance, and smooth return processing by the Income Tax Department.
Table of Contents
Understanding Capital Gains and ITR-2 Eligibility
Capital gains arise when a taxpayer earns profit by selling capital assets such as property, shares, mutual funds, or bonds. The Income Tax Act classifies these gains into short-term and long-term, depending on how long the asset was held before being sold. Individuals and Hindu Undivided Families (HUFs) who have income from capital gains but no income from business or profession are required to file ITR-2. This form also applies to those earning income from salary, pension, multiple house properties, or foreign assets. Business owners, however, must use ITR-3 or ITR-4 instead. ITR-2 helps taxpayers report detailed information on each capital transaction and claim applicable exemptions.
Step-by-Step Process to Report Capital Gains in ITR-2
Visit the official Income Tax e-filing portal (www.incometax.gov.in) and log in with your PAN and password.
Click on “e-File” → “Income Tax Returns” → “File Income Tax Return.”
Choose the relevant assessment year, such as AY 2025–26 for FY 2024–25.
Select the filing status as “Individual” or “HUF” and choose “ITR-2” as the applicable form.
Fill in Part A with personal and general information such as name, address, and filing status.
Go to the “Income Schedules” section and select “Schedule CG” (Capital Gains).
Enter the details of capital asset transactions in the respective short-term or long-term categories.
Verify the auto-calculated tax computation, which appears based on the data entered.
Submit your return and complete verification through Aadhaar OTP, net banking, or physical ITR-V submission.
This systematic approach ensures that the capital gains data is accurately reported and processed without errors.
How to Identify Short-Term and Long-Term Capital Gains
The classification of capital gains depends on the holding period of the asset.
For equity shares and equity mutual funds:
Held for less than 12 months – Short-Term Capital Gain (STCG)
Held for more than 12 months – Long-Term Capital Gain (LTCG)
For immovable property (land or building):
Held for less than 24 months – STCG
Held for more than 24 months – LTCG
For debt mutual funds, gold, or other assets:
Held for less than 36 months – STCG
Held for more than 36 months – LTCG
This classification is critical since the tax rate, indexation benefit, and eligibility for exemptions vary based on whether the gain is short-term or long-term.
How to Fill Schedule CG in ITR-2
Schedule CG is the dedicated section for reporting capital gains in the ITR-2 form. Taxpayers must enter the following details:
Short-Term Capital Gains (STCG): Include sale value, purchase cost, expenses on transfer, and relevant dates of purchase and sale.
Long-Term Capital Gains (LTCG): Include sale consideration, indexed cost of acquisition and improvement, and the dates of purchase and sale.
For equity shares and mutual funds, ISIN numbers must be provided for precise identification. The ITR form automatically computes the total gain and applicable tax based on the entered data. Review all entries carefully before submission, ensuring that each transaction is properly classified and aligned with Form 26AS and AIS data.
Applying Exemptions and Deductions under Relevant Sections
Exemptions can significantly reduce tax liability on capital gains when reinvestments are made according to the law:
Section 54: Applies when gains from the sale of a residential house are reinvested into another residential property within the specified timeline.
Section 54EC: Allows exemption for gains reinvested in government-specified bonds such as REC or NHAI within six months.
Section 54F: Provides exemption for capital gains from assets other than a house, provided the sale proceeds are used to purchase or construct a new residential house.
These exemptions are only available under the old tax regime. In the new regime, most exemptions are not permitted, and the taxpayer must compare which option is more beneficial before filing.
Reporting Capital Gains from Shares and Mutual Funds
Capital gains from shares and mutual funds are categorised under specific sections for clarity and taxation:
Section 111A: Covers short-term gains from equity shares and equity mutual funds where Securities Transaction Tax (STT) is paid. Taxed at 15%.
Section 112A: Applies to long-term gains from listed equity shares or mutual funds exceeding ₹1 lakh. Taxed at 10% without indexation. Taxpayers should provide ISIN details, date of purchase and sale, and the transaction amount. Broker or demat account statements serve as reliable references for filling these details. Ensure consistency with AIS and TIS reports to avoid mismatches.
Reporting Capital Gains from Property Sales
When a residential or commercial property is sold, the gain is computed as the difference between the sale consideration and the indexed cost of acquisition and improvement. The Cost Inflation Index (CII) must be used to calculate the indexed value for long-term gains. Taxpayers can claim exemptions under Section 54 or 54F if reinvestment is made within the prescribed period. For short-term sales, the entire gain is taxed as per applicable slab rates. Ensure all details from the sale deed, registration documents, and payment receipts are available for accurate reporting in ITR-2.
How to Report Losses and Carry Forward in Schedule CG
Losses from capital asset transactions can be adjusted or carried forward as per income tax rules:
Short-term capital losses can be set off against both short-term and long-term capital gains.
Long-term capital losses can be set off only against long-term gains. Unabsorbed losses can be carried forward for up to eight assessment years if reported before the due date of filing. Proper disclosure of losses in Schedule CG is essential to ensure they remain eligible for future adjustments.
Common Mistakes to Avoid While Filing ITR-2
Not distinguishing between short-term and long-term assets correctly.
Missing ISIN or transaction details for securities.
Forgetting to apply eligible exemptions under Sections 54, 54EC, or 54F.
Reporting incorrect sale or purchase dates.
Ignoring AIS and Form 26AS reconciliation leads to mismatches.
Submit the ITR without final verification through Aadhaar OTP or net banking.
These errors can delay refund processing or trigger scrutiny notices from the Income Tax Department.
Role of TaxBuddy in Simplifying Capital Gains Reporting
TaxBuddy provides a reliable and simplified solution for taxpayers reporting capital gains. The platform combines AI-driven data analysis with expert-assisted guidance to ensure every transaction is accurately reflected in Schedule CG. It automatically detects mismatches between AIS, broker statements, and user inputs, helping taxpayers avoid costly errors. From classification of capital assets to claiming exemptions, TaxBuddy ensures seamless compliance and a smooth filing experience.
Conclusion
Filing ITR-2 with accurate capital gains reporting ensures transparency and avoids future disputes with tax authorities. Whether the gains are from property, shares, or mutual funds, maintaining proper documentation and entering data carefully in Schedule CG is essential. For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options?
TaxBuddy provides both self-filing and expert-assisted plans, allowing taxpayers to select the option that suits their comfort and expertise level. The self-filing plan is designed for individuals familiar with the filing process, offering a guided interface and automated data checks. The expert-assisted plan connects users directly with qualified tax professionals who review documents, calculate exemptions, and file returns on their behalf. This flexibility ensures that even complex returns, such as those involving capital gains, are filed accurately and on time.
Q2. Which is the best site to file ITR?
The official Income Tax Department’s portal is the government’s primary platform for filing ITRs. However, for users seeking simplified filing and professional assistance, TaxBuddy stands out as one of the most reliable and efficient options. Its AI-based system automatically imports Form 16, Form 26AS, and AIS data, minimising manual errors. It also provides tailored recommendations for deductions and exemptions, ensuring compliance with the latest tax laws. The blend of automation and expert guidance makes TaxBuddy one of the best platforms to file ITR securely and efficiently.
Q3. Where to file an income tax return?
Income tax returns can be filed either directly on the official Income Tax e-filing portal (www.incometax.gov.in) or through trusted platforms like TaxBuddy. While the government portal offers a do-it-yourself approach, many individuals prefer TaxBuddy for its simplified interface, step-by-step assistance, and dedicated expert review. The platform supports all ITR forms, including ITR-1 to ITR-7, making it ideal for salaried employees, investors, and professionals with capital gains or multiple income sources.
Q4. Can capital gains be reported in ITR-1?
No. ITR-1 (Sahaj) is specifically meant for individuals having income from salary, one house property, and other sources such as interest income. It does not support reporting of capital gains. Taxpayers who earn income from the sale of capital assets like property, shares, or mutual funds must file ITR-2. This form includes Schedule CG, which captures detailed information such as sale consideration, indexed cost, exemptions, and applicable tax rates. Filing capital gains in ITR-1 would make the return invalid and may invite a notice from the Income Tax Department.
Q5. What are the due dates for filing ITR-2?
For individual taxpayers whose accounts do not require an audit, the usual due date for filing ITR-2 is July 31 of the assessment year. For example, the due date for FY 2024–25 (AY 2025–26) is July 31, 2025. However, if an audit is applicable or the government announces an extension, the deadline may shift accordingly. Late filing after the due date attracts a penalty under Section 234F and also restricts the ability to carry forward capital losses. Filing on time ensures smoother processing and timely issuance of refunds.
Q6. Is ISIN mandatory for reporting share transactions?
Yes. The International Securities Identification Number (ISIN) is mandatory for identifying securities such as listed shares and mutual funds when reporting capital gains in Schedule CG of ITR-2. It helps the Income Tax Department cross-verify the transaction details with broker and depository records. Failing to mention ISIN may lead to mismatches or scrutiny. Investors can easily find ISINs in their demat account statements or broker reports. Including ISIN ensures transparency and accuracy in reporting equity transactions.
Q7. How long can capital losses be carried forward?
Capital losses can be carried forward for up to eight consecutive assessment years, provided the ITR is filed before the due date. Short-term capital losses can be set off against both short-term and long-term gains, while long-term capital losses can only be adjusted against long-term gains. If the return is filed late, the right to carry forward losses is forfeited. Hence, timely filing is crucial for investors who wish to benefit from future set-offs and minimize their tax burden.
Q8. Can Section 54F exemption be claimed for two properties?
No. Section 54F provides an exemption from long-term capital gains arising from the sale of assets other than a residential house if the net consideration is invested in purchasing or constructing one residential property in India. The exemption is available only for a single house, and if the taxpayer already owns more than one property on the date of sale, the benefit cannot be claimed. To retain the exemption, the new property must not be sold within three years of purchase or construction.
Q9. Are sale deeds required to be uploaded with ITR?
No. Sale deeds and other supporting documents, such as purchase agreements or indexation proofs, are not required to be uploaded while filing the ITR. However, taxpayers should preserve these documents as the assessing officer may demand them for verification during scrutiny or assessment proceedings. Keeping all transaction-related documents organized helps in substantiating claims made in Schedule CG and ensures smooth resolution if any queries arise from the tax authorities.
Q10. How does TaxBuddy ensure accuracy in capital gains filing?
TaxBuddy employs an AI-driven validation system that cross-verifies user data with Form 26AS, AIS, and broker statements. It auto-calculates indexed costs, applies the correct tax rates under Sections 111A and 112A, and highlights mismatches before submission. Moreover, TaxBuddy’s expert-assisted service includes manual verification by qualified professionals who review capital gain entries and exemptions claimed under Sections 54, 54EC, or 54F. This dual-layer system minimizes errors, ensures compliance, and provides peace of mind to taxpayers.
Q11. Can a revised return be filed if capital gains were missed earlier?
Yes. A revised return can be filed under Section 139(5) of the Income Tax Act if any capital gains were missed or reported incorrectly in the original return. The revised ITR must be filed before the end of the relevant assessment year or before the assessment is completed, whichever is earlier. Revising the return allows taxpayers to correct mistakes without penalty, provided it is done voluntarily. Platforms like TaxBuddy simplify this process by identifying missing entries and enabling quick rectification.
Q12. Do capital gains differ under the new tax regime?
The tax rates for capital gains remain the same under both the old and new regimes; however, the availability of exemptions and deductions differs. Under the new regime introduced in Section 115BAC, exemptions under Sections 54, 54EC, or 54F are not available. Therefore, taxpayers who frequently invest in assets and claim reinvestment exemptions may find the old regime more beneficial. It is advisable to compare total tax liability under both regimes before filing, which TaxBuddy’s AI-based calculator can assist with easily.
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