Capital Gains Planning: How to Handle Capital Gains Smartly while filling ITR

Capital Gains Planning in 2025 – How to Handle Capital Gains Smartly while filling ITR (For F.Y. 2024–25 / A.Y. 2025–26)

Introduction 

The Finance Act, 2024 introduced material changes to capital gains taxation effective 23 July 2024. This mid-year transition has created a dual regime for F.Y. 2024–25, depending on whether the transfer was made before or after this date. For advisers and taxpayers, the priority is twofold: (1) compute strictly as per the Act and (2) execute tax planning to optimise tax and cash flow.

1. Scope of Capital Assets – Where Capital Gains Arise

As per Section 2(14) of the Income-tax Act, “capital asset” includes a wide range of properties. Gains can arise on transfer of:

• Immovable Property: Land, buildings, Flats, Commercial premises, Leasehold rights.
• Financial Assets: Equity shares (listed/unlisted), Preference Shares, Mutual Funds, Bonds, Debentures, Government Securities, and certain derivatives.
• Business & Intangible Assets: Goodwill, trademark, brand name, patents, copyrights, know-how, business rights.
• Movable Property(if not for personal use): Jewellery, bullion, precious metals, paintings, sculptures, coins, stamps, and other collectibles.
• Special Categories:
  • Urban agricultural land (rural agriculture land excluded).
  • ESOPs/sweat equity
  • Units of REITs / InvITs.
  • Virtual Digital Assets (crypto, NFTs)
• Other Rights: Tenancy rights, rights to acquire property, surrender of allotment/booking, compensation on compulsory acquisition.

2. Key Changes from 23rd July 2024

One of the most important changes in FY 2024–25 is the mid-year cut-over brought in by the Finance Act, 2024. Capital gains are now taxed differently depending on whether the transfer took place before or after 23rd July 2024. This means taxpayers must pay close attention to the exact date of transfer when computing their gains.

a) Holding periods (to classify as Long-Term):

• • Listed equity/equity MFs – Long-term if held for ≥ 12 months.
  • Other assets (including Immovable Property, Unlisted Shares, Gold)-Long-term if held for ≥ 24 months.

b) Tax Rates

*Special Relief for Property Owners: – For land/building acquired before 23rd July 2024, individuals/HUFs selling after this date can choose 20% with indexation OR 12.5% without indexation. (Taxpayers can compute both and adopt the lower liability.)

 Cut-over mechanics: For F.Y. 2024–25 returns, gains must be segregated by transfer date (pre/post 23-Jul-2024) to apply the correct regime.

3.  Exemptions & Set-Off Provisions

Capital gains planning is built around two operational pillars: (A) exemptions & rollover options that defer or reduce tax, and (B) set-off / carry-forward rules that allow losses to be used to reduce gains. Getting the operational details right-timelines, limits, documentation and ITR mapping- is what converts theoretical savings into real cash-flow benefits.

A. Principal exemptions & rollover routes (what to apply and core constraints)

a) Section 54 (Sale of long-term Residential Property → Purchase/Construct New Residential House):

• • Exemption to the extent of reinvestment of Net Consideration or part (purchase within 1 year before/2 years after; construction within 3 years).
  • Exemption is restricted to the amount actually invested in the new property (subject to the ₹10 crore cap on qualifying cost for F.Y. 2024–25.
  • If purchase missed, deposit in Capital Gains Account Scheme (CGAS)before due date of return to preserve exemption while you finalise purchase/construct.

b) Section 54F (Sale of any long-term asset → Purchase/construct Residential House):

Exemption depends on reinvestment of entire sale proceeds; if only part reinvested, exemption is proportionate. Timelines and CGAS rules mirror Section 54.

c) Section 54EC (investment in notified bonds g., NHAI/REC/PFC/IRFC):

• • Invest up to ₹50 lakh within 6 months from the date of transfer in specified bonds to claim exemption.
  • these bonds carry a 5-yearlock-in interest is treated as taxable income.

d) Section 112A (listed equity LTCG exemption):

Aggregate exemption ₹1.25 lakh for F.Y. 2024–25; taxable LTCG beyond this slab taxed as per the new rate for listed equity.

e) Defer/split – tactical reinvestments and timing:

Split sales across AYs: If a sale will create large LTCG, consider staggering part of sale to next FY to use ₹1.25 lakh cushion twice.

f) Combine exemptions: Partial use of 54/54EC etc. is allowed-plan proportions and timelines carefully.

B. Set-off & Carry-Forward Mechanics

• STCL vs LTCL ordering: STCL may be set off against STCG first and then against LTCG (if balance remains). LTCL can be set off only against LTCG. Inter-head set-off of capital loss is not permitted.
• Carry forward: Unabsorbed capital losses are carried forward for 8 assessment years, but only if the return for the year of loss is filed on or before the due date under s.139(1). Timely filing is therefore critical to preserve carry-forward rights.
• Partial use & sequencing: Partial application of exemptions (e.g., part 54EC + part 54/54F) is permissible-document proportions and timelines; maintain a clear audit trail for each portion sheltered.

Note on the ITR utility glitch (practical caution)

Legal position vs utility behavior: The Income-tax Act permits set-off of LTCL against LTCG. However, practitioners have observed that the e-filing/ITR utility for A.Y. 2025–26 may not always reflect this set-off correctly when multiple property transactions (one producing LTCG and another producing LTCL) occur in the same year. This is a technical validation/utility issue – not a change in law.

4. Special & Emerging Asset Classes

While most planning revolves around property, shares, and mutual funds, one should not overlook newer categories where capital gains and related tax rules are equally significant.

a) ESOPs/Sweat Equity: Already taxed as perquisites at exercise, but subsequent sale still triggers capital gains. On sale, capital gains are computed as (sale consideration − cost basis − allowable expenses) and classified as short-term or long-term based on the holding period applicable to the underlying shares (listed/unlisted).

b) Units of REITs / InvITs: Transfers follow securities rules, but periodic trust distributions often carry mixed tax treatment (interest, dividend, or capital gain), calling for proper disclosure.

c) Cryptocurrency & Virtual Digital Assets: Transfers of VDAs (cryptocurrencies, NFTs and similar) are taxed under a separate regime introduced in recent years. Income from transfer of VDAs is generally taxed at a flat rate (30%) under the special provision (s.115BBH), with no deduction allowed except cost of acquisition, and losses from VDAs cannot be set off against other income nor carried forward (subject to the exact statutory text). Additionally, specified TDS provisions apply to certain VDA transfers. Given heightened scrutiny, taxpayers must reconcile blockchain records with exchange statements and bank receipts; the department has been active in detecting non-reporting.

With these categories, the key is not the volume of investment but the quality of reporting-clean documentation and correct classification are essential to avoid disputes.

5. Conclusion (Practical Takeaways)

a) Law first: Always compute gains/losses as per the Income-tax Act and relevant Rules; the law governs regardless of temporary software issues.

b) Pre-sale computation: Run comparative computations (indexation vs flat rate for property, FY-wise splitting for listed equity) before signing sale agreements.

c) Filing discipline: File on time to preserve loss carry-forward rights; use CGAS to preserve rollover options if purchases aren’t immediate.

d) For listed equity, plan to use the ₹1.25 lakh LTCG exemption each F.Y.; stagger partial disposals where appropriate.

e) For property purchased before 23-Jul-2024, always compute both options (20% with indexation vs 12.5% without) and choose the lower liability.

f) Preserve documentary evidence (sale deed/contract notes, improvement invoices, bank receipts, CGAS entries, 54EC allotments, STT proofs) as these are the best defence in case of departmental Scrutiny.

In short, a law-first approach, disciplined filing, and careful documentation remain the most effective tools for smartly handling capital gains in FY 2024–25.

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Disclaimer: The views expressed are strictly personal and based on the position of the law prevailing as of date. This cannot be regarded as an opinion. While every effort has been made to ensure accuracy, the author accepts no responsibility for any errors or omissions. In case of any query/suggestion, please reach out to me at cajainumang@yahoo.com.