ITR filing 2026: How to report capital gains from shares, mutual funds and ETFs to avoid tax notices

Taxpayers who have sold shares, mutual funds, or ETFs during FY 2025-26 need to ensure that their capital gains are accurately reported while filing their Income Tax Return (ITR).

The Income Tax Department cross-verifies these transactions using information available through brokers, depositories, and the Annual Information Statement (AIS). Even minor mismatches can invite scrutiny.

Here's what experts say about reporting capital gains in the ITR.

Which ITR form should you use?

“Taxpayers with capital gains are generally required to file ITR-2. However, if taxpayers report capital gains and also report income from business and/or profession, the taxpayer will be required to file ITR-3,” said Siddharth Maurya, Managing Director, Vibhavangal Anukulkara Pvt Ltd.

For Assessment Year (AY) 2026-27, the due date for filing ITR-2 is 31 July, while the due date for filing ITR-3 (non-audit) is 31 August.

How should capital gains be reported in ITR?

According to Nishant Shanker, Tax & Investments Expert, Navraj Global Advisors, capital gains must be reported under the “Capital Gains” schedule of the ITR.

Maurya mentioned that taxpayers should first determine the type of investment and its holding period before calculating the tax liability.

For listed equity shares, equity mutual funds, and equity ETFs:

• Held for 12 months or less: Short-Term Capital Gain (STCG)
• Held for more than 12 months: Long-Term Capital Gain (LTCG)

“The capital gains should be reported in the Capital Gains schedule by providing details of each transaction or reporting cumulative transactions for the relevant period, along with sale proceeds, cost of acquisition, and the resulting capital gain or loss,” Maurya noted.

He added that taxpayers can also report eligible brought-forward capital losses to set them off against current-year capital gains.

Summing up the process, Shanker said, “the taxpayers should classify gains as short-term or long-term, compute the correct gain after considering the cost of acquisition and applicable provisions, and report them in the relevant schedule.”

What should taxpayers keep in mind while reporting capital gains?

According to Shanker, taxpayers should keep the following points in mind.

• Determine the correct holding period to classify gains as short-term or long-term.
• Report all sale transactions made during FY 2025-26 (1 April, 2025 to 31 March, 2026).
• Compute capital gains accurately after accounting for corporate actions such as bonus issues and stock splits.
• Report eligible capital losses if they are to be carried forward.
• Retain supporting documents, such as Demat statements and other investment records, to substantiate the reported transactions.

How should you reconcile broker statements before filing?

Taxpayers should not rely only on the P&L statement of a single broker while filing their ITR, according to Maurya. Even small mismatches between investment records and the Income Tax Department's data can trigger scrutiny.

He recommended the following reconciliation process before filing the ITR:

• Collect transaction statements from all brokers and investment platforms, including broker P&L statements, contract notes, Demat statements, Consolidated Account Statements (CAS), and CAMS/KFintech statements for mutual fund and ETF transactions.
• Verify every purchase and sale, and reconcile the capital gains calculated by brokers with the details reported in the Annual Information Statement (AIS).
• Review Form 26AS to confirm that TDS and other tax credits have been accurately reflected.
• Identify and rectify any missing, duplicate, or incorrectly reported transactions before filing the return.
• Ensure all eligible capital losses and tax credits have been accounted for and keep supporting documents as evidence.

Should unrealised gains be reported in ITR?

No.

If you purchased shares worth ₹3 lakh and their market value increased to ₹4 lakh by 31 March 2026, your broker may show an unrealised gain of ₹1 lakh. Since the shares have not been sold, this gain is not taxable.

Shanker said, “Only realised gains, i.e., gains from securities or mutual fund units actually sold or redeemed during the financial year, are taxable. Unrealised or mark-to-market gains on investments that continue to be held are not taxable and should not be reported as capital gains in the ITR.”

Disclaimer: This is only for informational and educational purposes. Please consult a qualified tax expert for the latest tax laws and regulations.