How to File ITR for Stock Market Gains

If you bought or sold stocks, mutual funds, or traded F&O during the financial year, you must report those transactions in your Income Tax Return. ITR-1 (Sahaj) — the form most salaried Indians use — does not support capital gains. You need ITR-2 or ITR-3, and you need to fill out Schedule CG correctly. Getting this wrong is the single most common reason retail investors receive Income Tax notices.

This guide walks through the entire process step by step, with specific examples from Zerodha and Groww — the two platforms most Indian retail investors use.

Step 1 — Which ITR form do you need?

ITR-2: Capital gains only (no F&O)

File ITR-2 if you have:

• Salary income
• Capital gains from equity (stocks, ETFs)
• Capital gains from mutual fund redemptions
• Capital gains from property sale
• Income from other sources (FD interest, savings interest, dividends)
• No business or professional income
• No F&O trading

Key rule: The moment you have even ₹1 of capital gains, you cannot use ITR-1. This catches many salaried investors off guard — they file ITR-1 out of habit, and the system either rejects it or they get a notice later when AIS data shows stock transactions.

ITR-3: F&O trading income (business income)

F&O (Futures and Options) trading is classified as “speculative business income” for futures and “non-speculative business income” for options under Section 43(5) of the Income Tax Act. This requires ITR-3.

If you traded even one F&O contract during the year, you need ITR-3. You can still report salary, capital gains, and other income in ITR-3 — it's a superset of ITR-2. The reverse is not true: you cannot report F&O income in ITR-2.

Common confusion: intraday equity trading

Intraday equity trading (buy and sell same stock on the same day) is classified as “speculative business income” — same as F&O. If you did intraday trades, you need ITR-3 even if you didn't trade F&O. Many Zerodha/Groww users do accidental intraday trades (intended to deliver but sold same day) without realising the ITR implication.

Step 2 — Download your broker P&L and tax report

Zerodha (Console)

1. Log in to console.zerodha.com
2. Navigate to Reports → Tax P&L
3. Select the financial year (e.g., FY 2025-26: April 2025 – March 2026)
4. Download the Tax P&L report — this gives you a complete breakdown of:
   • Realised STCG and LTCG for each stock
   • STT (Securities Transaction Tax) paid
   • Turnover for F&O (if applicable)
   • Speculative (intraday) P&L
5. Zerodha also integrates with Quicko and ClearTax for one-click ITR filing — the P&L data auto-populates into Schedule CG

Groww

1. Log in to groww.in
2. Navigate to Profile → Tax Centre (or Reports → Tax Reports)
3. Select the financial year
4. Download the Capital Gains Statement and P&L Statement
5. Groww provides a categorised breakdown: equity delivery, mutual funds, and F&O

Other brokers

Angel One, Upstox, ICICI Direct, and 5Paisa all provide similar tax P&L reports. The location varies — usually under “My Account,” “Reports,” or “Tax Statements.” If your broker doesn't provide a clean P&L, download your contract notes and use a service like Quicko or ClearTax to compute gains.

Multiple broker accounts

If you trade on multiple platforms (e.g., Zerodha for equity, Groww for mutual funds), you must consolidate gains from all brokers. The ITR requires total STCG and LTCG, not broker-wise breakdowns. Services like Quicko let you import from multiple brokers.

Step 3 — Fill Schedule CG (Capital Gains)

Section 111A — Short-Term Capital Gains (STCG)

Equity shares and equity mutual funds sold within 12 months of purchase are taxed under Section 111A at a flat rate of 20% (post-Budget 2024). STT must have been paid at the time of sale for this section to apply.

In Schedule CG of the ITR form:

• Navigate to Section B — Short Term Capital Gains
• Under “From sale of equity share or unit of equity oriented mutual fund on which STT is paid,” enter your total STCG amount
• Enter total sale consideration and total cost of acquisition (from broker P&L)
• The system auto-calculates STCG and applies 20% tax

Section 112A — Long-Term Capital Gains (LTCG)

Equity shares and equity mutual funds sold after 12 months of purchase are taxed under Section 112A at 12.5% on gains exceeding ₹1.25 lakhper financial year (post-Budget 2024).

In Schedule CG:

• Navigate to Section D — Long Term Capital Gains
• Under Section 112A, enter: total sale consideration, cost of acquisition (with grandfathering adjustment if applicable), and deductions
• The ₹1.25 lakh exemption is applied automatically by the ITR utility
• Only gains above ₹1.25 lakh are taxed at 12.5%

The grandfathering rule for pre-2018 holdings

If you held equity shares before January 31, 2018, you get a special cost step-up. The “cost of acquisition” for LTCG calculation is the higher of:

• Your actual purchase price, OR
• The fair market value (FMV) on January 31, 2018 (the highest traded price on that date on the relevant exchange)

But: the stepped-up cost cannot exceed the actual sale price. If you bought at ₹100, FMV on Jan 31, 2018 was ₹500, and you sold at ₹400 — your cost of acquisition is ₹400 (capped at sale price), resulting in zero LTCG.

Example: You bought Reliance Industries at ₹450 in 2015. FMV on Jan 31, 2018 was ₹935. You sell at ₹1,300 in 2026. Your cost of acquisition is ₹935 (higher of ₹450 and ₹935). LTCG = ₹1,300 − ₹935 = ₹365 per share. Without grandfathering, LTCG would be ₹850 per share. The rule saves significant tax on pre-2018 holdings.

Scrip-wise or aggregate reporting?

The ITR form allows both scrip-wise (individual stock-by-stock) and aggregate reporting. For most retail investors, aggregate reporting is sufficient: total sale consideration, total cost of acquisition, total STCG, total LTCG. However, if you have grandfathered holdings, you'll need to calculate scrip-wise to apply the step-up correctly for each stock.

Step 4 — Report F&O income (if applicable)

F&O is business income, not capital gains

This is the most common mistake: reporting F&O gains in Schedule CG. F&O trading is business income under Indian tax law. It goes in Schedule BP (Business and Profession), not Schedule CG.

Calculating turnover for F&O

Turnover calculation for F&O is not intuitive. It is NOT the traded value of contracts. The correct formula:

• Futures: Absolute sum of (settlement price − trade price) for each trade. Both profits and losses are counted as positive numbers.
• Options: Absolute sum of trade-level profits and losses + premium received on options sold.

Why turnover matters: If F&O turnover exceeds ₹10 crore, tax audit under Section 44AB is mandatory. Between ₹2 crore and ₹10 crore, audit is required if profit is less than 6% of turnover (8% for non-digital transactions). Most retail traders fall under ₹2 crore turnover and can use presumptive taxation (Section 44AD) if profitable, or report actual P&L if they want to carry forward losses.

Carrying forward F&O losses

If you made a net loss in F&O trading, you can carry it forward for up to 8 assessment years and set it off against future non-speculative business income. But: the ITR must be filed before the due date (July 31 for non-audit cases) for the carry-forward to be valid. Late filing = loss carry-forward forfeited.

Step 5 — Verify against AIS/TIS and submit

Annual Information Statement (AIS)

The Income Tax department now has access to all your financial transactions via the Annual Information Statement. This includes:

• Every stock/MF transaction reported by your broker via STT/CTT data
• Dividend income reported by companies
• Interest income from banks
• High-value transactions (property, jewellery)

Before filing, log in to incometax.gov.in → AIS and compare your reported figures with the AIS data. Mismatches trigger automated notices — the system sends these without human review. Even a ₹500 mismatch can generate a notice.

Taxpayer Information Summary (TIS)

The TIS is a processed version of AIS that shows derived income and tax computation. Review the TIS to ensure the department's view of your income matches your ITR. If you find errors in AIS (e.g., duplicate transactions, wrong amounts), use the “feedback” feature to flag them before filing.

E-verification

After filing, e-verify your ITR within 30 days. Options: Aadhaar OTP, net banking, bank account EVC, demat account EVC, or physical ITR-V to CPC Bangalore. Aadhaar OTP is the fastest — 2 minutes. Un-verified ITRs are treated as not filed.

Common mistakes that trigger notices

1. Missing STT credit

STT (Securities Transaction Tax) is paid on every equity transaction and is not deductible as an expense for capital gains computation. However, many investors forget to claim STT paid as an expense under F&O business income (where it IS deductible). This reduces taxable F&O income.

2. Wrong ITR form

Filing ITR-1 when you have capital gains, or ITR-2 when you have F&O income. The system may accept the wrong form initially but send a defective return notice later. Always use the correct form from the start.

3. Not reporting mutual fund capital gains

Switching between mutual fund schemes (e.g., moving from regular to direct plan) is a redemption + new purchase — it triggers capital gains. Many investors treat switches as non-taxable events. They're not. The same applies to SWP (Systematic Withdrawal Plan) transactions.

4. Wrong turnover calculation for F&O

Using contract value instead of the profit/loss-based turnover formula. This can accidentally push your turnover above the audit threshold, creating unnecessary compliance burden. Or worse, understating turnover and missing the audit requirement.

5. Missing dividend income

Since 2020, dividends are taxable in the hands of the investor at slab rates. Companies report dividend payments to the IT department. If you received dividends and didn't report them, AIS will flag the mismatch. Even ₹200 in dividends from a small holding must be reported under “Income from Other Sources.”

6. Not applying grandfathering for pre-2018 stocks

If you held stocks before Jan 31, 2018 and sold them, using actual purchase cost instead of the stepped-up FMV means you're overpaying tax. This is not a mistake that triggers a notice — it's a mistake that costs you money. Always check if grandfathering applies.

7. Filing after the due date when carrying forward losses

Capital losses and F&O business losses can only be carried forward if the ITR is filed on or before the due date (usually July 31). Filing a belated return on September 15 means all losses for that year are permanently forfeited — you cannot set them off against future gains.

The filing checklist

Before you hit “Submit,” verify these items:

1. Correct ITR form selected (ITR-2 or ITR-3)
2. All broker P&L statements downloaded and consolidated
3. STCG entered under Section 111A in Schedule CG
4. LTCG entered under Section 112A with grandfathering applied
5. ₹1.25 lakh LTCG exemption accounted for
6. F&O income in Schedule BP (not Schedule CG)
7. F&O turnover calculated correctly (profit/loss method)
8. Dividend income reported under Income from Other Sources
9. AIS/TIS cross-checked for mismatches
10. Filed before July 31 deadline (to preserve loss carry-forward)
11. E-verified within 30 days of filing

Tax filing for stock market gains looks intimidating the first time. But once you've done it once with the right broker P&L and the checklist above, subsequent years take 30-45 minutes. The cost of getting it wrong — notices, penalties, lost loss carry-forwards — far exceeds the cost of spending an extra hour getting it right.