Understanding Capital Gain Complications in ITR-2 and ITR-3 for AY 2025–26
For taxpayers filing ITR-2 or ITR-3 for AY 2025–26, capital gains can be one of the most complex components of the return. Whether it’s equities, property, mutual funds, or crypto—accurately reporting capital gains requires attention to tax rules, timelines, and asset classifications.
One major complication this year arises due to a change in the tax treatment of debt mutual funds and certain market-linked debentures from 24th July 2023. Let’s dive into this and other challenges.
🔹 ITR-2 vs ITR-3 — Who Uses What?
ITR-2: Individuals/HUFs with capital gains, more than one property, no business or profession income.
ITR-3: Individuals/HUFs with business/profession income along with capital gains.
🔸 Complications in Capital Gain Reporting for AY 2025–26
- 📆 Change in Capital Gains Tax Rules — Effective 24th July 2023
Until 23rd July 2023, investments in debt mutual funds and market-linked debentures (MLDs) were eligible for long-term capital gains (LTCG) treatment with indexation benefit after 3 years.
From 24th July 2023, the tax treatment changed:
Gains from these investments are now taxed as short-term capital gains (STCG) irrespective of holding period.
No benefit of indexation.
Taxed at slab rate instead of 20% with indexation.
➡ Practical implication: If you sold a debt mutual fund in FY 2023–24 (AY 2025–26), you need to check whether it was redeemed before or after 24th July 2023. The same asset type can have different tax treatment based on the date of sale.
Date of Sale Tax Treatment Indexation Allowed? Rate
On or before 23 July 2023 LTCG (if held > 3 yrs) Yes 20%
On or after 24 July 2023 STCG (even if > 3 yrs) ❌ No At slab rate
- 🧾 Crypto/Digital Assets – Flat 30% Rule
From FY 2022–23 onwards:
All gains from VDAs (crypto, NFTs) are taxed at flat 30% (Section 115BBH).
No indexation, no deductions, no loss set-off allowed.
Mandatory disclosure in separate schedule.
- 📈 Multiple Tax Rates in One Return
You may have capital gains taxed at:
15% (STCG on equity – Sec 111A)
10% (LTCG on equity – Sec 112A above ₹1 lakh)
20% with indexation (LTCG on property, gold sold before July 24, 2023)
Slab rate (Debt funds sold after July 24, 2023, or MLDs)
30% (Crypto – Sec 115BBH)
➡ Mixing up these rates or applying wrong sections is one of the most common errors in ITR-2/3.
- 📌 Grandfathering for Equity LTCG (Sec 112A)
For listed equity purchased before 31 Jan 2018:
Capital gains must be computed using grandfathering rule.
Compare sale price, cost, and FMV as of 31 Jan 2018.
➡ Needs careful calculation and documentary support.
- 🏠 Real Estate Sales – TDS, Buyer PAN, and Indexation
If you sold immovable property:
Must disclose buyer’s PAN
Report agreement and registration dates
Compute indexed cost if LTCG
Report any TDS deducted by buyer under Section 194-IA
- 🔁 Loss Set-Off and Carry Forward
Short-term capital losses can be adjusted against any capital gain.
Long-term losses only against long-term gains.
File return on or before due date to carry forward losses (Schedule CFL).
✅ Tips to Handle Capital Gains Accurately in AY 2025–26
- Check Date of Sale: Tax treatment can vary drastically before/after 24 July 2023.
- Categorise Assets Correctly: Equity, debt, property, crypto all have different rates and sections.
- Use the Latest Utilities: ITR forms have dynamic sections for each asset type—fill them carefully.
- Get a Capital Gain Statement from broker or AMC.
- Seek professional help if involved in MLDs, crypto, or real estate.
📌 Conclusion
AY 2025–26 brings in new complications, especially due to mid-year changes in taxation of debt mutual funds and market-linked debentures. Taxpayers filing ITR-2 or ITR-3 need to be cautious about transaction dates and apply the correct tax treatment accordingly. With so many variables—grandfathering, indexation, section-specific rates, and reporting schedules—professional guidance or meticulous recordkeeping is no longer optional.