ITR-2 Capital Gains Mistakes That Trigger a Tax Notice (FY 2025-26)
You sold some equity or redeemed a mutual fund last year, the portal pre-filled your numbers, and you hit submit. Six months later a §143(1) intimation lands in your inbox demanding ₹18,000 plus interest. For salaried filers using ITR-2 this season, almost every capital-gains notice traces back to the same handful of errors — and the tax utility's auto-fill makes two of them for you. Here is exactly what trips up ₹15L+ earners on FY 2025-26 returns, with the rupee cost of each.
Summary
| The trap | What it costs you | The fix |
|---|---|---|
| §87A rebate applied to your gains | Demand notice + interest | Rebate hits slab income only, never gains |
| Splitting gains at 23 Jul 2024 | Defective return | Whole FY 2025-26 = one rate, no split |
| Using old 15% / 10% rates | Under-payment → §143(1) notice | STCG 20% (§111A), LTCG 12.5% (§112A) |
| Skipping Table F quarterly break-up | §234C interest on advance tax | Enter gains in the quarter booked |
| Leaving Schedule CFL blank | Forfeit loss set-off worth lakhs | Carry every loss forward, 8 years |
| Ignoring AIS vs broker mismatch | Auto-flag + scrutiny | Reconcile statements before you file |
The traps, in detail
The §87A rebate does NOT cover your capital gains
The new-regime rebate under §87A jumped to ₹60,000 this year, wiping out tax on income up to ₹12 lakh. The catch the Finance Act 2025 made explicit: that rebate cannot touch tax computed at special rates — your STCG under §111A and LTCG under §112A. Even if total income sits under ₹12 lakh, gains are taxed separately and in full.
The danger is that some filing utilities default to applying the rebate against total tax, quietly under-stating what you owe. Action: compute slab-income tax and capital-gains tax separately; the ₹60,000 rebate caps against slab tax only. If the auto-computed liability looks suspiciously low, this is usually why.
There is no 23 July 2024 split this year
Last year was a nightmare of two columns — gains before 23 July 2024 at the old rates, gains after at the new ones. That split is gone. The entire FY 2025-26 falls under one regime, so STCG is a flat 20% and LTCG a flat 12.5% across all 12 months. Action: if you're copying last year's approach, stop bifurcating. One period, one rate. Re-using the split produces a return the utility flags as inconsistent.
Use 20% and 12.5% — the 15% / 10% rates are dead
This is the costliest muscle-memory error. STCG on listed equity (§111A) is now 20%, not 15%. LTCG (§112A) is 12.5% above the exemption, not 10%. File at the old rates and you under-pay — which is precisely what generates a demand notice plus §234B/§234C interest months later. Action: double-check the rate column before submitting; a 5-point STCG gap on ₹3 lakh of gains is ₹15,000 you'll be billed for.
Table F controls your §234C interest
Table F asks you to break capital gains into the quarter you actually earned them, because advance tax is due quarter-by-quarter. Dump everything into Q1 and you'll show a shortfall in later quarters you never had; lump it all in Q4 when gains were really booked in June and you invite §234C interest. Action: map each sale to its real quarter. Gains booked Jan–Mar go in the last instalment column — this is also where genuine late-year gains legitimately escape earlier-quarter interest.
Schedule CFL: carry losses forward or lose them
A capital loss you don't report in Schedule CFL this year cannot be set off against future gains — you simply forfeit it. Short-term losses carry forward 8 assessment years; long-term losses set off only against long-term gains. Action: enter every booked loss even in a year you can't use it. On a ₹2 lakh loss, that's up to ₹40,000 of future tax (at 20%) you're protecting.
AIS vs your broker statement — reconcile first
The single biggest cause of mismatch notices is your reported gains not matching the Annual Information Statement. Brokers, AMCs and registrars report every transaction; the department cross-checks automatically. Action: download AIS, TIS and Form 26AS, pull your broker/MF capital-gains statement, and reconcile line by line before filing. Flag any AIS entry that's wrong through the feedback facility rather than ignoring it.
Real example: Salaried, ₹28L CTC, Bengaluru
Priya booked ₹3,20,000 in short-term and ₹1,80,000 in long-term equity gains in FY 2025-26. Here's the under-payment that a notice is built from — old rates versus correct ones, both already netting the ₹1.25 lakh LTCG exemption:
| Item | Filed wrong (old rates) | Filed right |
|---|---|---|
| STCG ₹3,20,000 (§111A) | ₹48,000 (15%) | ₹64,000 (20%) |
| LTCG ₹1,80,000 (§112A) | ₹5,500 (10% on ₹55,000) | ₹6,875 (12.5% on ₹55,000) |
| Tax on gains + 4% cess | ₹55,640 | ₹73,710 |
| Outcome | ₹18,070 short → demand + interest | Clean return, refund on time |
Her salary tax is computed separately at slab rates — and because gains sit at special rates, no §87A rebate applies to that ₹73,710 regardless of her total income. The ₹18,070 gap isn't a grey area; it's an arithmetic under-payment the system catches on its own.
What to do this week
- Download AIS, TIS and Form 26AS, pull your broker and AMC capital-gains statements, and reconcile every line before you touch the form.
- Confirm the rates: 20% (§111A) for STCG, 12.5% (§112A) for LTCG above ₹1.25 lakh — and delete any 15% / 10% or 23-July split habit from last year.
- Fill Table F quarter by quarter to match when gains were actually booked, so §234C interest reflects reality.
- Enter every capital loss in Schedule CFL even if you can't use it now — it carries forward up to 8 years.
- Sanity-check the auto-computed tax: the §87A rebate must land on slab income only, never on your STCG or LTCG.
File once, file clean
Capital-gains notices are almost always self-inflicted and entirely avoidable — wrong rate, a stale split, an unreconciled AIS line. Get the five right and the return sails through; and if you do spot an error after submitting, the revised-return window for FY 2025-26 now runs all the way to 31 March 2027, so there's room to fix it cleanly rather than wait for a notice.
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