Where long-term gains go on your ITR form

Long-term capital gains from mutual funds are reported in Schedule CG (Capital Gains) of your ITR form, not in the main income section. The specific line depends on whether your gain is taxable at a flat rate or at your regular income tax rate — this depends on the fund type and how long you held it.

For equity mutual funds held over one year, gains up to ₹1 lakh per financial year are tax-free under Section 112A. Gains above that amount are taxed at 20 percent. For debt mutual funds held over three years, gains are taxed at your slab rate after indexation benefit. Non-resident Indians (NRIs) and foreign nationals follow different rules and should check their treaty status before filing.

You will need the cost of acquisition, the sale price, the date you bought the units, and the date you sold them. Your mutual fund statement or consolidated account statement (CAS) from CAMS or Karvy will have most of this information.

Key Takeaways

  • Long-term gains from equity mutual funds held over one year go in Schedule CG, with the first ₹1 lakh per year tax-free and amounts above that taxed at 20 percent.
  • Debt mutual fund gains held over three years are reported in Schedule CG and taxed at your income tax slab rate after indexation benefit is applied.
  • You need the purchase date, sale date, cost of acquisition, and sale proceeds — all available on your mutual fund statement or CAS.
  • If you sold units in multiple tranches or at different times, each sale is a separate transaction and must be listed separately in Schedule CG.

How to calculate your long-term gain

Long-term capital gain is the difference between what you sold the units for and what you paid for them. The formula is: Sale Price minus Cost of Acquisition equals Long-Term Capital Gain.

For equity mutual funds, you use the actual cost of acquisition — the price you paid per unit times the number of units sold. For debt mutual funds, you calculate indexation benefit first, which reduces your taxable gain. Indexation adjusts your cost of acquisition for inflation using the Cost Inflation Index (CII) published by the Income Tax Department each year.

If you bought units on different dates at different prices, you must calculate the gain for each batch separately using the cost of that specific batch. Most fund houses use the FIFO method (first in, first out) by default, meaning the oldest units are sold first — but you can request a different method if your fund house allows it.

Filling in Schedule CG on your ITR

Schedule CG has separate sections for short-term and long-term gains. You will use the long-term section. Enter the date of acquisition, date of sale, cost of acquisition, and sale price for each transaction. The form will calculate the gain automatically.

If you sold the same mutual fund multiple times in the same financial year, each sale is a separate line in Schedule CG. Do not combine them into one entry. The form will add up all your long-term gains and show the total at the bottom of the schedule.

For debt mutual funds, you will also need to enter the Cost Inflation Index for the year of acquisition and the year of sale. These are published by the Income Tax Department and are available on the income tax website. The indexation benefit is calculated as: (CII of year of sale divided by CII of year of acquisition) minus 1, multiplied by your cost of acquisition.

When to use the tax-free threshold for equity funds

If your total long-term gains from equity mutual funds in a financial year are ₹1 lakh or less, you do not have to pay tax on them under Section 112A. You still need to report them in Schedule CG, but the tax will show as zero.

The ₹1 lakh limit applies to each financial year separately. If you made ₹80,000 in gains in one year and ₹50,000 in the next year, both years are tax-free. If you made ₹1.2 lakh in one year, only ₹1 lakh is tax-free and ₹20,000 is taxed at 20 percent.

This threshold applies only to equity mutual funds and equity-linked savings schemes (ELSS). Debt funds, balanced funds, and other categories do not get this benefit.

Reporting gains from debt mutual funds and balanced funds

Debt mutual funds held for more than three years are taxed as long-term gains at your regular income tax slab rate, but you get indexation benefit to reduce the taxable amount. Balanced funds and hybrid funds are treated as debt funds if they hold more than 50 percent debt.

To calculate your taxable gain, multiply your cost of acquisition by the indexation factor. The indexation factor is the CII of the year of sale divided by the CII of the year of acquisition. Subtract this indexed cost from your sale price to get your taxable long-term gain.

Report this in Schedule CG under the long-term section. The tax will be calculated at your slab rate — if you are in the 30 percent bracket, your long-term gain from debt funds will be taxed at 30 percent, not at a flat rate like equity funds.

Documents you need to keep

Keep your mutual fund statement or CAS showing the units purchased, the date, and the price per unit. Keep your sale confirmation showing the units sold, the date, and the sale price per unit. Keep any communication from your fund house about the method used to calculate which units were sold (FIFO, LIFO, or specific identification).

If you claimed indexation benefit on a debt fund, keep a note of the CII values you used for the year of acquisition and the year of sale. The Income Tax Department may ask for these documents if they audit your return, and you will need them to prove your calculation is correct.

Keep these documents for at least six years from the date you filed your return. The statute of limitations for income tax assessments is generally three years, but can extend to six years or longer in certain cases.

What happens if you make a mistake on Schedule CG

If you filed your ITR and later realized you made an error in Schedule CG — such as entering the wrong sale price or forgetting a transaction — you can file a revised return (ITR-V) within two years from the end of the financial year in which you filed the original return.

A revised return replaces your original return completely, so make sure all the information in it is correct before you file. You cannot file a revised return after the income tax department has issued a notice of assessment or started an audit.

If the error results in you paying less tax than you should have, you may face interest and penalties. If it results in you paying more tax, you can claim a refund once the revised return is processed.

Frequently Asked Questions

Do I have to report long-term gains if they are below ₹1 lakh?

Yes, you must report all long-term gains in Schedule CG, even if they are below ₹1 lakh and tax-free. The tax will show as zero, but the transaction must appear on your return. Not reporting a transaction, even if it is tax-free, can raise questions during an audit.

What is the difference between cost of acquisition and cost of investment?

Cost of acquisition is the price you paid per unit times the number of units you sold. Cost of investment is the total amount of money you put into the fund over time. For calculating capital gains, you use cost of acquisition for the specific units you sold, not your total investment.

Can I use the average cost method instead of FIFO?

Most mutual fund platforms use FIFO by default, but some allow you to choose a different method. Check with your fund house or broker whether they support average cost or specific identification. If they do, you can request it in writing before you sell. The method you choose must be consistent across all your transactions in that fund.

How do I know which year's CII to use for indexation?

Use the CII of the financial year in which you acquired the units (the year you bought them) and the CII of the financial year in which you sold them. The Income Tax Department publishes CII values on its website each year. For example, if you bought units in FY 2020-21 and sold them in FY 2023-24, use the CII for 2020-21 and 2023-24.

What if I sold mutual fund units but did not receive the money yet?

Report the gain in the financial year in which you sold the units, not the year in which you received the money. The sale date is when the transaction was processed by your fund house, not when the money hit your bank account. This is the date shown on your sale confirmation statement.