Filling out your Income Tax Return (ITR) can sometimes feel like navigating a complex maze, especially when it involves capital gains. But fear not! This comprehensive guide will walk you through every single step of accurately reporting your capital gains in ITR-2, ensuring you sail through the process with confidence.
Ready to demystify capital gains and conquer your ITR-2? Let's dive in!
Navigating Capital Gains in ITR-2: A Step-by-Step Guide
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| How To Fill Capital Gains In Itr 2 |
Step 1: Understanding the Basics – Do You Need ITR-2?
Before we even begin filling out forms, the crucial first question is: Are you sure ITR-2 is the correct form for you? ITR-2 is primarily for individuals and HUFs who are not carrying out business or profession, but have income from sources like:
Salary/Pension
House Property
Capital Gains (Short-term or Long-term)
Other Sources (Interest, Dividends, etc.)
Foreign Assets/Income
If you have income from a business or profession, you likely need ITR-3. Take a moment to confirm your eligibility. If ITR-2 is indeed your form, congratulations, you're on the right track!
Step 2: Gathering Your Essential Documents for Capital Gains
Preparation is key! Before you even log in to the e-filing portal, gather all the necessary documents related to your capital gains. This will make the entire process smooth and error-free.
2.1: Sale/Purchase Deeds and Agreements
Keep all documents related to the acquisition and sale of your capital assets. This includes:
Property Sale Deeds: For real estate transactions.
Share Certificates/Demat Statements: For equity shares and mutual funds, showing purchase and sale dates and prices.
Gold Sale Bills: For physical gold.
2.2: Cost of Acquisition and Improvement
You'll need proof of how much you initially paid for the asset, along with any expenses incurred to improve it.
Original purchase invoices/receipts.
Receipts for renovation, extension, or other improvements.
2.3: Stamp Duty Valuation (for Property)
If you sold property, keep a record of the stamp duty valuation at the time of sale, as this is often used for calculating capital gains, even if the actual sale price was lower.
2.4: Brokerage and Other Transaction Costs
Don't forget to account for any brokerage, commission, or other expenses directly related to the sale or purchase of the asset. These can be deducted from your sale consideration.
2.5: Previous Year's ITR (if applicable for carry forward losses)
If you have unabsorbed capital losses from previous years that you wish to carry forward, keep your previous year's ITR handy.
Step 3: Understanding Capital Gains Types: Short-Term vs. Long-Term
This is a critical distinction that impacts how your gains are taxed.
3.1: Short-Term Capital Gains (STCG)
These arise from the sale of an asset held for a relatively shorter period.
QuickTip: The more attention, the more retention.
Equity Shares/Equity Mutual Funds (listed on a recognized stock exchange): Held for 12 months or less.
Debt Mutual Funds/Other Assets (e.g., property, gold, unlisted shares): Held for 36 months or less (note: for immovable property, the short-term period is 24 months if acquired after April 1, 2017).
Taxation: STCG on listed equity shares/equity mutual funds are taxed at 15% under Section 111A. Other STCG are added to your total income and taxed at your applicable slab rates.
3.2: Long-Term Capital Gains (LTCG)
These arise from the sale of an asset held for a longer period.
Equity Shares/Equity Mutual Funds (listed on a recognized stock exchange): Held for more than 12 months.
Debt Mutual Funds/Other Assets (e.g., property, gold, unlisted shares): Held for more than 36 months (for immovable property, more than 24 months if acquired after April 1, 2017).
Taxation:
LTCG on listed equity shares/equity mutual funds (under Section 112A): Taxed at 10% without indexation, but only on gains exceeding Rs. 1 lakh in a financial year. Gains up to Rs. 1 lakh are exempt.
LTCG on other assets (e.g., property, debt funds, gold, unlisted shares - under Section 112): Taxed at 20% with the benefit of indexation, or 10% without indexation (where permitted). Indexation is a crucial benefit that adjusts the cost of acquisition for inflation, reducing your taxable gain.
Step 4: Calculating Your Capital Gains
This is where the actual number crunching begins.
4.1: Sale Consideration
This is the full value of consideration received or receivable from the sale of the capital asset. For property, this would be the actual sale price or the stamp duty valuation, whichever is higher.
4.2: Less: Expenditure Incurred Wholly and Exclusively in Connection with Such Transfer
These are expenses directly related to the sale.
Brokerage/commission paid.
Legal expenses.
Cost of transfer.
4.3: Less: Cost of Acquisition
This is the price you paid to acquire the asset. For LTCG, remember to use the indexed cost of acquisition.
4.4: Less: Cost of Improvement
Any expenses incurred to enhance the value of the asset. For LTCG, use the indexed cost of improvement.
Formula:
Capital Gain = Sale Consideration - (Expenditure on Transfer + Cost of Acquisition + Cost of Improvement)
Remember to apply indexation for LTCG on assets other than listed equity/equity mutual funds. You can find the Cost Inflation Index (CII) on the income tax department's website.
Step 5: Entering Capital Gains in ITR-2 (Online Method)
Now, let's get to the nitty-gritty of filling out the form. The process is streamlined on the e-filing portal.
5.1: Log in to the Income Tax e-filing Portal
Go to the official e-filing website of the Income Tax Department (incometax.gov.in) and log in using your PAN/Aadhar and password.
5.2: Select "File Now"
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Under the "e-File" section, choose "Income Tax Returns" and then "File Income Tax Return."
5.3: Choose Assessment Year and Filing Type
Select the relevant Assessment Year (AY) and choose "Original Return" or "Revised Return" as applicable.
5.4: Select ITR Form 2
The system will prompt you to select the ITR form. Choose ITR-2.
5.5: Navigate to the "Capital Gains" Schedule (Schedule CG)
Once you've selected ITR-2, you'll see various schedules listed. Look for and click on "Schedule CG - Capital Gains."
5.6: Reporting Long-Term Capital Gains (LTCG)
5.6.1: LTCG on Sale of Land/Building or Both (Section 54, 54EC, etc.)
This section is for gains from immovable property.
Enter the full value of consideration.
Enter deductible expenses.
Enter indexed cost of acquisition and indexed cost of improvement.
Crucially, declare any exemptions you are claiming under Sections 54 (reinvestment in residential property), 54EC (investment in specified bonds), 54F (reinvestment in residential property from sale of other assets), etc. Provide details of the new asset acquired/bonds purchased.
5.6.2: LTCG on Sale of Equity Shares/Equity Oriented Mutual Funds (Section 112A)
This is for gains exceeding Rs. 1 lakh.
The system will ask for details like ISIN (International Securities Identification Number) of the shares/units.
Enter the sale consideration.
Enter the cost of acquisition (often calculated based on the fair market value as of January 31, 2018, if held before that date).
The system will automatically calculate the taxable gain exceeding Rs. 1 lakh.
5.6.3: LTCG on Other Assets (e.g., Debt Mutual Funds, Gold, Jewellery, Unlisted Shares)
Enter the sale consideration.
Enter the indexed cost of acquisition and indexed cost of improvement.
The system will calculate the LTCG.
5.7: Reporting Short-Term Capital Gains (STCG)
5.7.1: STCG on Sale of Equity Shares/Equity Oriented Mutual Funds (Section 111A)
Enter the sale consideration.
Enter the cost of acquisition.
The system will calculate the gain taxable at 15%.
5.7.2: STCG on Other Assets (e.g., Property, Debt Funds, Gold, Jewellery)
Enter the sale consideration.
Enter the cost of acquisition and cost of improvement.
These gains will be added to your total income and taxed at slab rates.
5.8: Reporting Capital Gains from Units of Business Trust/Investment Fund
If applicable, report gains from these sources in the relevant sub-sections.
5.9: Reporting Details of Unabsorbed Capital Losses Carried Forward
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If you have capital losses from previous years that were not set off, you can enter them here to carry them forward to future assessment years (up to 8 assessment years for long-term losses, and 8 assessment years for short-term losses). Make sure you have filed returns for those previous years where the loss was incurred.
5.10: Verifying and Saving Schedule CG
Once you've entered all the details, carefully review them. The system will auto-calculate the total capital gains/losses. Save the schedule.
Step 6: Reviewing and Finalizing Your ITR-2
After filling in Schedule CG and other relevant schedules (e.g., Salary, House Property, Other Sources, Deductions), proceed to review your entire ITR-2.
6.1: Pre-validation of Bank Account
Ensure your bank account for refunds (if any) is pre-validated on the e-filing portal.
6.2: Tax Computation
The system will automatically compute your total income and tax liability, taking into account your capital gains.
6.3: Verify Tax Payable/Refund
Check if there's any tax payable or a refund due. If tax is payable, ensure you pay it before submitting the return.
6.4: Preview and Submit
Carefully preview your entire ITR-2. Make sure all information is accurate. Once satisfied, proceed to submit your return.
Step 7: E-Verification of Your ITR-2
Submission isn't the final step! You must e-verify your ITR-2 within 30 days of submission. Without e-verification, your return will not be processed.
7.1: Methods of E-Verification
Aadhaar OTP: The most common and easiest method. An OTP will be sent to your Aadhaar-registered mobile number.
Net Banking: Verify through your net banking account.
Demat Account: Via your Demat account details.
Bank Account EVC: Through a pre-validated bank account.
Digital Signature Certificate (DSC): For businesses and some individuals.
Sending Signed ITR-V to CPC: This is the physical method and should only be used if other e-verification methods are not possible. Print the ITR-V, sign it in blue ink, and send it to the Centralized Processing Centre (CPC) within 30 days.
Choose the method most convenient for you and complete the verification process promptly.
Step 8: Keeping Records
Once your ITR-2 is filed and e-verified, keep all your supporting documents (sale deeds, purchase invoices, Demat statements, bank statements, etc.) in a safe place. The Income Tax Department may ask for them during an assessment.
You've done it! By following these steps, you've successfully reported your capital gains in ITR-2. While the process can seem daunting, breaking it down into manageable steps makes it far less intimidating. Remember, accuracy is paramount. If you're unsure about any specific transaction, consulting a tax professional is always a wise decision.
10 Related FAQ Questions on Capital Gains in ITR-2
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How to calculate indexed cost of acquisition for long-term capital gains?
To calculate the indexed cost of acquisition, use the formula: . The CII values are released annually by the Income Tax Department.
How to declare capital gains from mutual funds in ITR-2?
Capital gains from mutual funds are declared in the "Schedule CG" of ITR-2. Equity-oriented mutual funds (STCG under Section 111A or LTCG under Section 112A) and debt mutual funds (STCG or LTCG under Section 112 with indexation) have separate sub-sections within the schedule.
How to set off capital losses against capital gains in ITR-2?
Short-term capital losses can be set off against both short-term and long-term capital gains. Long-term capital losses can only be set off against long-term capital gains. Unabsorbed losses can be carried forward for up to 8 assessment years.
How to claim exemption under Section 54 for sale of residential property in ITR-2?
In Schedule CG, under the section for LTCG on land/building, there's a specific field to claim exemptions under Section 54. You need to provide details of the new residential property purchased or constructed, including the date of purchase/construction and the amount invested.
How to treat capital gains on gifted or inherited property in ITR-2?
For gifted or inherited property, the cost of acquisition for the recipient is considered to be the cost of acquisition for the previous owner who acquired the property other than by gift or inheritance. The period of holding is also considered from the date of acquisition by the previous owner.
How to report capital gains from unlisted shares in ITR-2?
Capital gains from unlisted shares (both STCG and LTCG) are reported in the "Other Assets" section of Schedule CG. For LTCG, indexation benefit is applicable.
How to check if my capital gains are pre-filled in ITR-2?
The Income Tax Department sometimes pre-fills certain capital gains data (especially for listed securities) from AIS (Annual Information Statement) or SFT (Statement of Financial Transactions). While convenient, always cross-verify this pre-filled data with your own records before accepting it, as discrepancies can occur.
How to account for foreign capital gains in ITR-2?
If you are a Resident and Ordinary Resident (ROR), you must report all your global income, including foreign capital gains, in ITR-2. Use the "Schedule FSI - Foreign Source Income" and "Schedule CG" to declare these gains. You may also be eligible for Foreign Tax Credit (FTC) under Section 90/91 if tax has been paid abroad.
How to use the Cost Inflation Index (CII) for long-term capital gains in ITR-2?
To use CII, you need the CII for the year of acquisition and the CII for the year of sale. The indexed cost of acquisition is calculated by multiplying the original cost by (CII of sale year / CII of acquisition year). This indexed cost is then deducted from the sale consideration to arrive at the LTCG.
How to ensure all my capital gains are correctly reflected in ITR-2?
The best way to ensure accuracy is to meticulously reconcile all your investment statements (Demat, mutual fund, bank statements) with your sale and purchase records. Compare these with any pre-filled data in your ITR-2. If in doubt, refer to your Form 26AS and AIS for transaction details reported by financial institutions.
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