The Income Tax Return (ITR) filing season is one of the most important financial responsibilities for every taxpayer. While filing ITR-1 is relatively simple, many salaried employees and pensioners become confused when they earn income from investments such as equity shares, mutual funds, exchange traded funds (ETFs), listed bonds or property.
One of the most common questions asked every year is whether a salaried person or pensioner should continue filing ITR-1 after earning Long-Term Capital Gains (LTCG). The answer depends on the nature of the capital gain and the return form applicable to the taxpayer.
For Assessment Year (AY) 2026-27 relating to Financial Year (FY) 2025-26, taxpayers having taxable Long-Term Capital Gains generally need to file ITR-2 instead of ITR-1. Filing the correct return is important because the Income Tax Department receives transaction-level information from stock exchanges, mutual fund registrars, depositories, banks and brokers through the Annual Information Statement (AIS). Any mismatch between the information available with the department and the details reported in the return may result in notices, defective return communications or demands.
Government employees, Central Government pensioners, State Government pensioners, Defence pensioners, family pensioners and corporate employees often invest in mutual funds, shares, Sovereign Gold Bonds, tax-free bonds and other securities to build long-term wealth. Whenever these investments are sold, the resulting capital gains have to be correctly disclosed in the income tax return.
This comprehensive guide explains everything a salaried employee or pensioner needs to know before filing ITR-2 with Long-Term Capital Gains. It also explains the latest tax provisions applicable for AY 2026-27, important documents required before filing, the role of AIS and Form 26AS, and how to prepare capital gain details from broker statements and mutual fund statements.
Why This Guide is Important
Many taxpayers wrongly assume that if tax has already been deducted from salary or pension, no further compliance is required. This assumption is incorrect when investments have been sold during the financial year.
Even if the Long-Term Capital Gain is fully exempt because it falls within the exemption limit under Section 112A, the transaction may still have to be disclosed in the return.
Similarly, many investors redeem mutual funds through online platforms such as Groww, Zerodha Coin, Kuvera or banks without realising that every redemption is reported to the Income Tax Department.
Proper reporting protects the taxpayer from future notices and ensures that tax liability is computed correctly.
Who Should Read This Guide?
This article is useful for:
Central Government employees
State Government employees
Public Sector Undertaking (PSU) employees
• Corporate employees
• Defence personnel
• Defence pensioners
• Family pensioners
• Senior citizens
• Super senior citizens
• Employees receiving salary along with investment income
• Pensioners receiving pension along with capital gains
• Individuals investing in equity shares
• Mutual fund investors
• Bond investors
Gold ETF investors
• Property owners planning to sell real estate
What is Long-Term Capital Gain (LTCG)?
Whenever a capital asset is sold for a price higher than its purchase cost, the resulting profit is known as Capital Gain.
If the asset has been held for the prescribed minimum period before sale, the gain becomes Long-Term Capital Gain (LTCG).
The holding period differs according to the nature of the asset.
For listed equity shares, equity-oriented mutual funds and units of business trusts, the holding period is more than 12 months.
For land, building, gold and many other capital assets, the holding period is generally more than 24 months.
ebt mutual funds purchased after the specified legislative changes are generally taxed according to slab rates irrespective of the holding period, making them ineligible for normal long-term capital gain treatment in most cases.
Common Sources of LTCG for Salaried Employees and Pensioners
Most salaried persons and pensioners earn Long-Term Capital Gains from investments made over several years.
Common examples include:
Sale of listed equity shares
Redemption of equity mutual funds
Sale of Exchange Traded Funds (ETF)
Sale of listed bonds
Sale of Sovereign Gold Bonds where applicable
Sale of Gold ETF
Sale of residential property
Sale of commercial property
Sale of inherited property
Sale of land
Units of REITs and InvITs
Since all these transactions are reported electronically, proper disclosure in ITR-2 is extremely important.
Latest LTCG Tax Rates Applicable for AY 2026-27
The Finance Act has substantially changed the taxation framework for long-term capital gains in recent years.
For AY 2026-27, the broad tax treatment is as follows.
Listed Equity Shares
Holding Period:
More than 12 months
Tax Rate:
12.5%
Exemption:
Up to ₹1.25 lakh under Section 112A subject to prescribed conditions.
Equity Mutual Funds
Holding Period:
More than 12 months
Tax Rate:
12.5%
Exemption:
₹1.25 lakh under Section 112A.
Land and Building
Holding Period:
More than 24 months
Tax Rate:
Generally 12.5%.
Resident Individuals and HUFs selling land or building acquired before the prescribed cut-off date continue to have the option of applying indexation where permitted under the law. The choice should be evaluated carefully based on actual tax liability.
Gold
Holding Period:
More than 24 months
Tax Rate:
12.5%.
Debt Mutual Funds
Debt mutual funds purchased under the post-April 2023 tax regime are generally taxed according to the investor’s slab rate irrespective of holding period. Therefore, many investors no longer receive traditional LTCG benefits on such investments.
Understanding Section 112 and Section 112A
Many taxpayers confuse these two sections. Although both deal with Long-Term Capital Gains, they apply to different classes of assets. Section 112 generally governs long-term capital gains arising from assets such as land, buildings, gold and several other capital assets not specifically covered under Section 112A.
Section 112A specifically applies to listed equity shares, equity-oriented mutual funds and units of business trusts where Securities Transaction Tax (STT) conditions are satisfied. The distinction is extremely important because Section 112A provides an exemption of up to ₹1.25 lakh on eligible long-term capital gains before tax is computed.
Which ITR Form Should You File?
This is perhaps the biggest confusion among taxpayers.
ITR-1 (Sahaj)
ITR-1 is generally meant for resident individuals having relatively simple sources of income.
A taxpayer filing ITR-1 should not have taxable capital gains that require reporting in Schedule CG.
Therefore, if you have sold shares, mutual funds, property or other capital assets resulting in reportable capital gains, ITR-1 may not be appropriate.
ITR-2
ITR-2 is meant for individuals and Hindu Undivided Families not having income from business or profession but having one or more of the following:
Salary
Pension
Family pension
House property
Capital gains
Foreign assets
Director in a company
Unlisted equity shares
Agricultural income beyond prescribed limits
Thus, Government employees, corporate employees and pensioners earning Long-Term Capital Gains generally file ITR-2.
Documents Required Before Filing ITR-2
Never start filing ITR-2 immediately after opening the income tax portal. Instead, collect every relevant document first. A complete set of documents ensures that no income is omitted. The important documents include:
Form 16 issued by employer
Form 16A wherever applicable
Pension Payment Order (PPO)
Monthly pension statements
Bank interest certificates
Savings account interest details
Fixed Deposit interest certificates
Form 26AS
Annual Information Statement (AIS)
Taxpayer Information Summary (TIS)
Broker contract notes
Demat holding statement
Capital Gain Statement
Mutual Fund Capital Gain Report
Property sale deed if applicable
Purchase deed
Improvement cost records
Brokerage payment records
Investment proof
Advance tax details if paid
Self-assessment tax challans
Having all these documents before starting the return significantly reduces the possibility of errors.
Where Can You Obtain Your Capital Gain Statement?
One of the biggest mistakes committed by taxpayers is manually calculating capital gains using bank credits. Never prepare capital gains merely by looking at your bank statement. Instead, obtain the official Capital Gain Statement from your investment platform or registrar.
These statements contain:
Date of purchase
Date of sale
ISIN
Purchase value
Sale value
Holding period
Long-term gain
Short-term gain
Grandfathered value wherever applicable
Corporate action adjustments
The Income Tax Department expects these figures to be reported accurately.
Capital Gain Statements from Mutual Fund Registrars
If your investments are held in mutual funds, capital gain statements can generally be downloaded from the registrar handling your folios.
The two largest registrars servicing mutual fund houses are CAMS and KFin Technologies.
Depending upon the mutual fund company, your folios may be available with either of these registrars.
The capital gain statement generated by these platforms usually contains all redemption transactions during the financial year and is one of the most reliable documents for preparing Schedule CG in ITR-2.
Capital Gain Statements from Stock Brokers
If shares or ETFs are held through a Demat account, your broker usually provides an annual capital gain report.
Most leading brokers provide downloadable statements showing long-term and short-term gains separately.
These statements normally include:
Script name
ISIN
Purchase date
Sale date
Purchase price
Sale price
Brokerage
Holding period
Long-term gain
Short-term gain
Corporate action adjustments
Tax classification
Taxpayers should always use these reports instead of manually calculating gains from contract notes.
Importance of Annual Information Statement (AIS)
Before filing ITR-2, every taxpayer should download the Annual Information Statement (AIS) from the Income Tax e-Filing Portal. AIS has become one of the most important compliance documents because it contains information received from multiple reporting entities. It may include details relating to:
Salary
Interest
Dividend
Share transactions
Mutual fund redemptions
Property transactions
Tax deducted at source
High-value financial transactions
Foreign remittances
Securities transactions
Since these details are available with the Income Tax Department, taxpayers should reconcile their return with AIS before submission. Ignoring AIS may lead to future communications seeking clarification.
Difference Between AIS and Form 26AS
Many taxpayers believe Form 26AS alone is sufficient.
This is no longer true. Form 26AS mainly reflects tax deducted at source, tax collected at source and certain tax payments. AIS, on the other hand, is a much more comprehensive financial information statement and contains many additional transactions that may not appear in Form 26AS. For this reason, taxpayers should verify both documents before filing the return.
Reconcile Your Capital Gain Before Filing
Never copy figures blindly from any one source. The ideal approach is to reconcile:
Broker Statement
Capital Gain Report
AIS
Form 26AS
Demat Statement
Mutual Fund Statement
Only after confirming that all sale transactions have been correctly captured should the taxpayer proceed to prepare ITR-2. This simple exercise can prevent future notices and unnecessary litigation.
Complete Guide to Reporting Long-Term Capital Gains in ITR-2 for AY 2026-27
In the above paragraphs, we discussed who should file ITR-2, the latest Long-Term Capital Gains (LTCG) tax provisions applicable for Assessment Year (AY) 2026-27, the distinction between Sections 112 and 112A, and the documents that should be collected before beginning the return filing process.
This part explains exactly where Long-Term Capital Gains should be reported in ITR-2, how to use the capital gain statement downloaded from your broker or mutual fund registrar, and how every figure ultimately flows into your total taxable income.
Before Opening ITR-2
Do not start entering figures directly into the Income Tax Return.
First verify the following documents carefully:
• Form-16 issued by employer
• Pension statements
• Annual Information Statement (AIS)
• Form 26AS
• Taxpayer Information Summary (TIS)
• Capital Gain Statement downloaded from your broker or mutual fund registrar
• Demat transaction statement
• Dividend statement
• Interest certificates
• Property purchase and sale documents, wherever applicable
The Capital Gain Statement should always be treated as the primary source for reporting capital gains because it contains transaction-wise details of purchase cost, sale consideration, holding period and taxable gain.
Understanding the Structure of ITR-2
Many taxpayers become nervous after opening ITR-2 because the return appears much larger than ITR-1.
However, a salaried employee or pensioner generally needs to fill only a limited number of schedules.
The important schedules are:
Part A – General Information
Schedule Salary
Schedule House Property (if applicable)
Schedule Capital Gains (Schedule CG)
Schedule 112A
Schedule OS (Income from Other Sources)
Schedule SI (Special Rates)
Schedule TDS
Schedule Taxes Paid
Part B – Gross Total Income
Part B – Total Income
Tax Computation
Verification
Among these, Schedule CG is the most important schedule for reporting Long-Term Capital Gains.
Where Should LTCG be Reported?
Every Long-Term Capital Gain transaction should first be entered in:
Schedule CG (Capital Gains)
This schedule is specifically designed for reporting both Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG).
The Income Tax Department has divided this schedule into different parts depending upon the nature of the asset and the applicable tax provisions.
Once the details are entered correctly, the software automatically transfers the taxable capital gain to Part B of the return.
Therefore, taxpayers should never attempt to enter LTCG directly in Part B.
Information Required Before Filling Schedule CG
Keep the following details readily available:
Date of Purchase
Date of Sale
Sale Consideration
Purchase Cost
Cost of Improvement (if any)
Transfer Expenses
ISIN (where applicable)
Security Name
Grandfathered Cost (where applicable)
Section applicable
Whether exemption is claimed
Capital Gain Statement
These details are available in the annual capital gain report provided by brokers, CAMS or KFin Technologies.
Reporting LTCG from Listed Equity Shares
Suppose a salaried employee purchased shares several years ago through Zerodha or SBI Securities and sold them during FY 2025-26.
The annual Capital Gain Statement will generally contain:
Name of Company
ISIN
Purchase Date
Purchase Price
Sale Date
Sale Price
Brokerage
Long-Term Capital Gain
These details should be reported under the portion of Schedule CG dealing with transactions taxable under Section 112A.
After entering the required information, the eligible exemption of ₹1.25 lakh under Section 112A is considered during tax computation, subject to fulfilment of statutory conditions.
Reporting LTCG from Equity Mutual Funds
The process is almost identical.
Download the Capital Gain Statement from CAMS, KFin Technologies or your investment platform.
The report generally contains:
Scheme Name
Folio Number
Purchase NAV
Sale NAV
Purchase Date
Redemption Date
Holding Period
Long-Term Capital Gain
Tax Classification
These figures are entered in Schedule CG under the relevant Section 112A reporting area. Do not use redemption proceeds credited in your bank account as the taxable amount. Always use the capital gain computed in the statement.
Reporting LTCG from Property
Sale of residential property, commercial property or land is reported separately in Schedule CG.
The taxpayer should enter:
Sale Consideration
Purchase Cost
Cost of Improvement
Transfer Expenses
Exemption claimed under Section 54, 54EC or 54F (if applicable)
Net Taxable Capital Gain
Resident individuals selling eligible land or buildings acquired before the prescribed cut-off date should carefully compare the available tax options wherever the law permits, as indexation may still be beneficial in eligible cases.
Reporting LTCG from Gold
Where Long-Term Capital Gains arise from sale of physical gold or Gold ETFs, the gain should also be disclosed in Schedule CG under the applicable category.
Maintain invoices showing purchase cost because the department may seek evidence if required.
Reporting LTCG from Listed Bonds
Listed bonds held for the qualifying holding period should also be reported in Schedule CG.
The broker’s capital gain statement usually provides the taxable amount.
Always verify the tax treatment because different categories of bonds may have different provisions.
What is Schedule 112A?
Schedule 112A is one of the most important schedules for equity investors.
It specifically captures Long-Term Capital Gains arising from:
Listed Equity Shares
Equity-Oriented Mutual Funds
Units of Business Trusts
where Securities Transaction Tax (STT) conditions prescribed under the Income-tax Act are satisfied.
The schedule seeks transaction-wise information for accurate computation of taxable gains.
Information Required in Schedule 112A
Depending upon the transaction, the utility may require details such as:
ISIN
Name of Share or Mutual Fund
Number of Units
Sale Price
Purchase Price
Fair Market Value (where relevant)
Date of Purchase
Date of Sale
Full Value of Consideration
Cost of Acquisition
Taxable Capital Gain
These details are usually available in the broker’s annual capital gain statement and should be copied carefully.
Grandfathering Provisions
Some older equity investments may continue to require consideration of grandfathering provisions if purchased before the specified historical cut-off under the law.
Modern broker reports generally calculate these values automatically.
Taxpayers should therefore avoid manual calculations unless they fully understand the applicable provisions.
Where Does Schedule CG Go?
Many taxpayers become worried after filling Schedule CG because the capital gain does not immediately appear in the tax calculation.
This is perfectly normal.
The ITR utility automatically transfers eligible figures to:
Part B – Gross Total Income
and thereafter to
Part B – Total Income
The taxpayer normally does not have to manually enter these figures again.
Schedule SI (Income Chargeable at Special Rates)
Long-Term Capital Gains are not taxed according to normal slab rates in many cases.
Instead, they are taxed at special rates prescribed under the Income-tax Act.
Therefore, the taxable amount flows into Schedule SI where the software applies the applicable special tax rate.
The taxpayer should verify that the special rate has been correctly applied before submitting the return.
Claiming Exemption under Section 112A
Eligible taxpayers can claim exemption up to ₹1.25 lakh on qualifying Long-Term Capital Gains from listed equity shares, equity-oriented mutual funds and specified business trust units covered under Section 112A.
Only the balance amount, if any, becomes taxable at the prescribed rate after satisfying the conditions of the law.
Claiming Exemption under Section 54
Taxpayers selling residential property may be eligible for exemption if they invest the capital gain in another residential house within the prescribed period and satisfy all statutory conditions.
The exemption should be claimed in Schedule CG by entering the eligible amount.
Supporting documents should always be preserved.
Claiming Exemption under Section 54EC
Where eligible Long-Term Capital Gains arise from transfer of land or building, investment in specified notified bonds within the prescribed time limit may qualify for exemption subject to statutory limits.
The amount invested should be reported while completing Schedule CG.
Claiming Exemption under Section 54F
Where Long-Term Capital Gains arise from transfer of a capital asset other than a residential house and the prescribed conditions are fulfilled, exemption under Section 54F may be available.
The computation is proportionate and should be worked out carefully before entering the figures.
Example 1 – Government Employee
A Central Government employee earns:
Salary : ₹12,80,000
Interest : ₹35,000
Long-Term Capital Gain from Equity Mutual Fund : ₹2,10,000
The employee should file ITR-2.
Salary is reported in Schedule Salary.
Interest is reported in Schedule OS.
Capital gain is reported in Schedule CG and Schedule 112A.
The taxable amount automatically flows to Part B.
Example 2 – Pensioner
A retired pensioner receives:
Pension : ₹7,20,000
Bank Interest : ₹80,000
LTCG on Listed Shares : ₹1,60,000
The pensioner should file ITR-2.
Pension is entered under Salary Schedule.
Interest goes to Schedule OS.
Listed share transactions are reported in Schedule CG and Schedule 112A.
The utility computes the exemption available under Section 112A before calculating tax.
Common Mistakes While Reporting LTCG
Using bank credits instead of capital gain statement.
Entering redemption amount instead of actual capital gain.
Ignoring AIS transactions.
Ignoring broker statement.
Using wrong purchase date.
Using incorrect holding period.
Claiming wrong exemption.
Ignoring grandfathering wherever applicable.
Not reporting exempt LTCG transactions where disclosure is required.
Filing ITR-1 despite having reportable capital gains.
These mistakes frequently lead to defective return notices or requests for clarification.
Final Checklist Before Submitting ITR-2
Verify PAN and Aadhaar.
Verify personal details.
Match salary with Form-16.
Match TDS with Form 26AS.
Verify AIS.
Verify TIS.
Download fresh Capital Gain Statement.
Verify Schedule CG.
Verify Schedule 112A.
Verify Schedule SI.
Verify tax computation.
Pay self-assessment tax if applicable.
Complete verification using Aadhaar OTP, net banking or other authorised methods within the prescribed time.
Conclusion
Filing ITR-2 is not difficult if taxpayers approach it systematically. Salaried employees, Government servants, corporate employees and pensioners should first collect all financial documents, download the official capital gain statement from their broker or mutual fund registrar, reconcile it with AIS and Form 26AS, and then complete Schedule CG carefully. In cases involving listed equity shares, equity-oriented mutual funds or business trust units covered by Section 112A, the relevant details should also be reported in Schedule 112A. Once these schedules are completed accurately, the ITR utility automatically carries the taxable capital gains to Part B and applies the appropriate tax rates through Schedule SI.
Accurate disclosure of Long-Term Capital Gains not only ensures compliance with the Income-tax Act but also reduces the chances of receiving notices due to mismatches with information already available to the Income Tax Department. Careful preparation, verification of investment statements and proper reporting are therefore the keys to a smooth and hassle-free ITR filing experience for AY 2026-27.