Capital Gains Reporting Revised Under New ITR Framework

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India’s income tax authority has released all seven income tax return forms for the assessment year 2025-26, including key updates to capital gains reporting rules. The Central Board of Direct Taxes (CBDT) has introduced new updates to ITR Form-7 as of May 9, 2025.

For the assessment year (AY) 2025-26, India’s Income Tax Department has released seven income tax return (ITR) forms. ITR-1 and ITR-4, which are primarily intended for small and medium taxpayers, were issued on April 29, 2025, while ITR-7, designed for trusts and charitable organizations, was notified on May 9, 2025.

These forms incorporate several updates, including a key modification in ITR-1 and ITR-4 requiring more detailed reporting of capital gains from listed equity investments. This change aligns with the tax rule adjustments for long-term capital gains (LTCG) introduced in the Union Budget 2024, which took effect on July 23, 2024.

Key capital gains reporting updates in the AY 2025-26 ITR Forms

The CBDT has released all the ITR forms for AY 2025-26, incorporating substantial changes to capital gains reporting. These updates aim to simplify filing requirements and ensure accurate tax reporting for various taxpayer categories.

CLICK HERE: Capital Gains Tax in India: An Explainer

Higher exemption threshold for LTCG

The Union Budget 2024 raised the LTCG exemption limit for listed equity shares and equity-oriented mutual funds from INR 100,000 (US$1,168.9) to INR 125,000 (US$1,461.2) under Section 112A of the Income Tax Act, 1961. This move is intended to reduce the compliance burden for small taxpayers, allowing them to use simpler forms like ITR-1 (Sahaj) and ITR-4 (Sugam) if their total LTCG does not exceed this limit and they have no carry-forward capital losses.

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Previously, taxpayers with such exempt LTCG were required to file the more detailed ITR-2 or ITR-3, even if no tax was payable. Now, this threshold adjustment means that eligible taxpayers can report their capital gains directly within the simplified ITR-1 or ITR-4 forms.

Separate capital gains reporting in ITR-2 and ITR-3

Forms like ITR-2 and ITR-3, typically used by taxpayers with more complex income profiles, have been updated to reflect the revised capital gains framework:

  • Segregated LTCG reporting: ITR-2 and ITR-3 forms now require separate reporting for capital gains from transactions conducted before and after the critical date of July 23, 2024, aligning with the updated tax rates and indexation rules.
  • Buyback taxation changes: For buybacks occurring on or after October 1, 2024, proceeds are now to be reported as ‘Nil’ consideration in the capital gains section while also being declared under ‘Income from Other Sources.’
  • Asset and liability disclosure: The threshold for mandatory asset and liability disclosure has increased from INR 5 million (US$58,448.7) to INR 10 million (US$116,897.4), aimed at enhancing transparency for higher-income taxpayers.

Buyback of shares ordinarily means repurchasing of shares by the company that issued them. 

Before October 1, 2024, shareholders of unlisted companies did not pay capital gains tax on buyback proceeds, as the tax was directly collected from the company at a 20 percent rate under Section 115QA of the Income Tax Act. For listed companies, shareholders were initially taxed on such gains at 10 percent (without indexation) if they exceeded INR 100,000 (US$1,168.9), but the Finance Act, 2019, shifted this burden to the companies, making the proceeds tax-free for shareholders.

From October 1, 2024, shareholders must now report these proceeds as ‘Nil’ consideration in the capital gains section while also declaring them under ‘Income from Other Sources,’ reflecting the corporate-level tax already paid.

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Expanded reporting options in ITR-5 and ITR-6

The ITR-5, a tax form used by firms, limited liability partnerships (LLPs), and cooperative societies in India, now mandates detailed reporting for capital gains, including stricter loss claim provisions to prevent misuse of buyback-related deductions.

In addition, ITR-6, filed by companies, includes a more comprehensive capital gains schedule, reflecting the nuanced tax treatment of different types of income.

Additional data submission in ITR-7 

As per the changes amended by the income tax authority, the ITR-7 form now captures additional data on capital gains, including rate adjustments introduced by the Finance Act 2024, which raised LTCG rates from 10 percent to 12.5 percent and short-term gains from 15 percent to 20 percent, effective from July 23, 2024.

ITR-7 is for entities such as business firms, companies, local authorities, associations of persons (AOP), and artificial judicial persons.

Choosing the right ITR Form

India’s Income Tax Department provides seven distinct ITR forms, each designed for specific taxpayer categories:

ITR-1 (Sahaj): This tax form is suitable for resident individuals with a total income of up to INR 5 million (US$58,448.7), including earnings from salaries, single house property, and interest. 

ITR-2: This tax form is meant for individuals and Hindu Undivided Families (HUFs) with income from capital gains but without any business or professional earnings.

ITR-3: The ITR-3 form is designed for those earning income from a business or profession.

ITR-4 (Sugam): This is ideal for individuals, HUFs, and small businesses (excluding LLPs) with income up to INR 5 million (US$58,448.7) from business or profession, opting for the presumptive taxation scheme.

ITR-5: This tax form is applicable to businesses, LLPs, and cooperative societies.

ITR-6: ITR-6 is for companies registered under the Companies Act.

ITR-7: This tax form is specifically for trusts, charitable institutions, and other entities eligible for exemption under sections like 139(4A) to 139(4D) of the Income Tax Act, 1961.

ITR filing deadline

For most individual taxpayers whose accounts do not require a tax audit, the standard deadline for filing their ITR is July 31. With recent changes in the ITR forms and filing procedures, early submission is advised to avoid last-minute errors and potential penalties.

(US$1 = INR 85.54)

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