Income Tax: Need to report capital gains? This ITR form you need to file

With just three days in hand to file Income Tax Return (ITR) for the financial year 2016-17, taxpayers are still facing problems in selecting ITR forms. 

If you are filing ITR online or on incometaxindiaefiling.gov.in, there you will see seven ITR forms along with their briefs. Depending your category, you can select the relevant form. The forms are available in two formats: Excel and Java, you can choose between the two. 

However, the question is which one to select?

For instance, if you are a salaried person and need to report taxable Short term capital gains (STCG) and Long Term Capital Gains (LTCG) along with salary earned in financial year 2016-17, which form is the relevant one?

Firstly, you need to understand what is STCG and LTCG?

Any profit or gain that arises from the sale of a ‘capital asset’ is a capital gain. This gain or profit is charged to tax in the year in which the transfer of the capital asset takes place.

Capital gains are not applicable when an asset is inherited because there is no sale, only a transfer. However, if this asset is sold by the person who inherits it, capital gains tax will be applicable. The Income Tax Act has specifically exempted assets received as gifts by way of an inheritance or will, as explained by ClearTax. 

Capital assets could be land, building, house property, vehicles, patents, trademarks, leasehold rights, machinery, and jewellery.

Long-term capital gain is taxable at 20% + surcharge and education cess. 

On other side if securities transaction tax is not applicable, the short-term capital gain is added to your income tax return and the taxpayer is taxed according to his income tax slab.

But, if securities transaction tax is applicable, the short-term capital gain is taxable at the rate of 15% +surcharge and education cess.

Coming backs to form, in this case, ITR-2 will be selected. Archit Gupta, Founder & CEO ClearTax said, "The Income Tax e-filing website allows quick filing only for ITR 1 and ITR 4. STCG and LTCG along with salary are required to be reported in ITR 2."

What is ITR Form 2?

ITR Form 2 is for Individuals and HUF not carrying out Business or profession under any proprietorship. Thus Persons having income from following sources are eligible to file Form ITR 2 :

• Income from Salary/Pension
• Income from House Property(Income Can be from more than one house property)
• Income from Capital Gains/loss on sale of investments/property (Both Short Term and Long Term)
• Income from Other Sources (including winning from Lottery, bets on Race Horses and other legal means of gambling)
• Income of a person as a partner in the firm.(Earlier there was separate ITR form 3 for this, which has been now discontinued and merged into ITR 2 only)
• Foreign Assets/Foreign Income
• Agricultural Income more than Rs 5000

Process of filing

"You will have to download the Income Tax Java utility for ITR 2 from the income tax departments website, fill it, generate XML file and submit a return by logging in and uploading the XML, in the income tax portal" Gupta added. 

Having similar opinion, Abhishek Soni, CEO & Co-Founder at Tax2win.in, said, "First you need to download the Excel Utility from the Income Tax Website.Then fill the details of Salary in Schedule S and LTCG & STCG details in Schedule CG of ITR - 2. There are separate columns for STCG and LTCG in Schedule CG. Check 26AS, to verify whether all the incomes & tax mentioned in the Form16 tally."

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