Overview: Reporting Capital Gains in Your ITR
Reporting capital gains from stock transactions in your Income Tax Return is mandatory, regardless of whether you have a net gain or loss, and regardless of the amount. The Income Tax Department receives transaction data from stock exchanges and brokers, so unreported transactions will likely be flagged.
Capital gains from stocks are reported in Schedule CG (Capital Gains) of your ITR. The schedule requires you to separately report short-term and long-term gains, apply set-offs, and declare the final taxable amounts. If you have losses to carry forward, these are reported in Schedule CFL (Carry Forward of Losses).
The process involves four main steps: 1. Choosing the correct ITR form (ITR-2 or ITR-3) 2. Filling in Schedule CG with STCG and LTCG details 3. Reporting exempt LTCG under Section 112A 4. Claiming set-off of losses and declaring carry-forward balances
Before you begin, gather these documents: - Capital gains statement from your broker (all brokers if you use multiple) - Previous year's ITR (to check carried-forward losses) - Annual Information Statement (AIS) from the e-filing portal - Contract notes for any disputed or unusual transactions
Let us walk through each step in detail.
Step 1: Choose the Correct ITR Form
The ITR form you need depends on your income profile.
ITR-2: Use this if you are a salaried individual or a person without business income who has capital gains from stocks, mutual funds, or other capital assets. ITR-2 has Schedule CG for reporting capital gains.
ITR-3: Use this if you have business income in addition to salary and capital gains. This includes income from intraday trading (speculative business income) or F&O trading (non-speculative business income). ITR-3 has both Schedule CG and Schedule BP.
Common scenarios: - Salary + delivery-based stock trading: ITR-2 - Salary + delivery + intraday trading: ITR-3 - Salary + delivery + F&O trading: ITR-3 - No salary, only capital gains: ITR-2 - Freelancer + capital gains: ITR-3
Do NOT use ITR-1 if you have any capital gains. ITR-1 does not have Schedule CG and does not support capital gains reporting. Filing ITR-1 with unreported capital gains will result in a defective return notice.
If you are unsure, ITR-2 or ITR-3 can handle all scenarios for individuals with capital gains. ITR-3 is the more comprehensive form and can accommodate any combination of income types. However, using ITR-3 when ITR-2 suffices adds unnecessary complexity to your filing.
Step 2: Fill Schedule CG - Short-Term Capital Gains
Schedule CG in ITR-2 and ITR-3 has separate sections for short-term and long-term capital gains. Within the short-term section, there are further sub-sections based on the type of asset and applicable section.
For listed equity shares taxed under Section 111A at 20%: - Report the full sale value of all short-term equity transactions - Report the cost of acquisition (using FIFO method) - Report expenses on transfer (brokerage on sale) - The net gain or loss is auto-calculated
The ITR form asks for aggregate figures — you do not need to list every individual transaction. Your broker's capital gains statement provides the consolidated STCG amount that you enter here.
Key fields to fill for STCG under Section 111A: - Full value of consideration (total sale proceeds) - Deductions under section 48 (cost of acquisition + expenses on transfer) - Short-term capital gain on equity shares under section 111A
If you sold shares on multiple dates and some resulted in gains while others resulted in losses, report the net figure. For example, if you had STCG of Rs 1,50,000 from Infosys and STCL of Rs 50,000 from Tata Motors, report the net STCG of Rs 1,00,000 under Section 111A.
If you also have STCG from assets NOT under Section 111A (like unlisted shares), these go in a separate sub-section and are taxed at slab rate, not 20%. Keep these categories strictly separate.
Step 3: Fill Schedule CG - Long-Term Capital Gains
The long-term section of Schedule CG requires careful attention, especially for Section 112A reporting and the grandfathering provision.
For listed equity shares under Section 112A: - Report the full sale value - Report the cost of acquisition. For shares acquired before 1st February 2018, use the higher of actual cost or FMV as on 31st January 2018 (subject to the cap that deemed cost cannot exceed sale price) - Report expenses on transfer - The form computes the gross LTCG
The Rs 1.25 lakh exemption is applied automatically by the ITR computation engine. However, you must still report the full LTCG amount including the exempt portion. There is typically a specific field for the exempt amount under Section 112A.
Important: You must report LTCG even if it is below Rs 1.25 lakh and entirely exempt. Many investors skip reporting exempt LTCG, which creates a mismatch with AIS data and triggers a notice. Always report the full amount and let the exemption be claimed separately.
For shares acquired before 1st February 2018, you may need to look up the FMV on 31st January 2018 for each stock. Your broker may provide this in their capital gains report. Alternatively, you can look up historical prices on BSE or NSE websites for the highest traded price on 31st January 2018.
The ITR form has a specific field for the grandfathering adjustment. Enter the cost of acquisition as the deemed cost (higher of actual or FMV), not the actual purchase price, when grandfathering applies.
Step 4: Claim Set-Off of Losses
After reporting all capital gains and losses, the ITR form allows you to set off losses against gains following the prescribed rules.
Schedule CYLA (Current Year Loss Adjustment) is where you claim set-off of current year losses against current year gains. The form typically auto-computes this based on the data entered in Schedule CG, but verify the calculations.
The set-off follows the standard priority: - STCL under Section 111A first offsets STCG under Section 111A - Remaining STCL offsets other STCG (non-111A) - Any remaining STCL offsets LTCG - LTCL offsets only LTCG
If you have brought-forward losses from previous years, these are entered in Schedule BFLA (Brought Forward Loss Adjustment). Enter the details from your previous year's ITR Schedule CFL: - Assessment year of the original loss - Type of loss (STCL or LTCL) - Amount of loss brought forward - Amount being set off in the current year - Balance to be carried forward
Verify that the brought-forward amounts match your previous year's ITR. If there is a discrepancy, use the amounts from your filed ITR as the authoritative source.
After set-off, any remaining losses flow into Schedule CFL (Carry Forward of Losses) for future years. The form automatically computes the balance to carry forward based on your entries.
Common Reporting Mistakes to Avoid
Avoid these frequent errors when reporting capital gains in your ITR.
Mistake 1: Not reporting exempt LTCG. Even if your LTCG is below Rs 1.25 lakh, it must be reported in Schedule CG. The exemption is claimed within the schedule, not by omitting the income. Omission creates a mismatch with AIS data.
Mistake 2: Using average cost instead of FIFO. Enter the cost of acquisition based on FIFO, not the average price shown in your broker's holdings page. Most broker capital gains statements use FIFO correctly, so rely on those rather than the holdings average price.
Mistake 3: Not splitting STCG and LTCG from the same sell transaction. When you sell shares and some lots are short-term while others are long-term (based on FIFO), report the gains separately in the STCG and LTCG sections. Do not lump everything as one type.
Mistake 4: Forgetting to report losses. If you had a net capital loss for the year, you still must report it in Schedule CG and carry it forward in Schedule CFL. If you do not report and file before the due date, the loss is permanently forfeited.
Mistake 5: Not reconciling with AIS. The Annual Information Statement shows all transactions reported by brokers and mutual fund houses. Cross-check your Schedule CG entries against AIS data. Any unreconciled transactions will likely generate a notice.
Mistake 6: Entering the wrong cost for pre-2018 shares. For shares acquired before 1st February 2018, remember to use the grandfathered cost (higher of actual purchase price or FMV on 31st January 2018), not the raw purchase price.
Using Your Broker's Capital Gains Statement
Your broker's capital gains statement is the most important document for ITR filing. Here is how to use it effectively.
Most brokers (Zerodha, Groww, Angel One, Upstox, etc.) provide a tax P&L report or capital gains statement in their console. This report typically includes: - All buy and sell transactions during the financial year - FIFO-based cost of acquisition for each sell - Classification into STCG, LTCG, STCL, LTCL - Holding period for each lot sold - Grandfathered cost for pre-2018 acquisitions - Aggregate figures for each category
Download this statement and use the aggregate figures directly in your ITR Schedule CG. The statement is usually available by mid-April for the previous financial year.
If you trade on multiple brokers, download statements from each and consolidate them. Add up all STCG across brokers, all LTCG across brokers, and so on. Each broker only has visibility into transactions on their platform, so you must manually consolidate.
Verify the broker's figures by cross-checking a few transactions against your contract notes. While broker statements are generally accurate, errors do occur, especially around corporate actions (bonus shares, stock splits, demergers) that may not be properly reflected.
Also check that intraday trades are excluded from the capital gains statement. Intraday profits/losses should be reported separately as speculative business income, not mixed with delivery-based capital gains.
After Filing: Verification and Record Keeping
After submitting your ITR, there are several important follow-up actions.
E-verify your ITR within 30 days of filing. An unverified ITR is treated as not filed. E-verification can be done through Aadhaar OTP, net banking, bank account, demat account, or by sending a signed physical ITR-V to CPC Bangalore.
Check your intimation under Section 143(1). The Income Tax Department sends an intimation after processing your return, usually within a few months. This intimation confirms the tax computation and any refund or additional tax due. Verify that the capital gains figures match your filing.
Respond to any discrepancy notices. If the department identifies mismatches between your reported capital gains and the AIS data, you will receive a notice. Respond promptly with supporting documentation from your broker.
Maintain records for at least 8 years. Keep the following documents: - ITR acknowledgment and filed return copy - Broker capital gains statements - Contract notes for all transactions - Bank statements showing trading account transfers - AIS downloaded at the time of filing - Any correspondence with the Income Tax Department
If you have carried-forward losses, maintaining these records is especially important because you may need to substantiate the original loss when setting it off against gains in a future year.
Consider downloading your ITR-V (verification document) and the full return from the e-filing portal as a PDF for your records. The portal retains returns for several years, but having your own backup is prudent.
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Analyze My Portfolio FreeFrequently Asked Questions
Do I need to report every stock transaction individually in the ITR?
No. The ITR requires aggregate figures for STCG and LTCG, not individual transaction details. Use your broker's capital gains statement to get the consolidated numbers. Report the total sale value, total cost of acquisition, and net gain/loss for each category (STCG under Section 111A, other STCG, LTCG under Section 112A, other LTCG).
What happens if I do not report capital gains in my ITR?
The Income Tax Department receives all your stock transaction data from brokers and stock exchanges through the AIS system. Unreported transactions will likely be detected and can result in a notice under Section 148 (re-assessment), penalties for underreporting income, and interest on unpaid tax. Always report all capital gains, even if the amounts are small.
Should I report LTCG below Rs 1.25 lakh that is fully exempt?
Yes. You must report the full LTCG amount in Schedule CG and claim the Rs 1.25 lakh exemption within the schedule. The exemption does not mean you skip reporting. The Income Tax Department's AIS will show your transactions, and not reporting them creates a mismatch that could trigger a notice.
How do I report capital gains if I trade on multiple brokers?
Download the capital gains statement from each broker separately. Consolidate the figures by adding up STCG, LTCG, STCL, and LTCL across all brokers. Report the consolidated totals in Schedule CG. Each broker only sees their own transactions, so you must manually combine the data. Keep all individual broker statements for your records.