'One small mistake in this segment can cost you...': CA warns taxpayers ahead of new ITR deadline 

As tax season approaches, India’s middle class and first-time investors face a critical task: filing income tax returns correctly when capital gains are involved. One wrong move—like picking the wrong ITR form—could delay refunds or trigger tax notices, warns CA Nitin Kaushik, a leading tax expert.

“People often think any ITR form will do, but that’s risky,” Kaushik said. “If you have capital gains, your form depends on the nature and amount of those gains.”

Capital gains arise when you sell assets like stocks, mutual funds, or property for a profit. These gains are split into short-term and long-term categories, each taxed differently. For instance, selling listed shares held under 12 months attracts short-term capital gains tax at 15%, while holding them longer usually means a lower tax of 10% on gains above Rs 1 lakh under Section 112A.

“It’s crucial to classify gains correctly and pick the right form,” Kaushik stressed. “Otherwise, mismatches with your Annual Information Statement (AIS) or Form 26AS can bring notices from the tax department.”

Filing income tax returns for the first time can feel overwhelming, especially with capital gains involved, said CA Dr Suresh Surana. “Capital gains taxation is a critical component of income tax compliance, particularly relevant for taxpayers transacting in securities, immovable property, and other capital assets,” Dr Surana explained. “For first-time taxpayers, understanding the intricacies of capital gains reporting within the ITR framework is essential to ensure accuracy, avoid litigation, and optimize available exemptions.”

Here’s a simplified guide from the experts:

ITR-1 (Sahaj): For salaried taxpayers with up to Rs 1 lakh long-term gains from listed shares or mutual funds. Not for traders or multiple property owners.

ITR-2: For salary, property income, and all capital gains—but not for F&O or intraday trading.

ITR-3: For those with business income, including F&O and intraday trades.

ITR-4 (Sugam): For salaried taxpayers with presumptive business income plus up to Rs 1 lakh LTCG—not for detailed capital gains reporting.

Beyond choosing forms, the process of reporting capital gains itself requires precision. Taxpayers must fill out Schedule CG in the ITR form, disclosing details like acquisition cost, sale proceeds, holding period, and exemptions claimed. “Errors in reporting can trigger notices, demand tax payments, or even lead to penalties. Always reconcile your disclosures with AIS or Form 26AS,” advised Dr Surana.

Several exemptions can reduce your tax burden. For instance, Section 54 offers relief if gains from selling a residential property are reinvested into another residential property. Section 54EC allows up to ₹50 lakh investment in specified bonds like NHAI or REC within six months of sale, shielding gains from tax. “These exemptions are powerful tools to reduce tax, but they require precise compliance,” said Kaushik.

Taxpayers should also watch out for special cases like ESOPs, bonus shares, or property sales. For instance, ESOPs are taxed as salary income when exercised, but later gains on selling those shares become capital gains. Bonus shares are considered acquired at zero cost, increasing potential taxable gains when sold. “Each unique situation requires careful attention to avoid mistakes,” Kaushik warned.

Real estate transactions often cause confusion due to documentation complexity and the impact of stamp duty valuation. “If the property’s sale price is lower than the stamp duty value, the higher value is often deemed your sale consideration,” explained Dr Surana. “This can unexpectedly increase your tax liability.”

Maintaining proper records is crucial. Investors should preserve demat statements, broker contract notes, property purchase and sale deeds, and receipts for improvement costs. “These documents not only help in calculating accurate gains but also serve as proof in case of scrutiny,” said Kaushik.

In recent years, the tax department has become stricter about matching reported gains with data from AIS, which collects extensive transaction details from brokers, banks, and registrars. Any mismatch could trigger a notice, even if the error was unintentional.

With tax deadlines approaching, both experts urge taxpayers not to leave filings for the last minute. “Choosing the right form and reporting gains accurately is half the battle,” Kaushik said. “A small mistake can cost you big—and peace of mind.”

Dr Surana concluded, “Filing your ITR correctly when capital gains are involved isn’t just about paying tax—it’s about protecting yourself from unnecessary stress, notices, and financial loss. Take the time to get it right.”

For India’s taxpayers, filing smarter—not harder—could save both money and sleepless nights.