How to File ITR 2 for Capital Gains

ITR-1 is the preferred form for salaried individuals, covering certain specific income sources, such as interest income. However, it has limitations and cannot be used if:

• You are a non-resident
• Your total income exceeds Rs. 50 lakh
• You have income from multiple house properties, or
• You have capital gains

In all such scenarios, you must file your income tax return using the ITR-2 form.

You can file ITR-2 using the income tax department's Excel or Java utilities or directly online through the e-filing portal. However, be aware that ITR-2 is not for those with a business or professional income. Through this article, let’s check out detailed steps to file ITR-2 online and study some examples of how to report salary, capital gains, and other types of income.

Budget 2024: Capital gains taxes hiked

The 2024 Budget has introduced significant changes to capital gains taxation, impacting investors across various asset classes. Notably, the capital gains tax rates have been increased, a move aimed at boosting government revenues and addressing economic disparities.

For long-term capital gains (LTCG) on equities, the tax rate has been hiked from 10% to 12.5%. This change affects gains on shares held for more than one year, aligning the rate closer to short-term capital gains tax. Additionally, the indexation benefit for LTCG on property has been capped, reducing the relief previously available to property investors.

Short-term capital gains (STCG) have also seen an increase. The tax rate on STCG from equity investments has been raised from 15% to 20%, while non-equity assets like debt funds now attract tax rates according to the investor’s income slab. This adjustment aims to encourage longer-term investments while generating higher tax revenues from short-term trading activities.

Furthermore, the holding period for assets to qualify as long-term has been standardised to two years across all categories, simplifying the tax regime but potentially increasing the tax burden on certain asset classes.

These measures are part of a broader strategy to enhance fiscal stability and promote equitable growth, but they are likely to have mixed reactions from the investor community, particularly those with substantial capital gains.

Steps to file ITR 2 for capital gains on the e-filing portal

Individuals receiving capital gains through the sale of equity have to file IT returns every year. Here is a step-by-step guide for the same, specifically focusing on reporting capital gains in ITR-2:

1. Log in to the official Income Tax department website using the necessary credentials
2. Navigate to e-File > Income Tax Returns > File Income Tax Returns
3. Select the assessment year, choose the status, and select the type of form. Select ‘Taxable income is more than the basic exemption limit’ as the reason for ITR filing
4. Select ‘General’ and click on ‘Income Schedule’. Then, tap on ‘Schedule Capital Gains’ and choose the type of capital assets from the provided list
5. Enter capital gains details. Differentiate between short-term and long-term capital gains. In the relevant section, provide details of the transactions causing capital gains. Include the sale value, purchase cost, and other associated expenses
6. Once you have entered all the relevant details of your capital gains, the form will automatically calculate your tax liability based on the applicable tax rates for capital gains
7. Confirm the necessary schedules, review Part B TTI, and then tap on ‘Preview Return’. Download the ITR and proceed with the declaration
8. Provide specific details on the declaration tab and tap on ‘Proceed to Validation’. Verify the ITR filing electronically or by sending a signed ITR-V printout to the Income Tax Department office in Bangalore within 120 days of filing the ITR

Short-term capital gains in ITR-2

• These gains come from selling assets you held for less than 36 months (or 24 months for property).
• Go to the section for capital gains in ITR-2.
• Write down details of each sale that made short-term gains: sale price, purchase cost, and any expenses allowed.

Long-term capital gains in ITR-2

• These gains happen when you sell assets held for more than 36 months (or 24 months for property), except for some cases.
• Look for the section in ITR-2 for long-term gains.
• Put in details of each sale that resulted in long-term gains: selling price, cost with adjustments for inflation, and any allowed deductions.

Taxpayers looking to file ITR 2 with both short-term and long-term capital gains can follow these steps for a hassle-free experience. It is crucial to enter accurate data in each section and verify them before submitting the ITR form.

Major changes in ITR-2 in AY 2023-24 and AY 2024-25

The ITR-2 form has added several new sections for reporting income. Also, there's a new requirement to include a donation reference number in Schedule 80G. Let’s understand these changes in detail:

• Schedule VDA: A new section is added to calculate income from cryptocurrencies or other virtual digital assets.
• Relief under Section 89A: A new clause that provides relief for residents with income from foreign retirement accounts has been introduced. Point No. 1(e)4 specifies that income taxable in the previous year, on which relief under Section 89A was claimed earlier, must be reported.
• Section 10(12C): This section adds a new exemption, which states that any payment made from the Agniveer Corpus Fund to those enrolled under the Agnipath Scheme or their nominees is exempt from tax.
• Schedule SI: A new point under Section 115BBH has been added, related to income from the transfer of virtual digital assets.
• Section 80CCH: A new clause under Chapter VI A has been inserted that allows the entire amount contributed by Central Government employees to the Agniveer Corpus Fund to be tax-deductible.
• ARN (Application Reference Number): In Schedule 80G, a new requirement has been added to provide a donation reference number. The provision of this information acts as additional information for ARN.

What is the structure of ITR-2?

The structure of income tax form ITR-2 has been divided into various parts and schedules as follows:

• Part A: General information
• Schedule S: Details of income from salaries
• Schedule HP: Details of income from house property
• Schedule CG: Computation of income under capital gains
  • Schedule 112A - From the sale of equity shares of a company or a unit of equity-oriented fund/ business trust on which STT is paid
  • Schedule 115AD(1)(b)(iii) proviso - For non-residents - From the sale of equity share of a company or a unit of equity-oriented fund/ business trust on which STT is paid
• Schedule OS: Computation of income under income from other sources
• Schedule CYLA: Statement of income after set off of current year’s losses
• Schedule BFLA: Statement of income after set off of unabsorbed loss brought forward from earlier years
• Schedule CFL: Statement of losses to be carried forward to future years
• Schedule VIA: Statement of deductions (from total income) under Chapter VIA
• Schedule 80G: Statement of donations entitled for deduction under Section 80G

Eligibility criteria to file ITR-2 form

You can file your income tax return using the form “ITR-2” only if you satisfy the following eligibility criteria:

• If you are an Indian individual or a member of a Hindu Undivided Family (HUF).
• If you are salaried or receive a pension and your income is more than Rs. 50 lakhs.
• If you have earned capital gains from selling shares, mutual funds, immovable property, or virtual digital assets.
• If you earn rental income from multiple house properties.
• If you earn more than Rs. 5,000 from agricultural activities.
• If you own foreign assets or earn income from foreign sources.
• If you are a director in any company, whether foreign or domestic.
• If you hold unlisted equity shares in any company, whether foreign or domestic.
• If you have losses from previous years that you want to carry forward or have losses that need to be offset under any head of income.
• If you earn income from other sources like horse racing, lottery winnings, etc.

Note: If you earn income from a business, a profession, or a partnership firm, you cannot file your income tax return using the ITR-2 form.

Documents required for filing capital gains ITR form

To file your capital gains ITR form, you will need various documents as proof or evidence to authenticate your transactions. These required documents usually vary based on the type of sale transaction. Let’s check out some key documents you will need while filing the capital gain ITR form:

• For sale of immovable property:
  • Sale and purchase deeds
  • Documents showing the sale price, purchase price, and any improvement costs
  • The full address of the property sold
  • Receipts for expenses related to transferring the property
  • Information about the buyer, including their PAN and Aadhaar
  • If claiming exemptions under Sections 54 or 54EC, provide the necessary supporting documents

• For the sale of mutual funds, equity shares, or virtual digital assets:
  • For the sale of mutual funds, you must generate consolidated capital gain statements from CAMs and Kfintech
  • For the sale of equity shares, obtain a capital gain statement or Tax P&L from your broker
  • In the case of virtual digital assets, generate a transaction report or profit and loss report from the respective exchanges

• For other types of capital gains, you must possess document(s) showing the sale price and purchase cost details.

Conclusion

Filing your Income Tax Return using Form ITR-2 with capital gains requires careful attention to detail and accurate reporting of all relevant information. By following the steps outlined above, you can ensure compliance with tax regulations and fulfill your tax obligations effectively. If you're unsure about any aspect of filing your return, consider consulting with a tax professional for guidance.

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