How to file ITR-2 with salary plus listed-equity capital gains (AY 2026-27)

Meet Ishan Khurana, 32, a software engineer at Phi Tech Industries in Pune. His employer pays him ₹23.5 lakh a year. On the side, he trades listed equity. During FY 2025-26 he had two material exits:

• Short-term: Sold Lambda Capital shares 5 months after buying. Profit ~₹94,000.
• Long-term: Sold Mu Engineering shares ~3.5 years after buying. Profit ~₹6.99 lakh.

With both kinds of capital gains in the year, ITR-1 is no longer available – ITR-2 takes over. This article walks Ishan through filing ITR-2 manually, captures the post-Finance-Act-2024 rate changes on listed-equity gains, and shows how the Section 87A rebate behaves when special-rate income is involved.

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1. Why ITR-2, not ITR-1?

For AY 2026-27, ITR-1 admits only one kind of capital gain: long-term gain under Section 112A of up to ₹1.25 lakh. A short-term capital gain, or a Section 112A gain above ₹1.25 lakh, rules ITR-1 out. Ishan has both, so ITR-1 is not open to him.

ITR-2 is for individuals and HUFs with:

• Salary / pension
• Up to multiple house properties (no cap)
• Capital gains (any flavour)
• Other sources (incl. winnings, family pension)
• Foreign income, foreign assets (with mandatory Schedule FA)

ITR-2 disqualifies if you have business or profession income (non-presumptive) – those go to ITR-3.

Ishan: salary + CG only. ITR-2 fits.

2. Listed-equity gains – the key sections and rates

Holding period	Section	Tax treatment	Rate (post-23-Jul-2024)
≤ 12 months	111A	STCG, special rate	20% (was 15% pre-Finance Act 2024)
> 12 months	112A	LTCG, first ₹1.25 lakh exempt, balance taxable	12.5% (was 10%)

Both rates apply only to STT-paid, listed-exchange equity (and equity-oriented mutual funds). An off-market sale on which no STT is charged loses the 111A/112A treatment (OTHER_ASSET in BharatTax). A short-term gain is then taxed at slab rates; a long-term gain on listed shares (held for more than 12 months) is taxed under Section 112 at 12.5 per cent for transfers on or after 23 July 2024, without the ₹1.25 lakh exemption.

Critical caveats:

• The ₹1.25 lakh annual exemption under 112A applies across all 112A scrips combined – it’s not per-scrip.
• The new 20% / 12.5% rates apply to sales on or after 23 July 2024. Sales before that date use the old 15% / 10%. BharatTax’s CG engine reads dateOfSale and applies the right rate automatically.
• The Section 87A rebate treats the two special rates differently. Section 112A(6) allows the rebate only against tax on income other than Section 112A gains, under either regime. Under the old regime the rebate can still absorb tax on Section 111A gains. Under the new regime, the second proviso to Section 87A (inserted by the Finance Act 2025 from AY 2026-27) caps the rebate at the tax computed at the Section 115BAC(1A) slab rates, so it does not reach Section 111A tax either. (Ishan gets no rebate in any case – his total income is above both limits.)

3. What you need

Document	Why
Form 16	Salary breakup.
Broker statement / contract notes / capital-gains report	Each transaction’s dates, price, charges. Most brokers (Zerodha, Groww, Upstox, ICICI Direct) issue an annual capital-gains statement that maps directly to BharatTax’s CG schedule.
AIS	Lists every reported sale by ISIN. Catches missed sales – a frequent error.
Demat statements	For ISIN + holding period verification.
PAN, Aadhaar, bank details	Standard.

4. Step-by-step walkthrough

Step 1 – Sign in

Step 2 – Skip last-year import

Step 3 – Personal information

Standard PAN + address + bank, but Ishan’s higher income means he’ll also need to verify any AIS-reported foreign signals (he has none).

Step 4 – Questionnaire signals ITR-2

The crucial question:

• Sources of income: ☑ Salary, ☑ Capital Gains, ☑ Other Sources.

The moment “Capital Gains” is ticked, BharatTax internally re-routes to ITR-2. You’ll see “ITR-2” appear in the form badge at the top of the Income Data dashboard.

Step 5 – Income Data dashboard with CG card

ITR-2’s dashboard shows additional cards: Capital Gains and the disclosure-only Schedule AL (assets/liabilities, mandatory if total income > ₹1 crore) and Schedule FA (foreign assets, mandatory if any foreign holding).

Ishan’s total income will be around ₹30 lakh – below that threshold, so the Schedule AL disclosure is not mandatory for him (see Step 11). For AY 2026-27 the ITR-2 validation rules require Schedule AL only where total income exceeds ₹1 crore.

Step 6 – Salary

Same flow as ITR-1 articles:

• Employer: Phi Tech Industries Pvt Ltd, TAN PUNP12345D
• Basic: ₹15,00,000
• HRA: ₹6,00,000
• Special: ₹2,50,000
• Profession tax: ₹2,500
• TDS: ₹2,50,000

Gross salary ₹23,50,000.

Step 7 – Capital Gains schedule

Click View on the Capital Gains card. The CG schedule editor opens. Click + Add Transaction.

STCG 111A (Lambda Capital Ltd)

• Asset Type: Listed Equity (STT paid) – Section 111A
• Description: Lambda Capital Ltd – short-term
• Date of purchase: 10-Mar-2025
• Date of sale: 22-Aug-2025
• ISIN: INE100A01010
• Sale consideration (full value): ₹5,00,000
• Cost of acquisition: ₹4,05,000
• Expenses on transfer (brokerage + stamp + transaction charges; STT is not deductible): ₹1,000

BharatTax computes:

• Holding period: 5 months (< 12 months) → STCG 111A
• Gain: ₹5,00,000 − ₹4,05,000 − ₹1,000 = ₹94,000
• Tax @ 20% (post-23-Jul-2024 rate): ₹18,800

LTCG 112A (Mu Engineering Ltd)

Click + Add Transaction again.

• Asset Type: Listed Equity (STT paid) – Section 112A
• Description: Mu Engineering Ltd – long-term
• Date of purchase: 14-Jun-2022
• Date of sale: 02-Dec-2025
• ISIN: INE200B02020
• Acquired before 31-Jan-2018? No (so no grandfathering FMV adjustment under the 31-Jan-2018 FMV rule in Sec 55(2)(ac))
• No. of shares: 1,000
• Sale price per share: ₹1,500
• Cost per share: ₹800
• Expenses on transfer: ₹1,500

BharatTax computes:

• Holding: 3.5 years → LTCG 112A
• Gross gain: (1,500 − 800) × 1,000 − 1,500 = ₹6,98,500
• Less: ₹1.25 lakh exempt under 112A: ₹5,73,500 taxable
• Tax @ 12.5% (post-23-Jul-2024 rate): ₹71,688

The “acquired before 31-Jan-2018” toggle. For 112A scrips bought on or before 31 January 2018, Section 55(2)(ac) grandfathers gains accrued up to that date: the cost of acquisition is the higher of actual cost and the lower of FMV on 31 January 2018 and the sale value. Ishan bought Mu in 2022 – well after the cutoff – so this toggle is OFF and FMV doesn’t matter.

Step 8 – Other sources + 80C + 80D

• Savings interest: ₹4,500 (negligible; 80TTA gives full deduction under old)
• 80C: PPF ₹1,50,000
• 80D: Self health insurance ₹25,000

Step 9 – Schedule TI and TTI breakdown

Compared to ITR-1, ITR-2’s TI breaks income into normal-rate and special-rate portions. Critical to read both halves:

Line	New regime	Old regime
Salary (after Sec 16)	₹22,75,000	₹22,97,500
OS (savings interest)	₹4,500	₹4,500
CG (111A ₹94,000 + 112A ₹6,98,500)	₹7,92,500	₹7,92,500
Gross Total Income	₹30,72,000	₹30,94,500
Less: Chapter VI-A (80C + 80D + 80TTA; slab-rate income only)	–	₹1,79,500
Total Income (Sec 288A)	₹30,72,000	₹29,15,000

The ₹1.25 lakh exemption does not reduce total income: Section 112A(2) charges 12.5 per cent only on the gain above ₹1.25 lakh. Chapter VI-A deductions come off gross total income as reduced by Section 111A and 112A gains (Sections 111A(2) and 112A(5)), so they reach only slab-rate income.

Step 10 – Compute and compare

Tax computation splits in two parts: slab tax on non-special income, plus special-rate tax on CG.

	New regime	Old regime
Salary + OS taxable at slab	₹22,79,500	₹21,22,500
Tax at normal rates	₹2,69,875	₹4,49,250
87A rebate	₹0 (TI > ₹12L)	₹0 (TI > ₹5L)
Slab tax	₹2,69,875	₹4,49,250
STCG 111A (₹94,000 × 20%)	₹18,800	₹18,800
LTCG 112A (₹5,73,500 × 12.5%)	₹71,688	₹71,688
Special-rate tax	₹90,488	₹90,488
Cess 4% on (slab + special)	₹14,415	₹21,590
Total tax (rounded under Sec 288B)	₹3,74,780	₹5,61,330
TDS already paid	₹2,50,000	₹2,50,000
Balance payable	₹1,24,780	₹3,11,330

BharatTax recommends New regime – saves approximately ₹1,86,550 (slab portion is significantly cheaper at the widened 4-8-12-16-20-24L bands; special-rate tax is identical).

Why does the special-rate tax not change between regimes? Sections 111A and 112A specify their own rates, independent of the slab system. The choice of slab regime (old vs new) only affects the slab-tax portion. So a high-income equity trader’s regime choice hinges entirely on which slab structure is cheaper for their non-CG income.

Step 11 – Schedule AL (mandatory only where total income > ₹1 crore)

Ishan’s total income is about ₹30 lakh, well below ₹1 crore, so Schedule AL is not mandatory for him (ITR-2 validation rules for AY 2026-27, rule 456).

Step 12 – Confirm regime, download JSON

Confirm New, download ITR-2 JSON, upload to incometax.gov.in.

5. Common mistakes for equity-CG filers

1. Forgetting the 23-Jul-2024 cutoff. Sales BEFORE 23 July 2024 use 15% (STCG 111A) and 10% (LTCG 112A above ₹1L threshold). Sales ON OR AFTER use 20% / 12.5% with ₹1.25L threshold. Every sale in FY 2025-26 falls after the cutoff, so for AY 2026-27 the 20% / 12.5% rates apply throughout.
2. Mixing equity-oriented MFs with debt MFs. Equity-oriented MFs (≥ 65% equity) get 111A/112A treatment. Units of a “specified mutual fund” acquired on or after 1 April 2023 are taxed as short-term capital gains at slab rates whatever the holding period (Section 50AA). From AY 2026-27 a specified mutual fund includes one that invests more than 65 per cent of its proceeds in debt and money-market instruments.
3. Claiming the ₹1.25L exemption per scrip. It’s an aggregate annual exemption across all 112A scrips. Not per-stock.
4. Missing intraday equity gains. Intraday equity is speculative business income under Section 43(5), NOT capital gains. Forces ITR-3, not ITR-2. If you have intraday in addition to delivery-based sales, you’re on the wrong form. (Covered in “ITR-3: salary + intraday speculation”.)
5. Forgetting STT on the off-market exit. If you sold via an off-market deal (not on the exchange), STT was not paid → the sale loses 111A/112A treatment → a short-term gain is taxed at slab rate, and a long-term gain at 12.5 per cent under Section 112 (no ₹1.25 lakh exemption). Use OTHER_ASSET asset type for those.
6. Underreporting AIS-listed sales. AIS lists every broker-reported sale. Cross-check your CG schedule against AIS line items before submitting.
7. No grandfathering for post-2018 acquisitions. The “Acquired before 31-Jan-2018” toggle only applies to scrips bought on or before that date. Don’t toggle it ON for newer purchases – the FMV-cap math doesn’t apply.
8. Confusing 112A (listed equity LTCG) with 112 (everything else LTCG). 112A = listed equity / equity MFs (special rate, 1.25L exemption). Sec 112 = unlisted shares, gold, real estate and other long-term assets – 12.5 per cent for transfers on or after 23 July 2024, with indexation surviving only as an option for land or buildings acquired before that date by a resident individual or HUF.

6. FAQs

Q: I had only ₹50,000 in LTCG 112A this year (under the ₹1.25 lakh exemption). Do I still need to file ITR-2? A: Not necessarily. For AY 2026-27, ITR-1 (and ITR-4) accept long-term gains under Section 112A of up to ₹1.25 lakh, provided nothing else rules the form out – for example a short-term capital gain, a loss brought forward or to be carried forward, or total income above ₹50 lakh. No tax arises on that ₹50,000.

Q: I had a small STCL (short-term capital loss) of ₹20,000 from one stock and a STCG of ₹1,00,000 from another. Net taxable? A: STCL offsets STCG (intra-head set-off under Section 70). Net STCG ₹80,000 → tax @ 20% = ₹16,000. Enter both transactions; BharatTax nets them within Schedule CG.

Q: My broker’s annual capital-gains report shows the rates as 15% and 10% – not 20% and 12.5%. Why? A: The rate turns on the date of transfer. Every sale in FY 2025-26 falls after 23 July 2024, so 20 per cent (Section 111A) and 12.5 per cent (Section 112A, on the gain above ₹1.25 lakh) apply; 15 and 10 per cent applied only to earlier transfers.

Q: I sold US-listed stocks (Apple, Google). Are they 112A too? A: No. Section 112A applies only to STT-paid, India-listed equity. US-listed shares are not listed on a recognised stock exchange in India, so they are long-term only if held for more than 24 months (Section 2(42A)), and a long-term gain is taxed under Section 112 at 12.5 per cent without indexation for transfers on or after 23 July 2024. Plus you have a Schedule FA reporting obligation.

Q: I had an LTCG loss in equity 112A (sold below cost after >12 month hold). Can I set it off against STCG? A: A long-term capital loss can be set off only against long-term capital gains (Section 70(3)), not against STCG. An unabsorbed loss carries forward for eight assessment years, again only against long-term gains (Section 74), if the return is filed within the Section 139(1) time (Section 80).

Q: My CTC includes ESOPs that vested this year. Where do I report? A: Vesting by itself is not taxed. ESOP shares are taxed twice – (i) as a perquisite under Section 17(2)(vi) when the shares are allotted or transferred to you on exercise (taxable as salary, employer adds to Form 16), (ii) capital gain on eventual sale, with the perquisite value as cost (Section 49(2AA)). The allotment-side perquisite is already in your salary schedule via Form 16. The sale-side gain goes in Schedule CG when you sell. Holding period for the CG side starts from the date of allotment or transfer of the shares (Section 2(42A), Explanation 1), not grant or vesting.

Q: I bought shares in a private (unlisted) company. Are 111A/112A applicable on sale? A: No. Unlisted shares are NOT 111A/112A. They go under “Other Asset” with Section 112 treatment. Holding unlisted equity shares at any time during the year also rules out ITR-1, so ITR-2 applies. (Covered in “Director / unlisted shares”.)