Filing ITR before July 31? Tax experts say first-time investors are struggling with LTCG reporting

Why are first-time investors finding LTCG reporting difficult?

According to Gaurav Singh Parmar, Associate Director at Fincorpit Consulting, many new investors mistakenly believe they do not need to report capital gains if the gains fall below the exemption limit.

Parmar said another challenge is the transition from the simpler ITR-1 to ITR-2 once taxpayers have reportable capital gains.

He also pointed out that many investors rely entirely on the pre-filled Annual Information Statement (AIS) rather than reconciling it with broker statements and trading records, which can lead to mismatches that may trigger automated tax queries.

Shourya Garg, Advocate at Garg & Garg Tax Associates, said the trend is not surprising given the sharp increase in demat account openings over the past few years.

"It makes sense given how many new demat accounts have opened over the last couple of years. The relaxation allowing LTCG up to ₹1.25 lakh to be reported through the simpler ITR-1 or ITR-4 has helped, but a lot of first-time investors still do not realise that even small gains need to be disclosed. They assume anything under the exemption threshold does not need reporting."

He added that many taxpayers manually enter capital gains instead of relying on broker-reported information reflected in the AIS, increasing the chances of mismatches and automated notices.

The mistakes tax experts are seeing most often

CA Abhishek Soni said first-time investors are commonly making four mistakes while reporting capital gains:

• Confusing short-term and long-term capital gains

• Choosing the wrong ITR form

• Incorrectly calculating gains from shares or mutual funds

• Missing important details while reporting capital gains

According to Soni, many taxpayers are still learning how capital gains taxation works, making reporting errors more common during their initial years of investing.

• Whether gains are short-term or long-term

• Whether AIS matches broker statements

• Whether the correct ITR form has been selected

• Whether all capital gains have been disclosed