For AY 2026-27, salaried employees should pay extra attention while selecting the correct ITR form and reporting capital gains details properly. A wrong ITR form or incomplete reporting can create mismatch with AIS records and lead to notices or refund delays.
What are Capital Gains?
Capital gains are profits earned from selling capital assets. Common examples include:
- Sale of listed shares
- Sale of equity mutual funds
- Sale of debt mutual funds
- Sale of land or house property
- Sale of gold or jewellery
- Sale of foreign assets
Capital gains are mainly divided into two categories:
Short-Term Capital Gain (STCG)
If an asset is sold within the specified holding period, the profit becomes short-term capital gain.
Long-Term Capital Gain (LTCG)
If an asset is sold after the specified holding period, the profit becomes long-term capital gain.
The tax treatment changes depending on the type of asset and holding period.
Can Salaried Employees Use ITR-1 for Capital Gains?
For AY 2026-27, ITR-1 (Sahaj) is available for resident individuals having total income up to Rs. 50 lakh from salary, one house property, other sources, agricultural income up to Rs. 5,000, and long-term capital gains under section 112A up to Rs. 1,25,000.
However, ITR-1 cannot be used in several capital gain situations.
A salaried employee cannot use ITR-1 if:
- Short-term capital gains exist
- Long-term capital gain under section 112A exceeds Rs. 1,25,000
- Unlisted equity shares were held during the year
- Foreign assets or foreign income exist
- Brought forward losses or carry forward losses exist
A salaried employee with only eligible LTCG under section 112A up to Rs. 1,25,000 can still use ITR-1 if all other conditions are satisfied.
Which ITR Form Should Salaried Employees Use?
Choosing the correct ITR form is very important.
ITR-2
ITR-2 is generally used by salaried employees having:
- Salary income
- Capital gains
- House property income
- Other income sources
ITR-2 applies where no business or professional income exists.
ITR-3
ITR-3 applies where salary income and capital gains exist along with business or professional income.
ITR-4
ITR-4 is not suitable for people having:
- Short-term capital gains
- Long-term capital gains under section 112A above Rs. 1,25,000
A salaried employee should not select ITR-4 only because it looks simple.
Why Reporting Capital Gains Properly is Important
Capital market transactions are now visible through AIS and other reporting systems. Share sales, mutual fund redemptions, and property transactions are already reported to the Income Tax Department in several cases.
If capital gains are ignored in ITR, mismatch can happen between your return and AIS records.
This can lead to:
- Income tax notices
- Additional tax demand
- Interest liability
- Delayed refunds
Salary TDS shown in Form 16 does not cover investment profits automatically. Capital gains must be reported separately.
Check AIS and Form 26AS Before Filing
Before filing ITR, salaried employees should carefully review AIS and Form 26AS.
AIS contains details such as:
- TDS and TCS information
- Securities transactions
- Tax payments
- Refund details
- Other financial information
Form 26AS also shows TDS and tax-related records.
Cross-check AIS with:
- Broker statements
- Mutual fund statements
- Bank records
- Property sale documents
AIS can show transaction values without showing the correct purchase cost or actual taxable gain. Final reporting responsibility stays with the taxpayer.
Documents Required for Reporting Capital Gains
Keep all supporting records ready before filing ITR.
For Shares and Mutual Funds
- Broker capital gains statement
- Buy and sell dates
- Purchase price
- Sale value
- Demat account statements
For Property Sale
- Sale deed
- Purchase deed
- Stamp duty value
- Cost of improvement details
- Home loan details, if applicable
For Other Assets
- Purchase invoice
- Sale invoice
- Expense proof related to transfer
Most brokers provide yearly capital gains reports. Verify all numbers before using them in ITR.
How to Report Capital Gains in ITR
Capital gains are reported under the “Schedule Capital Gains” section in the ITR form.
Different assets require different details.
For Listed Shares and Equity Mutual Funds
Details generally include:
- Sale consideration
- Purchase cost
- ISIN details
- Date of purchase
- Date of sale
- Long-term or short-term classification
For House Property
Details generally include:
- Sale value
- Stamp duty value
- Cost of acquisition
- Cost of improvement
- Transfer expenses
For Capital Losses
- Capital losses should also be reported properly.
Loss reporting is important because eligible losses can be adjusted against gains according to income tax rules. Certain losses can also be carried forward for future years if filed within the due date.
New Tax Regime and Capital Gains in AY 2026-27
For AY 2026-27, the new tax regime remains the default tax regime under section 115BAC.
The new tax regime offers lower slab rates with limited deductions. Capital gains continue to follow separate taxation rules depending on the type of asset.
Under the new tax regime:
- Rebate under section 87A is available up to Rs. 60,000
- Taxable income should not exceed Rs. 12,00,000 for this rebate
Under the old tax regime:
- Rebate under section 87A is available up to Rs. 12,500
- Taxable income should not exceed Rs. 5,00,000
Capital gains can affect total taxable income and rebate eligibility. Proper tax calculation becomes important before filing the return.
Common Mistakes Salaried Employees Should Avoid
- Filing Wrong ITR Form: A person with short-term capital gains should not use ITR-1.
- Ignoring AIS Transactions: Transactions appearing in AIS should always be verified and reported correctly.
- Depending Only on Form 16: Form 16 only covers salary details and TDS from employer.
- Not Reporting Capital Losses: Ignoring losses removes future set-off benefits.
- Wrong Calculation of Purchase Cost: Incorrect cost calculation can increase tax liability.
- Missing Foreign Asset Reporting: Foreign shares, foreign income, or foreign assets require additional disclosure.
Conclusion
For AY 2026-27, salaried employees should first identify the type of capital gain and then select the correct ITR form. ITR-2 remains the common form for salaried individuals having capital gains without business income.
Before filing the return, review AIS, Form 26AS, broker statements, and property documents carefully. Every gain or loss should be reported correctly in the capital gains schedule. Accurate reporting keeps the return clean and reduces future tax problems.
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