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Can You File ITR 1 with Capital Gains? Understanding the New Rules for FY 2024–25

  • Writer: Bhavika Rajput
    Bhavika Rajput
  • Jun 19
  • 12 min read

From FY 2024–25, resident individuals can file ITR-1 (Sahaj) even if they have long-term capital gains (LTCG) from listed equity shares or equity-oriented mutual funds, as long as the gains do not exceed ₹1.25 lakh during the financial year. This change simplifies the process for salaried taxpayers who earlier needed to use ITR-2 or ITR-3 due to minor capital gains. With this new limit and simplified eligibility criteria, tax filing becomes more accessible for small investors.

Table of Contents


Can You File ITR 1 with Capital Gains in FY 2024–25?

Yes. For FY 2024–25 (AY 2025–26), ITR-1 is permitted if the taxpayer is a resident individual with LTCG up to ₹1.25 lakh from listed equity shares or equity-oriented mutual funds. This is allowed only if there are no carry-forward or brought-forward capital losses, and the gains fall under Section 112A. Any other type of capital gain disqualifies the use of ITR-1.


Who Can File ITR 1 for FY 2024–25?

ITR-1, also known as the Sahaj form, is designed for individuals with relatively simple sources of income. The following individuals can file ITR-1 for the financial year 2024–25:


  • Resident and Ordinarily Resident in India: This form is only available to residents of India. Non-residents (NRIs) and Hindu Undivided Families (HUFs) are not eligible.

  • Total Income Does Not Exceed ₹50 Lakh: If a taxpayer's total income, including salary, pension, and other sources, is below ₹50 lakh, they are eligible to use ITR-1.

  • Income Sources Limited to:

  • Salary or Pension: Income from salary or pension is the primary source of income for ITR-1 filers.

  • One House Property: Income from one house property, whether rented or self-occupied, is allowed.

  • Family Pension: Family pension received by legal heirs of a deceased employee is also included in the list of eligible income sources.

  • Agricultural Income up to ₹5,000: Agricultural income up to ₹5,000 does not affect eligibility for ITR-1.

  • Other Sources (like Interest Income): Income from other sources like interest income from savings accounts, fixed deposits, etc., is also permissible under ITR-1.

  • LTCG under Section 112A from Listed Shares or Equity Mutual Funds Not Exceeding ₹1.25 Lakh: If a taxpayer earns long-term capital gains (LTCG) from listed equity shares or equity mutual funds, it must not exceed ₹1.25 lakh to qualify for ITR-1 filing.

  • No Capital Loss Carried Forward or Set Off: If you have any carried-forward capital losses or intend to set off losses against other incomes, ITR-1 cannot be used. The individual would need to use ITR-2 instead.


Who Cannot File ITR 1 with Capital Gains?

While ITR-1 is suitable for taxpayers with simple incomes, certain individuals cannot use this form if they have capital gains. These include:


  • Non-Resident or Resident Not Ordinarily Resident (RNOR): Non-residents and RNORs cannot file ITR-1. These taxpayers must use ITR-2 or ITR-3 based on the nature of their income.

  • Total Income Above ₹50 Lakh: If a taxpayer’s total income exceeds ₹50 lakh, they are required to use ITR-2 or ITR-3 depending on the complexity of their income sources.

  • Agricultural Income Exceeding ₹5,000: If a taxpayer earns more than ₹5,000 from agricultural activities, they cannot use ITR-1 and must opt for ITR-2.

  • Income from Business, Profession, or Speculative Sources: Individuals who have income from business, profession, or speculative sources are ineligible for ITR-1.

  • Capital Gains Other Than LTCG Under Section 112A or If LTCG Exceeds ₹1.25 Lakh: If a taxpayer has capital gains from other assets like property, unlisted shares, or if their LTCG exceeds ₹1.25 lakh, they cannot use ITR-1. These taxpayers must file ITR-2.

  • Any Carry-Forward or Set-Off of Capital Losses: If you have capital losses from previous years that you want to carry forward or set off against current year’s gains, ITR-1 is not applicable.

  • Holding Unlisted Equity Shares: Taxpayers who hold unlisted shares cannot file ITR-1, as such transactions require more detailed reporting available only in ITR-2.

  • Being a Director in a Company: If an individual holds a directorship in a company, they are not eligible to file ITR-1 due to the additional disclosures required for directors, which are only available in ITR-2.


Key ITR 1 Capital Gains Filing Rules for FY 2024–25

The Income Tax Department has specific rules for filing capital gains in ITR-1, which mainly applies to salaried individuals with minor capital gains. These rules include:


  • Only LTCG from Listed Equity Shares or Equity Mutual Funds is Permitted: ITR-1 allows the reporting of long-term capital gains (LTCG) only from listed equity shares or equity mutual funds. The taxpayer must have held these assets for more than one year.

  • The Maximum Allowable LTCG for ITR-1 Filing is ₹1.25 Lakh: Taxpayers filing ITR-1 can report up to ₹1.25 lakh of LTCG from listed equity shares or equity mutual funds. Any LTCG exceeding this threshold requires filing ITR-2.

  • No Other Types of Capital Assets Are Allowed Under ITR-1: Capital gains from assets other than listed equity shares or equity mutual funds, such as property or unlisted securities, cannot be reported under ITR-1. These must be reported using ITR-2.

  • No Losses (Current or Carried Forward) Can Be Reported in ITR-1: Taxpayers cannot report capital loss, whether current year or carried forward, in ITR-1. If there is a need to report capital losses, ITR-2 is required.

  • This Change Brings Convenience to Salaried Taxpayers with Low-Volume Equity Investments: This simplification helps salaried individuals with minor investments in listed equity shares or mutual funds, allowing them to file ITR-1 rather than dealing with the complexities of ITR-2.


Capital Gains Reporting Rules in ITR 1

When reporting capital gains in ITR-1, taxpayers must follow specific guidelines to ensure proper disclosure:


  • Specify the LTCG Amount Under Section 112A: Taxpayers must report their LTCG from listed shares and equity mutual funds under Section 112A. This ensures they are taxed at the correct rate, i.e., 10% for gains exceeding ₹1 lakh.

  • Mention the ISIN of the Securities Sold, Along with Date of Acquisition and Sale: For every security sold, taxpayers need to mention the International Securities Identification Number (ISIN) of the shares or mutual funds, along with the dates of acquisition and sale. This is required for proper tax calculation and to ensure compliance with reporting standards.

  • Gains Exceeding ₹1 Lakh Remain Taxable at Applicable Rates: If the LTCG exceeds ₹1 lakh, the excess will be taxed at 10%, as per Section 112A. Taxpayers should ensure they calculate the taxable portion accurately.

  • Ensure Accurate Segregation of Exempt and Taxable Portions: Any gains that are exempt, such as those up to ₹1 lakh in LTCG under Section 112A, must be segregated from the taxable portion to ensure the correct amount is taxed.

  • No Reporting is Allowed for Property Sales, Unlisted Shares, or STCG: ITR-1 does not permit reporting of short-term capital gains (STCG), property sales, or gains from unlisted shares. These need to be reported using ITR-2.


New Tax Rates for Capital Gains: Effective July 23, 2024

The government has revised the tax rates for capital gains from equity-related assets, which will be effective from July 23, 2024:


  • LTCG Under Section 112A Will Be Taxed at 12.5% Without Indexation (Up from 10%): Long-term capital gains from listed equity shares or mutual funds will now be taxed at 12.5% (previously 10%) without the benefit of indexation.

  • STCG on Equity Shares Will Now Be Taxed at 20% (Previously 15%): Short-term capital gains from equity shares, which were taxed at 15%, will now be taxed at 20%. This change applies to all equity-related gains and requires taxpayers to account for this when calculating tax liabilities.

  • Taxpayers Must Bifurcate Gains Based on the Date of Sale, Before or After July 23: Taxpayers must split their capital gains into two categories: gains from transactions that took place before July 23, 2024, and those after this date. The tax rate applicable will depend on the date of the transaction.


What If Capital Gains Exceed ₹1.25 Lakh?

If the total long-term capital gains (LTCG) from listed equity shares or equity-oriented mutual funds exceed ₹1.25 lakh in FY 2024–25, the taxpayer becomes ineligible to file ITR-1 (Sahaj). This threshold has been introduced specifically to filter simpler tax cases for ITR-1 and redirect more complex capital gains reporting to the appropriate ITR forms.


Let’s understand the next steps in detail:


1. ITR-1 Becomes Inapplicable

Once LTCG under Section 112A exceeds ₹1.25 lakh during the financial year, even by a small margin, the use of ITR-1 is no longer permitted. The rule applies regardless of whether there are any capital losses or not. This threshold acts as a strict upper limit. Filing ITR-1 despite exceeding this limit can result in a defective return notice under Section 139(9) or even scrutiny for misreporting.


2. ITR-2 or ITR-3 Must Be Used Based on Income Sources

  • ITR-2: If the taxpayer's income is from salary, house property, capital gains, or other sources (like interest), and there is no business or professional income, then ITR-2 is the correct form. It contains detailed capital gains schedules, including provisions to report each transaction under Section 112A.

  • ITR-3: If the taxpayer also has income from a business or profession (including freelancing or consultancy), then ITR-3 is mandatory. This form covers business income schedules in addition to capital gains disclosures.


Choosing the correct form ensures proper reporting and prevents mismatches with the Annual Information Statement (AIS) or Form 26AS.


3. Ensure Accurate Categorization and Computation of LTCG

When reporting LTCG exceeding ₹1.25 lakh:


  • Clearly distinguish between:

  • Eligible LTCG under Section 112A (i.e., from listed equity shares or equity mutual funds held for more than 12 months and subject to STT)

  • Other LTCG (e.g., from property, debt funds, unlisted shares, etc.)

  • Ensure gains are computed after applying the ₹1 lakh exemption limit under Section 112A

  • Tax the remaining gains at the applicable 10% (for sales before July 23, 2024) or 12.5% (for sales on or after July 23, 2024) as per the amended rate


4. Utilize Capital Gains Schedules in ITR-2 or ITR-3

ITR-2 and ITR-3 contain Schedule CG, which must be filled carefully. Key reporting requirements include:


  • ISIN Code of the security sold

  • Name of the share or mutual fund

  • Date of acquisition and sale

  • Full value of consideration received

  • Cost of acquisition and improvement (if any)

  • Exemption claim under Section 112A (₹1 lakh)

  • Date of sale (to distinguish whether sold before or after July 23, 2024) due to change in tax rate


If any of this information is omitted or entered incorrectly, the return may be flagged for mismatch or incorrect reporting. Many taxpayers use platforms like TaxBuddy to auto-fill these schedules using their demat and broker statements.


Proper reporting of capital gains becomes crucial once the ₹1.25 lakh exemption ceiling is crossed. For error-free filing, automated validations, and expert support, tools like TaxBuddy ensure that your gains are classified and taxed correctly, helping you stay compliant with the Income Tax Department’s expectations.


Common Mistakes to Avoid When Filing ITR 1 with Capital Gains

1. Filing ITR-1 with Capital Gains Exceeding ₹1.25 Lakh A frequent mistake is choosing ITR-1 even when the total long-term capital gains (LTCG) from listed equity shares or equity-oriented mutual funds cross ₹1.25 lakh. As per the updated rules for FY 2024–25, ITR-1 is only allowed if such LTCG is up to ₹1.25 lakh. Even a marginal excess—₹1.26 lakh, for instance—makes you ineligible. Filing ITR-1 in such cases may lead to defective return notices under Section 139(9), requiring revision.


2. Reporting STCG or Non-Section 112A Gains in ITR-1 Some taxpayers mistakenly report short-term capital gains (STCG) or capital gains from assets not covered under Section 112A—like property, debt mutual funds, gold, or unlisted shares—in ITR-1. The form only permits LTCG under Section 112A from listed equity or equity-oriented mutual funds. STCG, taxable under Section 111A at 15%, or gains from other capital assets must be filed using ITR-2 or ITR-3. Incorrect form selection may lead to rejection or penalty.


3. Missing the Capital Gains Reporting Section Entirely Even when LTCG is within the ₹1.25 lakh limit, skipping the “Capital Gains” reporting section in ITR-1 is a serious compliance issue. Taxpayers sometimes assume that gains below the ₹1 lakh exemption threshold need not be reported. However, all LTCG, taxable or exempt, must be disclosed. Omission of these details creates mismatches with AIS (Annual Information Statement) and may trigger scrutiny or notices.


4. Failing to Include ISIN Details or Acquisition Dates In FY 2024–25, taxpayers must provide detailed information about each sale of listed equity or equity-oriented mutual funds. This includes:


  • ISIN (International Securities Identification Number)

  • Date of acquisition

  • Date of sale

  • Sale consideration and acquisition cost


Missing any of these inputs makes the capital gains reporting incomplete. ISINs help the department verify transactions against brokers and exchange data. Not mentioning them properly can result in processing delays or error notices.


5. Not Updating Income Bifurcation for Sales Before and After July 23, 2024 The capital gains tax rate for LTCG under Section 112A has changed from 10% to 12.5% for sales executed on or after July 23, 2024. Taxpayers with multiple transactions across both periods must segregate gains accordingly. Many taxpayers overlook this and apply a single rate to all LTCG, leading to misreporting. To stay compliant, bifurcate your capital gains and report each portion under the correct applicable rate based on the sale date.


How TaxBuddy Helps Simplify ITR Filing

TaxBuddy offers a smart, user-friendly platform to file your income tax return without worrying about errors or eligibility mismatches. Whether you’re unsure about selecting the right ITR form or need clarity on capital gains taxation, TaxBuddy provides expert guidance with automation that simplifies reporting. The platform supports salaried individuals, freelancers, and investors with tailored assistance to ensure a seamless filing experience.


Conclusion

With the revised rules for FY 2024–25, taxpayers with modest capital gains from listed equity shares or mutual funds now have the option to file ITR-1. It’s essential to meet the exact criteria, such as keeping LTCG within ₹1.25 lakh and avoiding other disqualifying income types. This change supports simplified compliance for small investors.


For a streamlined and accurate tax filing experience, download the TaxBuddy mobile app for secure, expert-assisted, and hassle-free filing.


FAQs

Q1. Can I file ITR-1 if I have capital gains from mutual funds? Yes, ITR-1 can be filed if the capital gains are long-term and arise from equity-oriented mutual funds covered under Section 112A. However, this is only permitted if the total long-term capital gains (LTCG) do not exceed ₹1.25 lakh during the financial year and there are no carry-forward or brought-forward capital losses. Short-term or non-equity mutual fund gains are not allowed in ITR-1.


Q2. What if I have both salary income and LTCG up to ₹1.25 lakh? You are eligible to file ITR-1, provided your LTCG is only from listed equity shares or equity-oriented mutual funds, does not exceed ₹1.25 lakh, and there are no other disqualifying factors. Your total income must also be within ₹50 lakh, and income sources should be limited to salary, one house property, family pension, and other sources like bank interest.


Q3. Can NRIs file ITR-1 with capital gains? No. ITR-1 is strictly available only to resident and ordinarily resident individuals. Non-resident Indians (NRIs) and Resident but Not Ordinarily Resident (RNOR) individuals are not permitted to use ITR-1, regardless of the nature or quantum of their capital gains.


Q4. What should I do if I have capital gains from a property sale? You cannot use ITR-1 in this case. Capital gains from property, whether long-term or short-term, must be reported under ITR-2 or ITR-3, depending on your total income and sources. These forms include detailed schedules to report sale consideration, acquisition cost, indexed cost (if applicable), and tax computation.


Q5. How can TaxBuddy help with ITR filing? TaxBuddy offers a secure, AI-driven tax filing platform designed for salaried individuals, investors, freelancers, and professionals. It guides users through the correct ITR selection process based on their income profile, including capital gains reporting. The platform ensures accurate data entry, compliance with the latest tax rules, and offers both self-filing and expert-assisted plans for error-free filing.


Q6. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options? TaxBuddy offers flexibility with two main options:


  • Self-filing for users comfortable with entering their income and deduction details manually

  • Expert-assisted filing for those who prefer support from tax professionals to handle complexities like capital gains, house property income, and deductions. This ensures peace of mind and timely compliance.


Q7. Which is the best site to file ITR? The best site depends on individual preferences, but platforms like TaxBuddy are preferred for their simplified workflows, prompt support, and compliance accuracy. TaxBuddy is an authorized ERI (E-Return Intermediary) recognized by the Government of India, offering a reliable solution for taxpayers who need guidance, especially with new rules like the capital gains allowance in ITR-1.


Q8. Where to file an income tax return? Income tax returns can be filed directly on the Income Tax Department’s portal at incometax.gov.in. Alternatively, authorised platforms like TaxBuddy offer a more guided experience with step-by-step support and automated validation for income sources, deductions, and capital gains entries, helping avoid common errors.


Q9. What happens if LTCG exceeds ₹1.25 lakh? If your long-term capital gains under Section 112A go beyond ₹1.25 lakh during the financial year, you cannot use ITR-1. You must switch to ITR-2, which has comprehensive capital gains schedules. If you also have income from a business or profession, ITR-3 will be required. This ensures detailed reporting and proper tax calculation on the excess gains.


Q10. Can I carry forward capital losses in ITR-1? No. ITR-1 does not allow for carrying forward or setting off capital losses. If you have any short-term or long-term losses from previous years or in the current year that you wish to carry forward, you must file ITR-2 or ITR-3. Failing to use the correct form will result in the loss of your carry-forward benefit.


Q11. Is STCG (Short-Term Capital Gains) allowed in ITR-1? No, ITR-1 cannot be used to report short-term capital gains. If you have STCG from equity shares (taxable under Section 111A at 15%) or any other asset class, you must use ITR-2. STCG reporting involves more detailed disclosures, which ITR-1 does not support.


Q12. Is exempt income allowed in ITR-1? Yes, ITR-1 allows reporting of exempt income under specific categories. This includes:


  • Interest from PPF

  • Tax-free bonds

  • Agricultural income up to ₹5,000

  • Life insurance maturity proceeds (under Section 10(10D))


These must be reported under the “Exempt Income” section to ensure complete and truthful filing, even though they are not taxed.



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