Reporting Capital Gains in New Regime: Deduction Limits Explained
- Rashmita Choudhary
- Sep 17
- 10 min read
Capital gains form a critical component of taxable income, especially for investors dealing with stocks, mutual funds, or real estate. The new tax regime, effective for FY 2024–25 (AY 2025–26), brings notable changes in the way capital gains are calculated, reported, and taxed. While the regime offers lower slab-based tax rates, several deductions and exemptions available under the old regime are no longer permitted. Accurate reporting of capital gains in your Income Tax Return (ITR) is crucial to avoid penalties, mismatches, or delays in refunds. Taxpayers must carefully categorize long-term and short-term gains, consider applicable exemptions, and ensure that gains from different assets are properly disclosed. Platforms like TaxBuddy can streamline this process, offering guided reporting, automated calculations, and seamless filing to reduce errors. Understanding the nuances of capital gains under the new regime helps in strategic tax planning and ensures compliance with Income Tax laws.
Table of Contents
Reporting Capital Gains in the New Regime
In the new tax regime, capital gains are reported directly in the relevant sections of the ITR form, based on the type of asset. Long-term capital gains (LTCG) and short-term capital gains (STCG) are separated for clarity. Gains from equity shares and equity mutual funds held for more than 12 months are categorized as LTCG, while gains from assets like real estate, debt funds, and other securities are taxed according to different holding periods. Proper categorization is essential for accurate tax computation and helps in availing lower tax rates where applicable.
Overview of Capital Gains Tax in the New Regime
Under the new regime, LTCG exceeding ₹1 lakh from equity shares or equity mutual funds are taxed at 10% without indexation. STCG on equity shares subject to Securities Transaction Tax (STT) is taxed at 15%. For non-equity assets, LTCG on debt funds or property is taxed at 20% with indexation. STCG for such assets is added to your total income and taxed as per the slab rate. The new regime simplifies the tax slabs but removes several deductions previously available, emphasizing the need for precise reporting.
Is Indexation Benefit Allowed in New Tax Regime?
Indexation benefits, which adjust the cost of acquisition for inflation, are allowed only on specific assets like debt funds or real estate LTCG. For equity shares and equity mutual funds, the 10% LTCG tax is applied without indexation. Taxpayers must clearly differentiate asset types to avoid misreporting. Platforms like TaxBuddy automatically apply indexation where relevant, reducing manual errors and ensuring compliance.
How LTCG and STCG Are Taxed on Different Assets
Understanding how Long-Term Capital Gains (LTCG) and Short-Term Capital Gains (STCG) are taxed is crucial for investors and taxpayers. The taxation depends on the type of asset, holding period, and whether the transaction is subject to Securities Transaction Tax (STT). Correctly classifying your assets and calculating holding periods ensures accurate tax computation and compliance.
Equity Shares & Equity Mutual Funds
For equity shares and equity-oriented mutual funds:
LTCG: Gains exceeding ₹1 lakh in a financial year are taxed at 10% without the benefit of indexation.
STCG: Gains arising from assets sold within 12 months of acquisition are taxed at 15%, provided the transaction is subject to STT.
Example: If you sell equity mutual fund units for a gain of ₹1,50,000 after 18 months, ₹50,000 (₹1,50,000 – ₹1,00,000 exemption) will be taxed at 10%. Gains realized within 12 months would be taxed at 15%, irrespective of the exemption limit.
Key Note: STT must be paid for these rates to apply; otherwise, different provisions may apply.
Debt Mutual Funds
For debt-oriented mutual funds:
LTCG: Gains from units held for more than 36 months are taxed at 20% with the benefit of indexation, which adjusts the purchase price for inflation, reducing taxable gains.
STCG: Gains from units held for 36 months or less are added to your total income and taxed according to your income tax slab rates.
Example: A debt fund sold after 4 years for a ₹2 lakh gain, with purchase price adjusted via indexation to ₹1.5 lakh, would have an LTCG of ₹50,000 taxed at 20%.
Real Estate
For immovable property like land or buildings:
LTCG: Gains from properties held for more than 36 months are taxed at 20% with indexation.
STCG: Properties sold within 36 months of purchase are treated as short-term and taxed at the applicable slab rate of the seller.
Example: A property bought for ₹50 lakh and sold after 4 years for ₹70 lakh (indexation applied to bring purchase price to ₹55 lakh) results in an LTCG of ₹15 lakh, taxed at 20%.
Key Consideration: Properly calculating holding periods and documenting acquisition dates is essential to avoid disputes and ensure accurate tax computation.
Practical Tips for Accurate Tax Computation
Classify your assets correctly: Treat equity, debt, and real estate separately.
Maintain records of purchase and sale dates: Helps determine LTCG vs STCG.
Use indexation where applicable: Reduces taxable LTCG for debt funds and real estate.
Verify STT applicability: Essential for equity tax rates.
By understanding these rules and carefully tracking asset types and holding periods, taxpayers can optimize tax liability, avoid penalties, and ensure correct reporting in ITR.
Reporting Capital Gains in ITR Forms
Capital gains are reported in Schedule CG of the ITR forms. Taxpayers must provide asset type, purchase and sale details, cost of acquisition, and gains calculation. For multiple transactions, consolidated statements from brokers or fund houses are recommended to avoid mismatches. TaxBuddy simplifies this process by importing data, auto-calculating gains, and guiding through the correct ITR sections.
Deductions and Exemptions Restricted Under the New Regime
Several deductions available in the old regime are restricted under the new regime. For instance, exemptions under Section 54 (for property sale reinvestment) or Section 54EC (investment in specified bonds) are still applicable, but other benefits like set-off losses across different asset types are limited. Awareness of these restrictions ensures accurate reporting and prevents errors that could trigger notices.
Practical Tips for Accurate Capital Gains Reporting
Accurate reporting of capital gains is crucial to avoid notices from the Income Tax Department and to ensure correct tax liability. Start by maintaining organised transaction records from all your brokers, banks, and investment platforms. This includes purchase and sale invoices, contract notes, and fund statements, which serve as proof for both long-term and short-term capital gains.
Before filing your ITR, it is essential to verify TDS (Tax Deducted at Source) and STT (Securities Transaction Tax) credits to ensure they match the details reflected in Form 26AS. Discrepancies can lead to refund delays or notices from the Income Tax Department.
When calculating gains, always separate long-term and short-term capital gains by asset type—equities, mutual funds, real estate, or other investments—since tax rates and exemptions differ for each category.
Using automated platforms like TaxBuddy can significantly simplify this process. These platforms reconcile broker statements, compute gains, apply applicable deductions, and generate accurate reports ready for filing.
Finally, review your previous year filings for consistency in asset classification, purchase dates, and TDS claims. This helps prevent errors that may trigger scrutiny or require revising past returns.
Comparing Old vs New Regime for Capital Gains
Choosing the right tax regime can have a major impact on your capital gains tax liability. Under the old regime, taxpayers could benefit from exemptions, deductions, and indexation for long-term capital gains, allowing for potential tax savings, particularly on real estate and debt instruments. Indexation helps adjust the purchase price for inflation, reducing taxable gains.
The new regime, introduced for simplification, provides lower tax rates for long-term capital gains (LTCG) on equities and equity-oriented mutual funds but comes with limited exemptions. Many deductions available in the old regime, such as for housing loans or investments under Section 54/54F, are not applicable here.
Taxpayers should compare the old and new regimes by evaluating their portfolio, asset type, and expected capital gains. Platforms like TaxBuddy offer side-by-side calculations, showing the net tax payable under both regimes. This practical comparison helps in selecting the regime that minimizes tax liability while ensuring compliance.
Common Mistakes to Avoid When Reporting Capital Gains
Misclassifying Asset Types One of the most frequent mistakes taxpayers make when reporting capital gains is misclassifying the type of asset sold. Capital gains are calculated differently depending on whether the asset is short-term or long-term, and the tax rate varies accordingly. For instance, gains from the sale of listed equity shares held for over a year are considered long-term and taxed at a different rate compared to short-term holdings. Misclassification can result in underpayment or overpayment of tax, and may trigger notices from the Income Tax Department. Carefully identifying the asset type—such as equity shares, mutual funds, real estate, or bonds—is essential to ensure correct reporting and compliance.
Ignoring TDS or STT Credits Tax Deducted at Source (TDS) and Securities Transaction Tax (STT) credits play a significant role in determining the net tax liability on capital gains. A common error is to overlook these credits while calculating the tax due. For example, if STT has already been paid on a securities transaction, failing to account for it in the ITR may lead to an inflated tax liability. Always reconcile TDS certificates and STT paid records to claim the eligible credits accurately.
Incorrectly Applying Indexation Indexation helps adjust the purchase price of long-term capital assets for inflation, reducing taxable gains. Many taxpayers mistakenly skip this step or apply it incorrectly, especially for real estate and debt mutual funds. Errors in indexation calculation can either increase the reported capital gains or lead to the denial of deductions, impacting overall tax liability. Using accurate Cost Inflation Index (CII) values for the relevant financial year is critical to avoid mistakes.
Failing to Consolidate Multiple Transactions Taxpayers often report individual transactions separately without properly consolidating gains and losses for the same financial year. Failing to aggregate all transactions may cause misreporting of total capital gains or losses. Proper consolidation allows accurate calculation of net gains, ensures appropriate offsetting of losses, and prevents errors that can result in notices or penalties from the tax authorities.
Missing Out on Applicable Exemptions under Sections 54 or 54EC Certain exemptions, such as under Section 54 (sale of residential property) or Section 54EC (investment in specified bonds), allow taxpayers to reduce their capital gains liability legally. A common mistake is to overlook these exemptions, either due to unawareness or incomplete documentation. Claiming these exemptions requires meeting specific conditions, like reinvestment within prescribed timelines. Missing out on these exemptions can lead to unnecessarily higher tax payments and lost opportunities to optimize tax liability.
Tools and Apps to Simplify Capital Gains Reporting (Include TaxBuddy)
TaxBuddy provides an integrated platform for capital gains reporting. It automates data import, categorizes assets, applies correct tax rates, and guides users through ITR forms. Using TaxBuddy minimizes errors, ensures compliance, and speeds up filing.
Conclusion
Accurate reporting of capital gains is essential under the new tax regime. With simplified rates but restricted exemptions, taxpayers must pay close attention to asset classification, holding periods, and TDS/ STT reconciliation. Tools like TaxBuddy make this process seamless, helping avoid errors and delays. For anyone looking for assistance in tax filing, it is highly recommended todownload the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Can I report both LTCG and STCG in the same ITR form? Yes, both Long-Term Capital Gains (LTCG) and Short-Term Capital Gains (STCG) can be reported in the same ITR form. The ITR utility provides separate sections for reporting different types of capital gains, ensuring that the gains are taxed appropriately according to their holding period and applicable rates.
Q2. Are indexation benefits applicable to equity mutual funds in the new regime? No, indexation benefits are not available for equity-oriented mutual funds under the new tax regime. LTCG exceeding ₹1 lakh from equity mutual funds is taxed at a flat rate of 10% without indexation.
Q3. How is STCG on stocks taxed under the new regime? Short-Term Capital Gains (STCG) on the sale of equity shares or equity mutual funds are taxed at 15% under the new regime, provided these transactions are subject to Securities Transaction Tax (STT).
Q4. What exemptions are still available for capital gains in the new regime? Certain exemptions, like reinvestment in residential property under Sections 54, 54F, and 54EC, are still allowed. However, exemptions like indexation benefits for equity assets are not available in the new regime.
Q5. Can I offset capital losses against gains in the new regime? Yes, capital losses can be offset against gains. Short-term losses can offset both STCG and LTCG, whereas long-term losses (other than equity) can only be set off against long-term gains.
Q6. How does TaxBuddy help in capital gains reporting? TaxBuddy simplifies capital gains reporting by automatically importing transaction data, calculating STCG and LTCG, applying exemptions and set-offs, and generating ready-to-file JSON files. This ensures error-free filing and faster processing.
Q7. Do I need to report TDS credits while filing capital gains? Yes, any TDS deducted on capital gains must be reported in the ITR. Proper reporting ensures that the TDS is credited against your tax liability, reducing the chance of mismatch notices from the Income Tax Department.
Q8. Are real estate LTCG exemptions allowed in the new regime? Yes, exemptions for reinvestment in residential property or specified bonds (under Sections 54, 54F, and 54EC) remain available in the new regime. These allow taxpayers to reduce or defer LTCG tax by meeting the specified conditions.
Q9. Can I file multiple asset transactions at once using ITR utilities? Yes, ITR utilities and JSON file formats allow taxpayers to report multiple capital gains transactions at once. This is particularly useful for investors with numerous stock, mutual fund, or property transactions.
Q10. Does the new regime simplify ITR filing for multiple capital gains transactions? Yes, the new regime simplifies reporting by using standardized ITR utilities, pre-filled data, and JSON formats. This reduces manual calculation errors and makes filing multiple transactions more efficient.
Q11. How do JSON files improve accuracy in ITR filing? JSON files help maintain accuracy by allowing direct import of financial data into the ITR utility without manual entry. This reduces human errors and ensures that all gains, exemptions, and TDS credits are reported correctly.
Q12. Can TaxBuddy generate JSON files for both old and new tax regimes? Yes, TaxBuddy supports generating JSON files for both the old and new tax regimes. It ensures proper calculation of exemptions, deductions, and TDS credits, streamlining filing for taxpayers regardless of the chosen regime.
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