Capital Gains in ITR-1 for AY 2026-27: Eligibility Guide
If you earned profits from selling shares or equity mutual funds in FY 2025-26, you may be wondering: Can I report capital gains in ITR-1 for Assessment Year 2026-27?
The rules have changed in recent years, and many taxpayers are confused about Capital Gains in ITR-1 in Assessment Year 2026-27. This guide explains who can use ITR-1, when you must switch to ITR-2, and how the Section 112A exemption limit of ₹1,25,000 works for AY 2026-27.
Let’s break it down in simple terms.
Capital Gains in ITR-1 in Assessment Year 2026-27: What Is Allowed?
Bottom line: You can file ITR-1 (Sahaj) in AY 2026-27 even if you have certain long-term capital gains (LTCG), but only under specific conditions.
As per the Income Tax Department’s notified ITR forms for recent years, resident individuals can use ITR-1 if they have:
- Income up to ₹50,00,000
- Salary or pension income
- One house property
- Other sources (interest, family pension, etc.)
- Long-term capital gains under Section 112A up to ₹1,25,000
Reference: ITR form instructions available on the official Income Tax Department portal.
Can I File ITR-1 with LTCG Under Section 112A Up to ₹1,25,000?
Yes, you can. But only if all conditions below are satisfied.
✅ You CAN file ITR-1 if:
- You are a resident individual
- Your total income does not exceed ₹50,00,000
- Your LTCG is:
- Under Section 112A
- From sale of listed equity shares or equity-oriented mutual funds
- On which STT (Securities Transaction Tax) has been paid
- Limited to ₹1,25,000
❌ You CANNOT file ITR-1 if:
- LTCG exceeds ₹1,25,000
- You have short-term capital gains (STCG) under Section 111A
- You have capital gains from:
- Property
- Gold
- Unlisted shares
- Foreign shares
- Crypto or virtual digital assets
- You are a non-resident
- You have more than one house property
In these cases, you must use ITR-2.
Section 112A Exemption Limit ₹1,25,000 AY 2026-27 Explained
Under Section 112A of the Income Tax Act, 1961, LTCG on listed equity shares and equity-oriented mutual funds is taxed at 10% (plus applicable surcharge and cess) without indexation.
For AY 2026-27:
- First ₹1,25,000 of LTCG is exempt
- Gains above ₹1,25,000 are taxed at 10%
Official provision reference: Section 112A as per the Income Tax Act, 1961.
Example
Rohit sold equity mutual funds in FY 2025-26:
- LTCG: ₹1,10,000
- Other income: ₹8,50,000
Since LTCG is below ₹1,25,000, it is fully exempt.
He can file ITR-1 for AY 2026-27.
Now consider:
- LTCG: ₹1,80,000
Taxable LTCG = ₹55,000 (₹1,80,000 – ₹1,25,000)
In this case, he cannot use ITR-1. He must file ITR-2.
ITR-1 vs ITR-2 for Capital Gains AY 2026-27
This is one of the most searched queries: ITR-1 vs ITR-2 for capital gains AY 2026-27.
Here is a clear comparison:
| Particulars | ITR-1 | ITR-2 |
|---|---|---|
| LTCG under Section 112A up to ₹1,25,000 | ✅ Allowed | ✅ Allowed |
| LTCG above ₹1,25,000 | ❌ Not allowed | ✅ Allowed |
| STCG under Section 111A | ❌ Not allowed | ✅ Allowed |
| Property sale gains | ❌ Not allowed | ✅ Allowed |
| Crypto gains | ❌ Not allowed | ✅ Allowed |
| Total income limit | ₹50,00,000 | No such limit |
If you have even ₹1 of STCG under Section 111A, you must file ITR-2.
STCG Under Section 111A in ITR-1 Filing Rules
Short-Term Capital Gains (STCG) under Section 111A arise when:
- Listed equity shares or equity mutual funds are sold
- Holding period is less than 12 months
- STT is paid
Tax rate: 15% plus surcharge and cess, as per Section 111A.
Reference: Section 111A – Income Tax Act
Important Rule for AY 2026-27
If you have any STCG under Section 111A, even ₹5,000:
➡ You cannot file ITR-1
➡ You must file ITR-2
This is a strict condition in the ITR eligibility instructions issued by the Income Tax Department.
How to Report Equity LTCG in ITR-1 AY 2026-27
If eligible, here is how you report capital gains in ITR-1:
Step 1: Collect Required Documents
- Broker capital gains statement
- AIS (Annual Information Statement)
- Form 26AS
Available at: Compliance Portal – AIS
Step 2: Verify LTCG Amount
Ensure:
- Gains are strictly under Section 112A
- Total LTCG does not exceed ₹1,25,000
- No STCG exists
Step 3: Enter Details in ITR-1
In the capital gains section:
- Report total sale consideration
- Report cost of acquisition (grandfathering rules apply for shares purchased before 31 January 2018)
- Confirm net LTCG does not exceed ₹1,25,000
The system auto-validates eligibility. If limits are crossed, the utility may prompt you to switch to ITR-2.
Common Questions on Capital Gains in ITR-1 for AY 2026-27 Eligibility Rules
1. Can I file ITR-1 if my LTCG is ₹1,25,001?
No. Even ₹1 above ₹1,25,000 makes you ineligible.
2. Does the ₹1,25,000 limit apply before or after set-off?
It applies to net LTCG under Section 112A after adjustment of losses.
3. Can I claim capital loss in ITR-1?
No. If you want to:
- Carry forward capital losses
- Set off capital losses
You must file ITR-2.
4. What about dividends from shares?
Dividends are taxed under Income from Other Sources.
They do not affect ITR-1 eligibility unless total income exceeds ₹50,00,000.
Practical Scenarios for AY 2026-27
Scenario 1: Salaried Employee with Small Equity Gains
- Salary: ₹18,00,000
- LTCG (equity MF): ₹95,000
- No STCG
✅ Eligible for ITR-1
Scenario 2: Investor with Mixed Gains
- Salary: ₹22,00,000
- LTCG: ₹90,000
- STCG: ₹30,000
❌ Cannot file ITR-1
✅ Must file ITR-2
Scenario 3: High LTCG Investor
- Salary: ₹15,00,000
- LTCG: ₹2,40,000
❌ Must use ITR-2
Key Mistakes to Avoid While Filing
Many taxpayers receive notices due to mismatch with AIS.
Avoid these errors:
- Ignoring small STCG entries
- Not reconciling broker statement with AIS
- Choosing ITR-1 despite ineligibility
- Forgetting to report exempt LTCG
Always cross-check with:
- AIS
- Form 26AS
- Broker tax statement
The Income Tax Department uses data analytics to match reported capital gains with market transaction data.
Final Checklist: Capital Gains in ITR-1 for AY 2026-27
Before filing ITR-1, confirm:
- ✅ Resident individual
- ✅ Income below ₹50,00,000
- ✅ Only LTCG under Section 112A
- ✅ LTCG not exceeding ₹1,25,000
- ✅ No STCG under Section 111A
- ✅ No other capital gains
If any condition fails, choose ITR-2.
Conclusion: Choose the Correct ITR Form for AY 2026-27
Understanding Capital Gains in ITR-1 in Assessment Year 2026-27 is crucial to avoid defective return notices.
You can file ITR-1 only if your Section 112A exemption limit of ₹1,25,000 for AY 2026-27 is not breached and you have no STCG under Section 111A. Otherwise, shift to ITR-2 for capital gains AY 2026-27.
Before filing, reconcile your AIS, verify equity LTCG figures, and ensure eligibility. Filing the correct form ensures faster processing and avoids compliance issues.
If you earned equity LTCG in FY 2025-26, review your numbers carefully and file the appropriate return well before the due date.
This content is AI Generated, use for reference only.
