Need to file ITR with LTCG less than Rs 1.25L?

New Delhi, India Jul 2, 2026 ALN: Filing an income tax return (ITR) is a crucial responsibility for many individuals in India, including salaried employees, pensioners, and students. The requirements for filing can vary based on individual circumstances, income levels, and specific types of income earned. As the tax landscape continues to evolve, understanding the nuances of ITR filing becomes increasingly important, particularly when it comes to long-term capital gains (LTCG) and the associated exemptions.

The deadline for filing ITR for the assessment year (AY) 2026-2027 is set for July 31, 2026. This date is critical for taxpayers to keep in mind, as failing to meet this deadline can result in penalties or additional scrutiny from tax authorities. The tax year in question, which runs from April 1, 2026, to March 31, 2027, is distinct from the assessment year. Thus, taxpayers must be diligent in tracking these timelines to ensure compliance and avoid complications.

For many individuals, the basic exemption limit serves as a threshold that determines whether or not they need to file an ITR. If a taxpayer's total income is below this limit, they are generally not required to file an ITR. However, there are exceptions to this rule, particularly regarding special rate income and specific transactions. Special rate income includes long-term capital gains, which are generated from the sale of capital assets held for more than one year.

According to current tax regulations, long-term capital gains up to Rs 1.25 lakh from listed equities, such as shares and equity mutual funds, are exempt from income tax. This means that if an individual's LTCG is within this limit, they will not owe any tax on those gains. However, even in cases where no tax is payable, it is essential to file an ITR to disclose these gains. Chartered Accountant Abhishek Soni, co-founder of Tax2Win, emphasizes that the exemption does not eliminate the requirement to report LTCG in the tax return. This distinction is vital for taxpayers to understand, as failing to report LTCG, even if it falls below the tax threshold, could lead to complications or penalties in the future.

Taxpayers with LTCG below the exemption limit must file their ITR to ensure compliance with tax regulations. This requirement extends to all individuals, regardless of their employment status or income level. Reporting LTCG accurately in the ITR not only fulfills legal obligations but also ensures transparency and accountability in financial dealings. The importance of transparency in tax reporting cannot be overstated, especially in a country where tax evasion is a serious issue. By ensuring that all income, including exempt income like LTCG, is reported, taxpayers contribute to a more equitable tax system.

Can you use ITR-1 to report LTCG?

When it comes to reporting LTCG, taxpayers have different ITR forms available to them depending on their specific situations. ITR-1 is a simplified form that can be used by eligible individuals. This form is suitable for taxpayers whose LTCG under Section 112A is below the prescribed limit, provided they do not have any carry-forward or brought-forward capital losses and their capital gains situation is not overly complex. The ITR-1 form is designed for individuals with straightforward financial situations, making it easier for them to comply with tax regulations.

On the other hand, ITR-2 is designed for individuals who may have more intricate financial scenarios. Taxpayers should consider using ITR-2 if they have capital losses that they wish to offset against gains, if they have multiple transactions involving capital gains, if they possess foreign assets or income, or if their investment portfolio includes more complex instruments. The choice of the correct ITR form is crucial, as it can significantly affect the filing process and the accuracy of the taxpayer's return.

Steps to report LTCG below Rs 1.25 lakh in ITR

For taxpayers who need to report LTCG in their ITR, the process may seem daunting, but it can be broken down into manageable steps. Soni provides a clear outline of how to report LTCG income in the ITR:

1. Log in to the Income Tax e-filing portal.
2. Select the appropriate ITR form based on your eligibility and go to the relevant section:
• For ITR-1, navigate to the "Capital Gains" section.
• For ITR-2, go to "Schedule 112A."
3. Enter the necessary details from your broker or investment statements, which may include:
• ISIN (International Securities Identification Number),
• Name of the share or mutual fund,
• Purchase date of the asset,
• Sale date of the asset,
• Sale value of the asset,
• Cost of acquisition, and
• Fair Market Value (FMV) as of January 31, 2018, if grandfathering provisions apply.

Step 3: The utility will automatically compute:

• Total LTCG accrued,
• Exemption available under Section 112A,
• Taxable LTCG, if any.

It is important to note that if the LTCG is below Rs 1.25 lakh, the taxable LTCG may effectively be NIL. However, the obligation to disclose this information in the ITR remains paramount. The automatic computation feature of the e-filing utility serves to simplify the process for taxpayers, allowing them to focus on ensuring they provide accurate information rather than performing complex calculations themselves.

In summary, the process of filing an ITR and reporting LTCG, even when it falls below the exemption threshold, is a critical aspect of tax compliance for individuals in India. Taxpayers must be proactive in understanding their obligations and ensuring that they meet all necessary requirements. By doing so, they can avoid potential issues with tax authorities and maintain good standing in their financial affairs.

Moreover, the implications of failing to file an ITR when required can extend beyond immediate penalties. Taxpayers may face challenges in securing loans, mortgages, or other financial services if they do not have a clear record of their income and tax filings. Financial institutions typically require proof of income and tax compliance as part of their lending criteria. Thus, maintaining accurate records and filing timely returns is not just a matter of legal compliance; it is also a prudent financial practice that can have long-term benefits.

Additionally, the importance of filing an ITR extends to the broader context. A well-documented tax return contributes to the overall tax base of the country, enabling the government to fund essential public services and infrastructure projects. The collective compliance of taxpayers strengthens the economy and promotes a sense of civic responsibility. As citizens fulfill their tax obligations, they play a vital role in the development and sustainability of the nation.

In conclusion, understanding the nuances of ITR filing, particularly concerning LTCG, is essential for all taxpayers in India. The requirement to report LTCG, even when it does not result in a tax liability, underscores the importance of transparency and compliance in the tax system. By adhering to these regulations, individuals not only protect themselves from potential penalties but also contribute to the integrity of the financial system as a whole.