The income tax returns (ITR) forms for AY 2025-26 require mandatory disclosure of the exact date of transfer for each asset for capital gains. The revised ITR forms include specific schedules for reporting capital gains with segregation based on transfer dates.
An asseesee must collect all transaction statements from brokers and investment platforms and segregate them based on whether the date of transfer is before or on/after July 23, 2024. He should consolidate sales of each transaction as equity, debt, real estate, gold, or other capital assets and calculate the tax rate accordingly.
The taxpayer should maintain proper sale records such as broker contract notes and mutual fund. capital gain statements. Most importantly, he must cross-verify reported information with the annual information statement, tax information statement, and Form 26AS to avoid discrepancies.
Sandeep Sehgal, partner, Tax, AKM Global, a tax and consulting firm, says errors in reporting the date of transfer or incorrect classification of gains can result in mismatches while processing the tax return under Section 143(1). “Disclosing all relevant details in the appropriate ITR schedule, as mandated by the latest ITR forms for AY 2025-26 is a prerequisite requirement to report capital gain accurately,” he says.
Tax rates
For transfers before July 23, 2024, long term capital gain (LTCG) on listed equity shares, equity mutual funds and business trusts is taxed at 10% without indexation under Section 112A and the exemption limit is `1 lakh. The LTCG on assets such as debt funds, gold, real estate, and unlisted shares is taxed at 20% with indexation.
For transfers on or after July 23, 2024, LTCG on all assets including listed equity, debt, real estate, gold, and unlisted shares is uniformly taxable at 12.5% without indexation under Sections 112 and 112A. The exemption limit for LTCG on listed equity shares and units of business trusts and equity oriented mutual funds has been increased from `1 lakh to `1.25 lakh.
The short term capital gain (STCG) for transfers before July 23. 2024 on listed equity shares, equity mutual funds, and business trusts is taxable at 15% under Section 111A, while STCG on other assets is taxed as per slab rates. For transfer after July 23, 2024, STCG on listed equity shares, units of business trusts, and equity-oriented funds is taxable at 20% under Section 111A, and STCG on other capital assets taxable as per the applicable slab rates.
First-in-first-out method
The computation of capital gains on the sale of securities must be carried out using the First-In-First-Out (FIFO) method, which means that the securities acquired earliest are sold first. Under this method, when an investor sells shares and equity-oriented mutual funds, the cost of acquisition is determined by matching the sale against the earliest purchased shares in chronological order.
All purchase and sale transactions must be consolidated on a scrip-wise basis and arranged chronologically. For each sale transaction, the quantity sold is matched against the earliest available purchases to determine the cost of acquisition and the holding period, which in turn classifies the gain as either short-term or long-term.
Select the right ITR
For AY 2025–26, individuals must select the correct ITR form based on their income and capital gains. Vishwas Panjiar, partner, Nangia Andersen, says ITR-1 or ITR-4 can be used to report LTCG from listed equity shares or equity mutual funds, if no capital loss is carried forward and other conditions are met. “ITR-2 and ITR-3 are more detailed where you can also carry forward losses,” he says.
Set-off rules
Capital losses from the sale of equity or debt instruments are subject to specific set-off rules. Short-term capital loss (STCL) can be set off against both STCG and LTCG, while long-term capital loss (LTCL) can be set off only against LTCG. “Both types of losses can be carried forward for up to eight assessment years if the ITR is filed within the due date under Section 139(1),” says Sehgal.
Taxpayers must note that capital losses cannot be set off against income from other heads such as salary, house property, or business, and losses arising from exempt income are also not eligible for set-off or carry forward. Intra-head set-off (within capital gains) is permitted, but inter-head set-off (against other income heads) is not allowed for capital losses.
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