Steps to follow while filing ITR 2 Form with Capital Gains
Taxpayers use income tax return (ITR) forms to disclose their income and tax information to the Income Tax Department. How much tax one must pay depends on his income. But the ITR form you fill out depends on the source of income. For example, individuals and Hindu-United Families (HUFs) who earn income other than from profits and gains from business or profession are eligible to file the ITR-2 form.
Income from the following sources is considered under ITR-2:
- Income from salary or pension
- Capital gains
- Foreign assets
- House property
- Loss on sale of investments
- Income from winning lotteries
- Agricultural income of more than Rs 5,000, among others.
In this article, we will discuss filing income tax returns, specifically the ITR-2 form, if you have income from capital gains.
How to Fill ITR-2, a Step-By-Step Guide
We will learn how to file ITR for capital gain in the following steps. The steps are divided into two parts to show ITR for long-term and short-term capital gains.
- Visit and log in to the official website of the income tax department.
- Click on e-file, then Income Tax Returns, and finally, on File Income Tax Returns.
- At this stage, you’ll be asked to select the assessment year, status, and type of form.
- In the next option, you must select the ITR filing reason. Click on ‘Taxable income is more than the basic exemption limit.’
- Now, on the next page, you’ll see five options. You must select ‘General’ — ‘Income Schedule’ — ‘Schedule Capital Gains.’ From the list, select the type of capital asset you own. This is where you select whether to file ITR for short-term capital gains or long-term capital gains. Skip step 6 if you don’t want to file an income tax return for the latter.
How to fill short-term capital gains in ITR-2
Capital gains are of two types – short term capital gains and long-term capital gains. Short-term capital gains (STCG) from equities are taxed at 15% under section 111A of the Income Tax Act. If your total taxable income, excluding STCG, is less than Rs 2.5 lakh (the minimum taxable income), STCG will compensate for the shortfall. The rest of the STCG will be taxed at 15% plus a 4% cess.
Now, here’s how to file ITR for STCG:
- Continue from step 5. To report STCG, click on Add details. Then input the amount you earned from the sale and the purchase cost.
Skip to step 8 if you don’t file ITR for long-term capital gains.
How to file long-term capital gains in ITR-2
Long-term capital gains on the sale of equity and related instruments are taxed at 10%. However, you don’t have to pay taxes if your gains are up to Rs 1 lakh. In fact, up until FY 2017–18, LTCG, from the sale of equities and mutual funds, was not taxed at all. This has now changed, and LTCG over Rs 1 lakh is taxable as per Section 112A.
- Now, let’s go back to filling out the form. In step 5, if you choose long-term capital gains, fill in the details like ISIN, buy and sell price, date of transaction, and other details. You should provide these details in Schedule 112A. Then, click on ‘Add.’
- Now, review Part B TTI and click on Preview Return.
- Once you’ve previewed it, you can download the ITR.
- You’re not done yet; there is still a declaration. On the declaration tab, enter your details and click on ‘Proceed to Validation.’
Once you’ve finished filing the form, you have to verify the ITR filing within 120 days. You can do that electronically or by sending a signed ITR-V form to the Income Tax office in Bangalore.
Frequently Asked Questions (FAQs)
What are the documents required to file ITR-2?
You need the following documents to file ITR-2:
- For salary income: Form 16 issued by your workplace
- For earned interest on fixed deposits or savings bank account, with TDS deductions: TDS certificates, that is, form 16A
- To verify TDS on salary and other than salary, you need Form 26AS (which can be downloaded from the e-filing portal)
- For rent: Rent receipts for calculating HRA
- For capital gains: Summary of profit and loss statements of capital gain transactions
- Bank passbook, receipts of fixed deposits to calculate interest income
- Documents/proofs for claiming tax-saving deductions 80C, 80G, 80D, 80GG: Health and life insurance receipts, donation receipts, rent receipts, etc.
How to report investment in unlisted equity shares in ITR?
Investment in unlisted equity shares in ITR has to be disclosed in the ITR-2 form. You have to provide the following details while disclosing:
- Name and type of company
- PAN of Company
- Opening balance as of April 1, 20XX
- Cost of acquisition
- Unlisted shares bought with the date and cost of purchase, face value, issue price
- Unlisted shares sold during the year
- Closing balance as of March 31, 20XX
What is the procedure for applying for the concessional route under Section 112A of the Income Tax Act?
The following conditions apply if you want to avail the benefit of a concessional rate:
- When equity shares are purchased and sold, Securities Transaction Tax (STT) is paid
- Units of business trust on which STT is paid at the time of sale of an asset
- Securities are long-term assets
- You cannot avail deduction under chapter VI A in respect of LTCG
- You cannot claim a rebate under Section 87A
How has ITR-2 changed as compared to previous years?
While filing ITR-2 this year, you can opt for the new tax regime under section 115BAC of the I-T Act. Remember that this option for selecting a new regime will be available only until the due date of filing the return.