Reporting capital gains from shares, mutual funds (MFs) and other investments in the income tax return (ITR) has become more detailed after a series of tax changes introduced over the past two years. While most of the changes to capital gains taxation were implemented in FY24-25 or AY25-26, taxpayers filing returns this year for AY26-27 still need to navigate a detailed reporting framework, particularly for equity transactions.
Take debt investments, for instance. Until 31 March 2023, units of debt MFs sold after three years were treated as long-term and taxed at 20%. However, 1 April 2023 onwards, all debt MFs are treated as short-term irrespective of holding period and taxed at slab rates. So, taxpayers must carefully report gains from debt funds depending on whether the units were purchased before or after 1 April 2023.
One change for listed equity, however, makes reporting simpler this year. Last year, taxpayers had to separately report equity long-term capital gains (LTCG) depending on whether the sale took place before or after 23 July 2024 because the tax rules changed midway through the financial year. That bifurcation no longer applies while filing returns for FY2025-26. The reporting requirement has reverted to the usual distinction between shares acquired before and after 31 January 2018, which is relevant for the grandfathering provisions.
Even so, capital gains continue to require more manual work than most other income heads. Unlike salary, interest income or tax deducted at source (TDS), capital gains are not pre-filled in the ITR forms. While the Annual Information Statement (AIS) captures details of many securities transactions, taxpayers are responsible for computing and reporting the gains correctly.
Documents and holding duration
Since capital gains are not auto-populated, taxpayers should first gather all documents required to report the gains accurately. For listed shares and mutual funds, the broker's or registrar's capital gains statement should form the basis of reporting, as it captures the purchase cost, sale consideration and holding period for each transaction.
For listed shares acquired before 31 January 2018, you also need the fair market value (FMV) as on that date, wherever applicable, under the grandfathering provisions. Gautam Nayak, partner at CNK & Associates LLP, said taxpayers claiming this benefit should report the ISIN (International Securities Identification Number) of the security in the tax return. “It can be found in demat statement or in a consolidated account statement (CAS) from RTAs listing the ISIN for every fund scheme,” he added.
Any expenses incurred toward acquiring or selling the asset, such as brokerage and stamp duty, can be deducted from the cost of acquisition. These can be sourced from your broker's P&L statement, and the sale deed in the case of property. Lastly, keep investment proofs if capital gains are being claimed as exempt under sections 54, 54EC or 54F.
The next step is determining whether the gain is short-term or long-term, since this determines the applicable tax rate and the schedule under which the gain is reported.
For listed equity shares and equity-oriented MFs, investments held for more than 12 months qualify as long-term and are taxed at 12.5% after the annual exemption of ₹1.25 lakh, while short-term capital gains (STCG) are taxed at 20%.
Classification for debt funds has become even more crucial after the tax overhaul that took effect from 1 April 2023. STCG now arises under two conditions. First, all units bought on or after 1 April 2023 qualify as short-term, regardless of holding period. Second, units bought before 1 April 2023 but redeemed within 36 months also count as short-term. FY 2025-26 is the last year in which units bought in FY 2022-23 and sold within the three-year window can still be declared short-term.
LTCG applies only to units bought before 1 April 2023 and sold after being held for more than three years, and these continue to get the benefit of indexation.
With these distinctions, reporting debt fund SIPs is trickier, since units bought before and after 1 April 2023 need to be identified separately. Experts advise using the First In First Out (FIFO) method, so that each redemption is mapped against the earliest SIP units first. Investors can use the capital gains statement, which lists the acquisition date of each SIP instalment, to segregate pre-April 2023 units eligible for LTCG with indexation from post-April 2023 units, which are always short-term.
How to report capital gains
For listed equity shares and equity-oriented MFs eligible under Section 112A, taxpayers filing through the e-filing portal are required to enter transaction details in Schedule 112A. The utility then populates the relevant fields in Schedule CG (capital gains). All entries are to be reported scrip-wise, however the only bifurcation needed is for shares acquired before 31 January 2018, where the grandfathering provisions apply.
Debt MFs are reported under schedule CG separately for short-term and long-term gains under the relevant schedules.
Neeraj Agarwala, senior partner, Nangia & Co, said taxpayers should also report capital losses even if there is no immediate tax benefit. “Losses can be carried forward for up to eight assessment years if the return is filed within the prescribed due date, allowing them to be set off against eligible capital gains in future years.”
Janhavi Pandit, a Mumbai-based chartered accountant (CA), added that in case a taxpayer has participated in buyback of shares during FY2025-26, the cost of acquisition of such shares bought back is to be claimed as capital loss. “In the ITR form, schedule CG now has a specific field to incorporate details of such capital loss.”
Once the gains and losses are reported, the next step is to fill Part F in Schedule CG. This step is crucial to check advance tax compliance. In Part F, all capital gains made during the year are reported quarterly. For instance, say you sold equity MFs in May and then again in December. Additionally, you sold some debt fund units in March for tax loss harvesting. Details of these three MFs must be reported separately in quarter 1, quarter 3 and quarter 4, respectively.
The utility uses this quarterly information to check whether advance tax was paid on these gains and in case of shortfall, it calculates the applicable interest. “This table is used to compute interest on any deferment of advance tax under Sections 234B and 234C. It is, thus, essential to very carefully report quarterly entries, as incorrectly allocating gains across these periods can lead to a wrong interest computation and additional tax outgo,” said Agarwala.
Capital gains remain one of the few income heads that require substantial manual reporting. Spending time reconciling transactions and classifying them correctly before filing can help taxpayers avoid reporting errors and unnecessary tax disputes.