Filing ITR with Both Salary and Capital Gains Income
- PRITI SIRDESHMUKH
- 2 hours ago
- 9 min read
Filing an Income Tax Return (ITR) that includes both salary and capital gains income requires careful selection of the correct form and accurate disclosure of each income type. For Assessment Year 2025-26, the Finance Act 2024 introduced new thresholds, tax rate revisions, and enhanced capital gains reporting requirements. With these updates, salaried individuals earning from shares, property, or mutual funds must ensure compliance with the revised filing rules. Proper classification and reporting can prevent scrutiny notices and ensure smooth processing of refunds.
Table of Contents
Understanding Income from Salary and Capital Gains
Income from salary and capital gains are treated as separate heads under the Income Tax Act, 1961, and must be reported distinctly while filing an Income Tax Return (ITR). Salary income typically includes basic pay, allowances, perquisites, and bonuses received from an employer, as reflected in Form 16. Capital gains, on the other hand, arise from the sale or transfer of capital assets such as equity shares, mutual funds, property, or bonds. These gains are classified as short-term or long-term based on the holding period of the asset. Understanding both income types is crucial because they are taxed at different rates and require accurate disclosure to avoid discrepancies or notices from the Income Tax Department.
Choosing the Right ITR Form for Salary and Capital Gains
Selecting the correct ITR form is essential for accurate reporting and compliance.
ITR-1 (Sahaj) is applicable only if total income is up to ₹50 lakh and capital gains are limited to ₹1.25 lakh from listed equities or equity-oriented mutual funds without any carry-forward losses.
ITR-2 should be used when the individual’s income exceeds ₹50 lakh, includes capital gains from multiple sources, or involves sale of property and foreign assets.
ITR-3 is required if the taxpayer earns from salary, capital gains, and business or professional income simultaneously. The Income Tax Department has updated these forms for AY 2025-26 to include revised reporting sections for capital gains following the Finance Act 2024 amendments.
Key Updates from Finance Act 2024 for AY 2025-26
The Finance Act 2024 introduced major changes in capital gains taxation and reporting requirements. The exemption limit for long-term capital gains (LTCG) from listed equities and equity mutual funds under Section 112A has increased from ₹1,00,000 to ₹1,25,000. Tax rates have also been revised — LTCG is now taxed at 12.5% and short-term capital gains (STCG) at 20%. Additionally, taxpayers must segregate gains made before and after July 23, 2024, since the new rates apply to transactions after this date. These updates ensure more equitable taxation and better transparency in reporting investments and profits.
Step-by-Step Process for Filing ITR with Salary and Capital Gains
Collect Documents: Gather Form 16, salary slips, AIS/TIS, capital gains statements from brokers, and bank details.
Login to the E-filing Portal: Access the official Income Tax Department website using your PAN credentials.
Select the Correct ITR Form: Choose ITR-2 or ITR-3 depending on income type and amount.
Report Salary Income: Enter figures from Form 16, including basic salary, HRA, allowances, and deductions.
Report Capital Gains: Record both short-term and long-term gains, mentioning purchase and sale dates, cost, sale value, and applicable exemptions.
Claim Deductions: Apply eligible deductions under Chapter VI-A such as 80C, 80D, and 80TTA, as per the chosen regime.
Verify and Submit: Review entries, validate all data, and verify the return using Aadhaar OTP, net banking, or physical verification.
Important Points for Salaried Taxpayers with Capital Gains
Taxpayers earning salary and capital gains should not use ITR-1 if capital gains exceed ₹1.25 lakh or there are losses to carry forward. All income sources must be disclosed in the correct sections to avoid mismatch with Form 26AS or AIS data. TDS deducted on salary and any TDS on capital gains must be reported accurately. The extension of filing deadlines for AY 2025-26 by 45 days offers additional time to ensure accurate reporting under the new disclosure formats. Timely filing also helps prevent penalties under Sections 234F and 234A.
How Capital Gains Are Taxed for AY 2025-26
For AY 2025-26, long-term capital gains from listed equities and equity mutual funds above ₹1.25 lakh are taxed at 12.5%, while short-term gains are taxed at 20%. Capital gains from other assets such as real estate, gold, or debt mutual funds are taxed based on the individual’s applicable slab rate. For example, if a taxpayer sells equity shares acquired in 2022 for a profit of ₹2 lakh, ₹1.25 lakh will be exempt, and the balance ₹75,000 will be taxed at 12.5%. This adjustment benefits small investors while maintaining higher compliance for high-value transactions.
Old vs New Tax Regime for Salary and Capital Gains
In the old tax regime, taxpayers could claim deductions and exemptions such as HRA, 80C, and 80D to reduce taxable income. However, under the new tax regime, these exemptions are limited, but the tax slabs are lower and simplified. Capital gains taxation remains largely similar across both regimes. The choice between the two should depend on total income, eligible deductions, and investment profile. TaxBuddy’s automated comparison tool can help taxpayers determine which regime provides better post-tax savings based on salary and capital gains combinations.
Bank Account and ITR Filing Compliance
A valid Indian bank account is mandatory for receiving refunds. The account must be pre-validated and linked with PAN and Aadhaar to ensure smooth credit of refund amounts. Inconsistencies between bank account details in the ITR and the Income Tax portal can delay refunds. It is advisable to maintain a single primary account for tax refunds and declare it in the return form. Proper compliance with PAN, Aadhaar, and bank linkage prevents processing delays and verification issues.
Simplifying the Filing Process with TaxBuddy
TaxBuddy simplifies the process of filing returns with both salary and capital gains income. The platform uses AI-driven automation to auto-detect applicable forms, pre-fill salary and investment details, and check for inconsistencies before submission. It also provides expert-assisted options for individuals with complex capital gains or multiple income heads. The mobile app enables users to file securely from anywhere, ensuring accuracy and compliance with the latest Finance Act updates.
Conclusion
Filing ITR with both salary and capital gains income requires a clear understanding of reporting rules, applicable forms, and updated tax rates. Using the correct ITR form and accurately declaring every source of income ensures compliance and avoids scrutiny. For those seeking convenience and reliability, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options?
TaxBuddy provides two convenient ways to file returns — self-filing and expert-assisted plans. The self-filing option is ideal for salaried individuals or those with straightforward tax cases, allowing them to upload Form 16, verify pre-filled data, and file returns instantly. For individuals with multiple income sources, capital gains, or foreign assets, the expert-assisted plan is recommended. In this plan, a qualified tax professional reviews the return, checks for compliance with the latest Finance Act provisions, and ensures all possible deductions and exemptions are utilized before submission.
2. Which is the best site to file ITR?
The official Income Tax Department portal is the primary government-authorized platform for filing returns. However, third-party e-filing platforms such as TaxBuddy have gained popularity for their ease of use and automation features. TaxBuddy simplifies the process by auto-fetching data from Form 16, AIS, and TDS records, minimizing manual errors. It also performs real-time validation checks, provides expert guidance, and assists with notice management after filing, making it one of the best alternatives for both individuals and professionals.
3. Where to file an income tax return?
An income tax return can be filed either directly on the government’s e-filing portal (incometax.gov.in) or through authorized private platforms that integrate with the same system. TaxBuddy, for instance, allows users to file seamlessly through its mobile app or website. It automates data entry, performs error detection, and provides guided steps for choosing the correct ITR form. Filing through such platforms helps users stay compliant with the Income Tax Act while ensuring a smoother experience and timely refund processing.
4. Which ITR form should be used for salary and capital gains income?
The choice of ITR form depends on the taxpayer’s income composition. ITR-2 is applicable for individuals or Hindu Undivided Families (HUFs) having salary income along with capital gains from equity, property, or mutual funds. If the taxpayer also has business or professional income in addition to salary and capital gains, then ITR-3 should be used. Using the wrong form can lead to defective return notices under Section 139(9). TaxBuddy’s automated filing system helps identify the correct form based on income sources and investment profiles.
5. Can I use ITR-1 if I have small capital gains?
ITR-1 (Sahaj) can only be used when capital gains are limited to ₹1.25 lakh from listed equity shares or equity-oriented mutual funds and there are no carry-forward losses. The total income should also not exceed ₹50 lakh. If either of these conditions is not met, the taxpayer must use ITR-2. Filing under the wrong form may result in rejection or a defective return notice. It’s always advisable to verify eligibility criteria before selecting the ITR form to avoid compliance issues.
6. How are long-term and short-term capital gains taxed in AY 2025-26?
For Assessment Year 2025-26, long-term capital gains (LTCG) on listed equity shares and mutual funds are taxed at 12.5% after the ₹1.25 lakh exemption limit, an increase from the earlier ₹1 lakh threshold. Short-term capital gains (STCG) on the same assets are taxed at 20%, up from 15%. Capital gains from non-equity assets such as real estate or bonds are taxed based on the individual’s income slab rate. Indexation benefits are still available for certain non-equity assets, making detailed reporting crucial to ensure correct tax computation.
7. What documents are needed to file ITR with salary and capital gains?
To file ITR with both salary and capital gains income, the following documents are required:
Form 16 issued by the employer for salary income.
Capital gains statement from brokers or mutual fund platforms.
AIS and TIS reports downloaded from the income tax portal.
Form 26AS for verifying TDS credits.
Bank account details for refund processing.
Investment proofs for claiming deductions under Chapter VI-A. Having all documents ready ensures accuracy and reduces chances of mismatch or notices during return processing.
8. Can deductions under 80C or 80D be claimed with capital gains income?
Yes, taxpayers can claim deductions under Chapter VI-A, including Sections 80C (investments in PPF, ELSS, LIC), 80D (health insurance premiums), and 80TTA (savings account interest), provided they opt for the old tax regime. Under the new regime, most deductions are not available. Therefore, taxpayers must evaluate whether the old or new regime offers better savings based on their total income and eligible deductions. Platforms like TaxBuddy automatically compare both regimes to suggest the more beneficial option before filing.
9. Are capital gains taxed differently under the new regime?
No, capital gains taxation remains uniform across both old and new tax regimes. The difference lies in how other income components, deductions, and exemptions are treated. Under the new regime, exemptions such as HRA, 80C, and 80D are not available, but capital gains tax rates and exemptions under Sections 111A and 112A continue to apply. Thus, taxpayers with significant capital gains may not see much difference in their tax liability between regimes.
10. Can refund delays occur due to capital gains reporting errors?
Yes, refund delays are common if there are mismatches between the taxpayer’s ITR, Form 26AS, AIS, or broker statements. For example, reporting incorrect acquisition or sale dates, omitting certain transactions, or failing to declare STT-paid trades can trigger system mismatches. Such cases often lead to manual verification or limited scrutiny before refund processing. Using AI-based filing platforms like TaxBuddy minimizes these issues by reconciling broker data with AIS in real time to ensure consistency and faster refund processing.
11. How does TaxBuddy ensure error-free filing?
TaxBuddy integrates automation with expert supervision to ensure every return is error-free. It auto-imports data from Form 16, PAN, and AIS to minimize manual entries, verifies tax computations, and flags mismatches instantly. The platform uses AI algorithms to detect potential issues that might attract notices, such as underreported income or incorrect TDS claims. Expert-assisted plans further include professional review and compliance checks, ensuring that every filed return adheres to the latest Finance Act and CBDT guidelines.
12. When is the due date to file ITR for AY 2025-26?
For Assessment Year 2025-26, the government extended the ITR filing deadline by 45 days beyond the original date of July 31, 2025. The new due date is September 15, 2025, with an additional grace day to September 16 due to portal issues. This extension provides taxpayers extra time to comply with the revised reporting norms for capital gains introduced in the Finance Act 2024. Taxpayers are advised to file early to avoid last-minute errors, interest under Section 234A, or penalties for late filing under Section 234F.
Comments