Report all stock gains in your ITR

• All equity profits must be reported in ITR to avoid tax notices
• STCG is taxed at 20% and LTCG at 12.5% after a Rs 1.25 lakh limit
• Investors must reconcile broker statements with AIS to ensure accuracy

The thrill of seeing your stocks in the green is universal, but don't let small profits lull you into tax complacency. Every gain, no matter the size, must be reported in your Income Tax Return. Here’s what every investor needs to know.

Why Every Rupee of Profit Counts

In the world of investing, a common myth is that small gains aren't worth reporting. This is a costly mistake. The Income Tax Department requires the disclosure of all income, and capital gains from selling stocks or equity mutual funds are no exception. Even if your profits are below the taxable limit, reporting them is mandatory. The tax department’s Annual Information Statement (AIS) now tracks all your high-value transactions, including stock sales. If the gains reported by your broker don't match what you declare in your Income Tax Return (ITR), it can trigger a notice, leading to potential penalties and interest. The message is clear: transparency is not optional.

Short-Term vs. Long-Term Gains: The 12-Month Rule

The tax you pay on your equity gains depends entirely on how long you held the investment. For listed shares and equity-oriented mutual funds in India, the holding period is split into two categories. If you sell your shares or units within 12 months of buying them, the profit is a Short-Term Capital Gain (STCG). If you hold them for more than 12 months, the profit is classified as a Long-Term Capital Gain (LTCG). This distinction is crucial because the tax rates for STCG and LTCG are very different, making your holding period a key factor in your tax planning.

The Tax Rates for FY 2025-26

For the financial year 2025-26 (Assessment Year 2026-27), the tax rules are specific. Short-Term Capital Gains (STCG) on listed equities are taxed at a flat rate of 20%. This tax applies to the entire gain without any exemption limit. Long-Term Capital Gains (LTCG) are treated more favourably. The first ₹1.25 lakh of your total LTCG from equities in a financial year is completely tax-exempt. Any gain above this ₹1.25 lakh threshold is taxed at a concessional rate of 12.5%. It is important to note that you do not get the benefit of indexation for calculating these gains.

How to Report Your Gains in the ITR

Reporting capital gains means filing the correct ITR form. Most salaried individuals with capital gains must file ITR-2. If you have income from a business or profession (which includes F&O or intraday trading), you must use ITR-3. A recent change for AY 2026-27 allows some individuals with only LTCG under ₹1.25 lakh to use the simpler ITR-1 form, but this is a specific exception. Within the ITR, you will need to fill out 'Schedule Capital Gains' (Schedule CG) and, for LTCG, the scrip-wise details in 'Schedule 112A'. Your broker provides a capital gains statement which has all the transaction details needed for this. Always reconcile your broker's statement with your AIS on the tax portal before filing.

Don’t Forget About Losses

Just as you report gains, you must also report losses. Doing so allows you to 'set off' losses against gains, reducing your overall tax liability. A short-term capital loss can be set off against both short-term and long-term gains. A long-term loss, however, can only be set off against long-term gains. More importantly, if you file your ITR by the deadline (typically July 31), you can carry forward unutilized losses for up to eight assessment years. This makes timely filing a critical strategy for every investor, not just a compliance task.