Capital Gains Tax Return Filing: Tax Calculation, Documents and ITR Forms

Two Holding Periods, Two Rates, One Exemption

The capital gains framework was rebuilt by the Finance Act 2024 and the result is simpler than what came before. Listed equity and equity mutual funds turn long-term after 12 months. Property, gold, unlisted shares and most other assets turn long-term after 24 months. Short-term gains on listed equity are taxed at 20 per cent under Section 111A. Long-term gains are taxed at a uniform 12.5 per cent, with an annual exemption of Rs 1.25 lakh for listed equity under Section 112A.

The rates

Note the asymmetry people miss: short-term gains on anything other than listed equity are taxed at your slab rate, not at 20 per cent. A property sold within 24 months is taxed as ordinary income.

The Rs 1.25 lakh exemption, properly understood

Under Section 112A, long-term gains on listed equity and equity-oriented funds are exempt up to Rs 1.25 lakh in a financial year. Above that, 12.5 per cent applies.

Three points that matter:

It is per taxpayer per year, not per scrip. Aggregate your gains first.

It applies only to Section 112A assets. Property, gold and unlisted shares do not get it.

The Section 87A rebate is not available against tax on capital gains under Sections 111A, 112 or 112A. So a taxpayer whose other income is below the rebate threshold still pays tax on these gains. This surprises people every year.

The property choice

Indexation was removed for most assets on transfers from 23 July 2024. For land or building acquired before that date, a resident individual or HUF may choose between 12.5 per cent without indexation and 20 per cent with indexation, whichever is lower.

That choice is worth real money on an older property and it has to be computed, not guessed. A property bought decades ago with heavy inflation behind it often favours the indexed route. A recent purchase usually does not.

For property acquired on or after 23 July 2024, there is no choice: 12.5 per cent without indexation.

Grandfathering for listed equity

For listed shares and equity fund units acquired before 1 February 2018, the cost is substituted on a grandfathering basis so that gains accrued up to that date are protected. If you hold long-standing equity, the cost you use is not simply what you paid.

The exemptions worth knowing

1. Section 54, on sale of a residential house reinvested in another residential house, within the prescribed time

2. Section 54F, on sale of any long-term asset other than a house, reinvested in a residential house

3. Section 54EC, on investment in specified bonds within six months, with a cap reported at Rs 50 lakh

Each has conditions and time limits. They are the difference between a large bill and none, and they are the reason to take advice before the transaction rather than at filing.

Which ITR form

Capital gains push you out of ITR-1. A salaried person with capital gains files ITR-2, or ITR-3 where there is also business income. Firms and LLPs use ITR-5, companies ITR-6.

Gains are reported in Schedule CG, with scrip-wise detail required for Section 112A gains.

Documents

1. Broker statements and the capital gains statement from your broker or fund house

2. Purchase and sale deeds for property, with stamp duty valuation

3. Cost of improvement records

4. Transfer expenses

5. Form 26AS and the AIS, which now carries securities transaction data

6. Proof of reinvestment, for exemption claims

Reconcile to the AIS. Securities transactions are reported to the department, and a return that does not match is the most common trigger for a notice on capital gains.

How Northrop LLP helps

Northrop LLP computes the gain on the correct basis including the property indexation comparison, identifies the exemptions available before the transaction closes, and reconciles the return to the AIS.