Step-by-step guide on reporting equity capital gains while filing income tax returns
This is largely because capital gains reporting often requires scrip-wise disclosure and must be entered in multiple sections of the ITR form. The complexity is further compounded by the annual information statement (AIS), which often contains inaccurate information regarding equity transactions, making it necessary for taxpayers to verify and input the correct data manually.
In this guide, Prakash Hegde, a chartered accountant and principal consultant for direct taxation at Acer Tax and Corporate Services Llp, offers a step-by-step explanation on how to correctly report capital gains from listed equity while filing your ITR.
Equity capital gains must be reported in three key sections: ITR Schedule CG, Schedule 112A, and Schedule SI.
Among these, Schedule 112A is the most important.
Step 1: Schedule 112A
This schedule is relevant for investors with long-term capital gains (LTCG) on equity. Taxpayers must pay close attention to specific dates when reporting these gains, as the reporting format depends on two critical bifurcations:
1. Whether the shares or mutual fund units were acquired before or after 31 January 2018, and
2. Whether the asset transfer occurred before or after 23 July 2024.
For equity instruments bought before 31 January 2018 and sold in 2024–25, scrip-wise reporting is mandatory. In such cases, especially where mutual funds were acquired through systematic investment plans, each SIP installment must be individually reported.
Taxpayers have to enter both the actual purchase price and the fair market value (FMV) as on 31 January 2018. Scrip-wise reporting is necessary for equity bought before 31 January 2018 because when the actual purchase price is higher than the FMV, the former will be considered as the cost of acquisition—potentially lowering taxable gains.
For investments made after 1 February 2018, consolidated figures for purchase and sale values are to be reported instead of individual transactions.
Another key detail is the change in the tax rate on LTCG: for assets transferred before 23 July 2024, the applicable rate was 10%, but for transfers made on or after 23 July, the rate is 12.5%. Therefore, it is critical for taxpayers to correctly select the date of transfer to ensure accurate tax computation and avoid discrepancies in their filings.
Reporting in Schedule 112A can be done in two ways: manually entering each transaction or uploading a CSV (comma-separated values) file containing all the transaction details.
If you have only a few transactions, especially if all your shares or mutual funds were purchased after 31 January 2018, manual entry is quicker and more convenient.
Creating and uploading a CSV file is useful mainly when you have a large number of transactions to report, as converting the capital gains statement into the required CSV format is time-consuming and requires careful formatting.
The process to prepare a CSV file
1. Download the capital gains statement in Excel format from your broker, asset management company website, or agents like CAMS and KFintech.
2. Download the applicable ITR form (ITR-2 or ITR-3) from the income tax e-filing website. Along with the form, you’ll receive two CSV templates. Open the one labeled ‘CSV112A’.
3. This CSV file contains 15 columns, each requiring specific transaction details such as ISIN, company name, purchase and sale dates, quantity, and prices.
4. Compare this format with your Excel statement and rearrange the columns in your Excel sheet to match the order in the CSV template. You’ll also need to manually add missing fields and remove any extra columns not needed for the CSV.
5. Once the Excel is prepared in the same format as the CSV file, copy paste the data.
6. Once the CSV file is prepared, upload it in Section 112A while filing ITR.
Step 2: Schedule CG
In Schedule CG of the ITR, capital gains reporting is divided into three parts:
1. Part A(I) for Short-Term Capital Gains (STCG),
2. Part B(I) for LTCG, and
3. Part F for information on the accrual or receipt of capital gains.
In the parts for STCG and LTCG, taxpayers are required to input the consolidated figures of the total gains made during the financial year. While the STCG section must be filled manually by the taxpayer, the LTCG section gets auto-populated based on the detailed transaction data already provided in Schedule 112A.
Again, for STCG reporting, transactions made before and after 23 July 2024 must be declared separately because of the change in tax rates—from 15% to 20% after that date.
Part F, on the other hand, is tricky. It requires a quarter-wise manual breakup of the capital gains realized during the year. The purpose of this quarterly reporting is to enable the calculation of interest on shortfall in advance tax payments under Section 234C. Because of this, accuracy is critical.
The quarterly totals reported in Part F must align exactly with the total net gains disclosed in Schedule 112A and other parts of Schedule CG. If the numbers do not match, the system will throw a validation error.
Step 3: Schedule SI
Information under Schedule SI (Special Income) gets auto-populated based on the reporting done in the other two schedules. You just need to confirm the auto-populated information to finalise this schedule.
