If you have earned profits from selling shares, mutual funds, property, or other capital assets, choosing the correct Income Tax Return form is essential. In most cases, taxpayers with capital gains income are required to file ITR-2.

Many salaried individuals and investors are unsure how to report capital gains correctly, especially after changes in taxation rules and reporting requirements. Errors in Schedule CG or incorrect tax calculations may lead to notices and unnecessary tax liabilities. To find out what to do if you are missing key employer documentation, you can Read this blog.

This guide explains how to file ITR-2 for capital gains income for AY 2026-27 with practical examples and simple explanations.

What is ITR-2?

ITR-2 is an Income Tax Return form applicable to individuals and Hindu Undivided Families (HUFs) who do not have income from business or profession but have income from:

• Salary or pension.
• House property.
• Capital gains.
• Foreign assets.
• Other sources.
• Agricultural income exceeding ₹5,000.

Who Can File ITR-2?

ITR-2 can be used by:

• Salaried Individuals: Employees having salary income, capital gains from shares or mutual funds, and rental income.
• Investors: Individuals earning short-term capital gains, long-term capital gains, and dividend income.
• Property Sellers: Taxpayers selling residential house property, land, or commercial property.
• Non-Resident Indians (NRIs): NRIs having taxable income in India may also use ITR-2, subject to conditions.

Who Cannot Use ITR-2?

ITR-2 cannot be used by individuals having business income, professional income, or presumptive taxation income under Sections 44AD, 44ADA, or 44AE. Such taxpayers generally need to evaluate other categories to understand which ITR to file based on their business transactions.

What is Capital Gains Income?

Capital gains arise when a capital asset is sold for a value higher than its acquisition cost. Capital assets include shares, mutual funds, real estate, gold, bonds, and debentures.

Short-Term Capital Gains (STCG)

Short-Term Capital Gain arises when an asset is sold within the prescribed holding period.

Examples:

• Equity Shares: Bought for ₹1,00,000, Sold for ₹1,40,000 → STCG = ₹40,000
• Debt Mutual Funds: Purchase Cost = ₹2 lakh, Sale Value = ₹2.5 lakh → STCG = ₹50,000

Long-Term Capital Gains (LTCG)

Long-Term Capital Gain arises when an asset is held beyond the prescribed period.

Example: Purchase Price = ₹5 lakh, Sale Price = ₹8 lakh → LTCG = ₹3 lakh

Asset Breakdowns

Capital Gains from Shares: Capital gains may arise from listed shares, unlisted shares, bonus shares, rights shares, or ESOPs. These gains are reported under Schedule CG in ITR-2.

Capital Gains from Mutual Funds: Capital gains can arise from equity mutual funds, debt mutual funds, SIP investments, or hybrid funds. Each redemption transaction needs proper reporting.

Capital Gains from Property: Sale of a residential house, commercial property, or a plot of land may result in short-term or long-term capital gains depending upon the holding period.

Who Should File ITR-2 for Capital Gains?

If you receive salary and have capital gains from investments, this form is generally applicable.

• Salaried Individuals: For example, Mr. Sharma earns a salary of ₹15 lakh and LTCG from mutual funds of ₹2 lakh. His applicable form is ITR-2.
• Investors: Investors dealing in shares, mutual funds, or bonds must report capital gains through ITR-2.
• Property Sellers: Individuals selling real estate assets are required to disclose gains under Schedule CG.
• NRIs: NRIs earning capital gains from Indian assets, rental income, or other income taxable in India can use ITR-2.

Documents Required for Filing ITR-2

Before starting the return, keep these documents ready:

• Form 16: Useful for reporting salary income and TDS deducted.
• Form 26AS: Contains TDS details, advance tax payments, and refund logs.
• AIS and TIS: These provide information relating to capital market transactions, interest income, dividend income, and mutual fund transactions.
• Capital Gains Statement from Broker: Available from platforms like Zerodha, Groww, Angel One, or ICICI Direct. It contains the purchase date, sale date, STCG, and LTCG details.
• Mutual Fund Statements: Useful for tracking SIP transactions, redemption details, and gain calculations.
• Property Documents & Bank Statements: Keep sale deeds, purchase agreements, stamp duty records, and banking logs for verifying interest or dividends.

Step-by-Step Process to File ITR-2 for Capital Gains Income

Step 1: Login to the Income Tax Portal - Visit the Income Tax e-Filing portal and log in using PAN and password.

Step 2: Select AY 2026-27 - Choose File Income Tax Return → AY 2026-27 and select ITR-2.

Step 3 & 4: Personal Info and Income Reporting - Fill out your details and report your salary, house property, interest, and dividend income.

Step 5 & 6: Fill Schedule CG and Claim Exemptions - Map out short-term and long-term gains under Schedule CG. Eligible taxpayers can reduce their capital gains tax obligations by claiming exclusions under Sections 54, 54F, or 54EC.

Step 7 & 8: Verify and E-Verify - Cross-check with your AIS and Form 26AS. Submit and complete your validation via Aadhaar OTP, Net Banking, or EVC logs.

Practical Example

Since Mr. Gupta has capital gains income and no business income, he should file ITR-2 and report all gains under Schedule CG. Proper reporting ensures accurate tax computation and helps avoid notices from the Income Tax Department.

How to Fill Schedule CG in ITR-2

Schedule CG is used to disclose all capital gains earned during the financial year. Proper reporting helps avoid mismatches with AIS and broker statements. Make sure you gather your broker logs, mutual fund reports, and property deeds before filing.

Step 1 & 2: Disclose STCG and LTCG: Report equity gains under Section 111A, debt fund redemptions, or short-term property sales. For long-term items, map out acquisition values separately.

Step 3 & 4: Enter Exemptions and Verify: File your eligible roll-over benefits under Section 54, 54F, or 54EC and double check your final liabilities against your Form 26AS summary logs.

How to Report Capital Gains from Shares and Mutual Funds

Investors in shares and mutual funds are required to report gains transaction-wise:

• Equity Shares: Delivery-based equity trading, listed shares, and ESOP sales are reported under Schedule CG. For example, if purchase value = ₹2,50,000 and sale value = ₹3,40,000, your gain of ₹90,000 is taxable according to applicable provisions.
• Mutual Funds & SIPs: Covers redemptions across equity, debt, hybrid, or ELSS funds. For SIP investments, each individual installment has a different holding period, resulting in both STCG and LTCG calculations.
• Bonus & Rights Shares: Bonus shares are allotted at zero cost, meaning their entire sale value generally becomes taxable. Rights shares are calculated using their actual acquisition cost.
• Dividend Income: Dividend income is not treated as capital gains; it should be reported separately under "Income from Other Sources."

How to Report Capital Gains from Property

Sale of residential houses, plots, commercial property, or land must be disclosed in Schedule CG after verifying the following components:

• Sale Consideration: The actual sale price received.
• Cost of Acquisition & Improvement: The original purchase price plus subsequent renovation or construction expenses.
• Transfer Expenses: Deductible outlays including brokerage, legal fees, and stamp duty.
• Indexed Cost of Acquisition: Indexation adjusts your purchase cost for inflation using the Cost Inflation Index (CII) notified by the government. For example, if purchase cost = ₹30 lakh, indexed cost = ₹45 lakh, and sale value = ₹70 lakh, your long-term capital gain is ₹25 lakh (₹70 lakh – ₹45 lakh).

Exemptions Available on Capital Gains

The Income Tax Act provides several exemptions to help lower your tax liability:

• Section 54 Exemption: Available when long-term capital gains from selling a residential house are reinvested into another residential property. If LTCG = ₹25 lakh and investment in a new house = ₹25 lakh, your taxable LTCG becomes Nil.
• Section 54F Exemption: Applicable when long-term gains arise from non-residential assets, but the net sale proceeds are invested into a residential house. The taxpayer should not own more than one residential house at that time.
• Section 54EC Exemption: Available when real estate gains are invested in specified long-term bonds (like REC or NHAI) within the maximum statutory limit of ₹50 lakh.

Tax Rates and Common Mistakes to Avoid

Tax rates vary dynamically between equity items, debt instruments, and real estate assets (always refer to the latest Finance Act provisions for AY 2026-27). To ensure you remain fully compliant, avoid filing ITR-1 by mistake, which cannot log capital gains transactions. Always select the proper layout from the complete range of structural types of ITR forms.

Additionally, do not ignore transfer expenses like brokerage, never miscalculate your indexed costs, and make sure your entries match the active AIS database to avoid receiving automated scrutiny notices.

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Conclusion

ITR-2 is the appropriate return form for individuals and HUFs earning capital gains from shares, mutual funds, property, and other investments. Proper reporting in Schedule CG and timely claim of exemptions under Sections 54, 54F, and 54EC can significantly reduce tax liability.

As the Income Tax Department increasingly relies on AIS and data analytics, accurate reporting of capital gains has become more important than ever. Maintaining proper records and seeking professional guidance can help taxpayers avoid notices and maximize available tax benefits.

Frequently Asked Questions (FAQs)

Which ITR form is used for capital gains income?

Individuals and HUFs earning capital gains from shares, mutual funds, property, or other capital assets generally need to file ITR-2, provided they do not have business or professional income.

How do I fill Schedule CG in ITR-2?

Schedule CG requires you to separately report short-term and long-term capital gains, sale consideration, costs of acquisition, and any exemptions claimed under Sections 54, 54F, and 54EC.

Can salaried individuals file ITR-2?

Yes. Salaried individuals who have capital gains income in addition to salary can file ITR-2.

How are mutual fund gains taxed?

Tax treatment depends upon the type of mutual fund, holding period, and applicable provisions under the Income Tax Act. Both STCG and LTCG should be reported under Schedule CG.

How are property gains calculated?

Capital gains are calculated as: Sale Value – Indexed Cost of Acquisition – Transfer Expenses. Exemptions under Sections 54, 54F, and 54EC may reduce taxable gains.

What exemptions are available under capital gains?

Taxpayers may claim exemptions under Section 54, Section 54F, and Section 54EC, subject to conditions prescribed under the Income Tax Act.

Is ITR-2 mandatory for share market income?

For investors having delivery-based capital gains and no business income, ITR-2 is generally applicable.

Can I revise ITR-2 after filing?

Yes. Revised returns may be filed under Section 139(5), subject to applicable timelines.

How do I e-verify ITR-2?

ITR-2 can be e-verified using Aadhaar OTP, Net Banking, Bank Account EVC, Demat Account EVC, or a Digital Signature Certificate.

What documents are required for filing ITR-2?

Generally required documents include Form 16, Form 26AS, AIS and TIS, broker capital gain statements, mutual fund statements, property purchase and sale documents, and bank statements.

Can NRIs file ITR-2?

Yes. NRIs earning capital gains and other taxable income in India can generally use ITR-2.

Is dividend income reported under Schedule CG?

No. Dividend income is reported under "Income from Other Sources" and not under Schedule CG.