Capital gains refer to the profit earned from the sale of capital assets such as property, stocks, or mutual funds. Reporting capital gains accurately in your Income Tax Return (ITR) is essential to stay compliant with tax laws. In this blog, we will discuss how to handle capital gains in your ITR in India.
1. Understanding Capital Gains
Capital gains are categorized into short-term and long-term based on the holding period of the asset:
Short-Term Capital Gains (STCG)
Gains from the sale of assets held for a short duration:
- Equity shares and equity mutual funds: Held for less than 12 months.
- Other assets (property, debt mutual funds, etc.): Held for less than 36 months.
Long-Term Capital Gains (LTCG)
Gains from the sale of assets held for a longer duration:
- Equity shares and equity mutual funds: Held for more than 12 months.
- Other assets (property, debt mutual funds, etc.): Held for more than 36 months.
2. Calculation of Capital Gains
To calculate capital gains, follow these steps:
Short-Term Capital Gains (STCG)
- STCG = Sale Price – Purchase Price – Expenses incurred during the sale
- STCG on equity shares and mutual funds is taxed at 15%.
- STCG on other assets is added to your income and taxed at your applicable slab rate.
Long-Term Capital Gains (LTCG)
- LTCG = Sale Price – Indexed Purchase Price – Expenses incurred during the sale
- Indexed Purchase Price = Purchase Price * (CII of year of sale / CII of year of purchase)
- LTCG on equity shares and mutual funds is taxed at 10% (above INR 1 lakh exemption).
- LTCG on other assets is taxed at 20% with indexation benefits.
3. Exemptions and Deductions for Capital Gains
Several exemptions and deductions are available to reduce your capital gains tax liability:
Section 54
Exemption on LTCG from the sale of a residential property if the gain is reinvested in another residential property within specified timelines.
Section 54EC
Exemption on LTCG from the sale of any asset if the gain is reinvested in specified bonds (NHAI, REC) within six months.
Section 54F
Exemption on LTCG from the sale of any asset other than a residential property if the net sale consideration is reinvested in a residential property within specified timelines.
4. Reporting Capital Gains in Your ITR
Follow these steps to report capital gains in your ITR:
- Download Form 26AS and your capital gains statements from brokers or registrars.
- Select the appropriate ITR form based on your income sources (usually ITR-2 or ITR-3).
- Fill in the details of your capital gains in the ‘Capital Gains’ section of the ITR form.
- Provide details of the sale, purchase, and cost of acquisition.
- Claim eligible exemptions under sections 54, 54EC, 54F, etc.
- Submit and verify your ITR.
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Conclusion
Handling capital gains in your ITR requires understanding the types of gains, calculating them accurately, and claiming eligible exemptions. By following the steps outlined above, you can ensure accurate reporting and minimize your tax liability.
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