Mistakes People Make While Filing Income from Capital Gains

mistakes to avoid in capital gains ITR

Did you know that failing to declare some of your capital gains could land you in trouble? Did you know that properties, cars, mutual funds, shares, and even jewelry are taxable? Read on to find the answers and learn all about the common mistakes people usually make while filing income from capital gains.

What are Capital Gains?

Before we delve further into the mistakes to avoid, let’s find out what capital gains are.

Capital gains are the profits you earn when you sell an asset (like a car, a house, gold, shares) that has increased in value over time. A lot of capital gains that you think might be exempt from taxation are actually taxable. But thinking they aren’t taxable, people often fail to declare them. Here are a few common mistakes people make while filing income from capital gains:

  • Not filing information about LTCG earned on the trading of shares: When equity shares are sold after a year, the seller makes a long-term capital gain (or loss). If you buy and sell shares, you do need to declare your long-term capital gains while filing your taxes. And if you make a long-term capital gain of over Rs. 1 lakh on equity shares or mutual funds, it will be taxable at a rate of 10%.
  • Not filing information about the sale of property/car/jewelry: When talking about property, if you buy a house and then sell it before 2 years, you make a short-term capital gain and get taxed at your income tax slab rate. But if you sell it after 2 years, you make a long-term capital gain and get taxed at 20.8% with indexation. With jewelry, cars, and other movable property, if you buy and sell in less than 3 years, you make a short-term capital gain and get taxed at your income tax slab rate. But if you sell after 3 years, you make long-term capital gain and get taxed at 20.8%.
  • Not filing capital gain on Mutual Funds – even if MFs are not redeemed, you may still be able to claim some capital gains: For equity-oriented mutual funds, when you buy and sell before 1 year, you make short-term capital gain and get taxed at 15.6%. And if you sell after 1 year, you are exempt from taxes. Additionally, for debt-oriented mutual funds, buying and selling before 3 years will make you a short-term capital gain and will be taxed at your income tax slab rate. And selling after 3 years will mean getting taxed at 20.8% with indexation.
  • Not making investments for exemptions of capital gain and still taking: It is possible to save tax on capital gains by claiming exemptions or deductions. If you use your capital gains and invest them into a new capital asset within a certain amount of time, you can claim for deduction if a certain set of conditions are met.
  1. Not disclosing the sale of shares in case of loss thinking there’s no tax on loss – Sales consideration is income/ money received. Not disclosing this receipt in ITR will be considered concealment of income. 

Now you know better than to avoid declaring all income from capital gains. Even if you find a way, officials from the Income Tax Department have complete access to any capital gains you make. They can always find out. Failing to declare some capital gains income can get you in trouble. So make sure to report all income from capital gains and use legal ways to save tax instead. Now ask yourself this- “Am I correctly reporting all my income from capital gains?”

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