Income Tax filing is necessary for individuals to meet their compliance regulations. Different forms are given by the Income Tax Department to file different returns depending upon the sources/type of income. Capital gain on assets is also a form of income on which tax is charged. However, different forms are needed to file ITR capital gains obtained from different sources. In the below blog, you will get to know about the applicability of different forms: ITR-1, ITR-2 & ITR-4 for Capital gains.
Overview
ITR-1
ITR-1, also known as Sahaj, is a kind of primary form for filing your income tax return. This ITR form can be filed by individuals making income of up to Rs. ₹50 lakh in a year from salaries, one house property, and a few other sources (except winnings from lottery and racehorses). However, capital gain in ITR1 can’t be solely used to file it. This is the reason, individuals with capital gains from the sale of assets or investments such as stocks, mutual funds, etc. must also choose other ITR capital gains forms.
Uses of ITR-2 for Capital Gains
- Reporting Capital Gains: Taxpayers can provide their capital gains details earned during the financial year by using Schedule CG of ITR-2 form. It also includes gains from short-term as well as long-term investments, along with relevant exemptions and deductions.
- Calculating Capital Gains Tax: Taxpayers can calculate their tax liability on capital gains accurately using this form. The tax rates charged on capital gains vary from short-term to long-term. The taxpayers can also take benefits of exemptions and indexation to minimize their tax burden.
- Disclosing Foreign Assets & Income: People having foreign assets or income are also needed to use ITR-2 for providing details of such assets to the Income Tax Department. A few such other income includes capital gains on foreign assets, dividends, or rental income from overseas properties.
- Claiming Foreign Tax Credit: Any individual who has paid taxes on his foreign income has the right to claim a tax credit in India for the taxes he had paid in abroad. ITR-2 filing capital gains has a section to claim these kinds of foreign tax credits to help taxpayers avoid paying double or unnecessary taxation.
ITR-4
Uses of ITR-4 for Capital Gains:
- Small-scale Investors: Individuals or HUFs engaged in small-scale trading or investment activities, where the capital gains form a minor part of their total income, can file ITR-4 capital gains. This form facilitates the tax filing process by consolidating all income sources in a single form.
- Limited Capital Gains: Taxpayers with limited capital gains, such as occasional stock trading or property transactions, can opt for ITR-4 for capital gains if their total income falls within the prescribed limits for this form.
- Presumptive Taxation: ITR-4 provides taxpayers the benefit of choosing presumptive taxation under Section 44AD or 44ADA. It mainly applies to the business income, it can also indirectly affect the taxation of capital gains earned from the same business.
Choosing the right ITR form is necessary for accurate and efficient tax filing, especially when it comes to reporting capital gains. Form ITR-2 for capital gains is the designated form for providing the details of capital gains. However, taxpayers with common investment portfolios or business activities may find Form filing ITR-4 capital gains more feasible.
Get to know more about the complexities associated with different forms of ITR capital gains as it will help ensure compliance with tax regulations and thus, maximize tax efficiency for individuals and entities alike.
FAQs
Q1: How to declare capital gains in ITR?
Q2: What is the difference between ITR 1 and ITR 2 capital gains?
Q3:How do you show capital gains on ITR-2?
Q4: How can I calculate my capital gains tax?
- Long term capital gain= Final Sale – (indexed cost of acquisition+indexed cost of improvement+cost of transfer)
- Index cost of Acquisition= Cost of Acquisition x cost inflation index of the year of transfer/cost inflation of the year of acquisition.
Overall, the blog is excellent for understanding the use of ITR-2 for capital gains. It’s easy to follow