ITR-2 (Income Tax Return)

ITR-2 is the Income Tax Return form prescribed by the Central Board of Direct Taxes (CBDT) for use by individuals and Hindu Undivided Families (HUFs) who have income from sources other than profits and gains from business or profession. It is the form most commonly used by salaried employees and pensioners who also have capital gains from the sale of equity shares, equity mutual funds, property, or other assets, but who do not carry on any business activity.

For the assessment year 2025-26 (financial year 2024-25), ITR-2 incorporates substantial revisions reflecting the capital gains reforms enacted in the Finance Act 2024, including the revised rates under Section 111A and Section 112A and the new grandfathering and holding-period provisions.

Who must file ITR-2

ITR-2 is applicable to individuals and HUFs whose income during the relevant financial year includes one or more of the following categories:

1. Salary or pension, including perquisites and allowances.
2. Income from house property, rental income from one or more properties, or deemed rent on multiple self-occupied properties.
3. Capital gains, both short-term and long-term, from equity shares, mutual funds, property, gold, bonds, or any other capital asset.
4. Income from other sources, interest from savings accounts, fixed deposits, dividends, winning from lotteries, etc.
5. Foreign income or assets, any income arising outside India, or any assets held outside India, including foreign bank accounts, foreign equity, or stock options in a foreign company.
6. Agricultural income exceeding Rs 5,000, agricultural income is partially exempt but is aggregated for rate purposes if it exceeds Rs 5,000.

ITR-2 is not applicable to any individual or HUF who has income from business or profession, whether or not the activity is treated as speculative. Persons who trade equity futures and options (F&O) must file ITR-3 , because F&O income is treated as non-speculative business income under the Income Tax Act. Similarly, persons who are partners in a firm or who have carried forward business losses must use ITR-3.

Applicability to equity investors

A pure equity investor, one who buys and holds listed shares or mutual fund units for investment purposes, and who does not engage in intraday trading or F&O, typically files ITR-2. The distinguishing criterion is the absence of business income. Where intraday equity trading is the sole trading activity (no F&O), the position is less clear: intraday equity trades are treated as speculative business income under Section 43(5), which technically requires ITR-3. Investors who inadvertently execute a single intraday trade in an otherwise investment-oriented portfolio should seek professional advice on form selection.

Form structure

ITR-2 is divided into several parts and schedules. For AY 2025-26, the principal components relevant to investors are:

Part A: General information

Contains the taxpayer’s personal details, PAN, Aadhaar, filing status, bank account details for refund, and the tax regime election (old regime versus new regime under Section 115BAC).

Schedule S: Salary income

Details of salary, pension, perquisites, and employer-provided allowances. Taxpayers must report gross salary, allowances claimed as exempt, and net taxable salary after standard deduction.

Schedule HP: House property income

Gross rent received, municipal taxes paid, standard deduction (30%), interest on housing loan, and net income or loss from each property. Losses from house property are subject to the Rs 2,00,000 set-off limit against other heads under the old regime.

Schedule CG: Capital gains

This is the most complex schedule for equity investors. Schedule CG is divided into four sub-sections:

• A: Short-term capital gains taxable at normal slab rates, gains on assets not covered by Sections 111A or 112A (e.g., property held less than 24 months, unlisted shares, debt mutual funds).
• B: Short-term capital gains under Section 111A, listed equity shares and equity-oriented mutual fund units held for less than twelve months and sold through the exchange with STT paid. Taxed at 20% (from 23 July 2024; previously 15%).
• C: Long-term capital gains taxable at normal rates, property, gold, bonds, debt mutual funds held for the required period. Indexation benefit available.
• D: Long-term capital gains under Section 112A, listed equity shares and equity-oriented mutual fund units held for twelve months or more with STT paid. Taxed at 12.5% on gains exceeding Rs 1,25,000 (threshold raised from Rs 1,00,000 by Finance Act 2024).

Within Section D, the taxpayer must separately disclose: the grandfathered cost (applying the grandfathering rule where the asset was held on 31 January 2018), the sale consideration, and the period of holding.

Schedule 112A: Scrip-wise LTCG disclosure

Schedule 112A requires a granular, scrip-by-scrip disclosure of every long-term capital gains transaction covered by Section 112A. For each security sold, the taxpayer must report:

• ISIN (International Securities Identification Number)
• Name of the security
• Number of units sold
• Sale price per unit
• Cost of acquisition per unit (original cost)
• Fair market value as on 31 January 2018 (for shares acquired before that date)
• Deemed cost of acquisition (the higher of original cost and FMV on 31 January 2018)
• Capital gain or loss

For large portfolios with hundreds of transactions, this disclosure can be time-consuming. Most trading platforms provide a downloadable capital gains statement in a format compatible with the ITR utility or third-party tax-filing tools.

Schedule OS: Income from other sources

Dividends received from Indian companies (taxable since AY 2021-22 at slab rates), interest income, and any other residual income. Dividends from foreign companies are also reported here but may be eligible for foreign tax credit relief under Schedule TR.

Schedule TR: Tax relief on foreign income

For taxpayers with foreign income or foreign tax paid, Schedule TR allows credit for taxes paid abroad under Double Taxation Avoidance Agreements (DTAAs) or Section 91 of the Income Tax Act.

Schedule FA: Foreign assets

Mandatory for resident individuals who hold any foreign asset (bank account, equity, immovable property, insurance policy, financial interest, trust, etc.) at any time during the financial year. Non-disclosure of foreign assets attracts penalties under the Black Money Act 2015.

Schedule VIA: Deductions under Chapter VIA

Deductions claimed under Chapter VIA of the Income Tax Act: Section 80C (LIC, PPF, ELSS, tuition fees, housing loan principal), Section 80D (health insurance), Section 80E (education loan interest), Section 80G (donations), and so on. Available only under the old tax regime; taxpayers who opt for the new regime cannot claim most of these deductions.

Key changes for AY 2025-26 (Finance Act 2024)

The Finance Act 2024 introduced several changes that affect ITR-2 for the financial year 2024-25:

1. STCG rate increased to 20%, Section 111A rate increased from 15% to 20% for sales on or after 23 July 2024. Transactions before that date remain at 15%. ITR-2 for AY 2025-26 includes a split period computation for taxpayers who sold shares in both sub-periods.

2. LTCG rate increased to 12.5%, Section 112A rate increased from 10% to 12.5% for sales on or after 23 July 2024. The exemption threshold was simultaneously raised from Rs 1,00,000 to Rs 1,25,000.

3. Indexation removed for property, Long-term capital gains on the sale of property are no longer eligible for indexation if the property is sold on or after 23 July 2024, although a grandfathering provision applies to properties acquired before 2001.

4. Holding period changes for some assets, The holding period to qualify as long-term was reduced to 24 months for unlisted bonds and debentures (from 36 months).

5. Tax regime default, The new tax regime under Section 115BAC is the default for AY 2025-26. Taxpayers who wish to opt for the old regime must select it explicitly in the return.

Due dates

For AY 2025-26, the standard due dates for ITR-2 are:

The CBDT has, in past years, extended the 31 July deadline by notification. Any extension for AY 2025-26 would be announced via official notification and press release.

Mandatory e-filing

ITR-2 must be filed electronically for all taxpayers (except super-senior citizens above 80 years of age who have only salary and interest income, who may file in paper form). E-filing is carried out through the Income Tax portal at incometax.gov.in. The portal offers:

• Online JSON utility, guided, web-based form filling directly in the browser.
• Offline Excel/Java utility, downloadable utility for offline data entry with subsequent upload.
• Pre-filled returns, the portal pre-fills salary, TDS, dividends, and some capital gains data from Form 26AS and AIS, though taxpayers must verify and supplement this data with their own broker statements.

After filing, the return must be verified within 30 days through one of the following methods: Aadhaar OTP, net banking, bank ATM, demat account, or by sending a signed physical ITR-V to the Centralised Processing Centre, Bengaluru.

Verification and processing

Upon successful e-verification, the return enters processing at the Centralised Processing Centre (CPC). An intimation under Section 143(1) is issued within a few months, either confirming the return as filed, raising a demand for additional tax, or issuing a refund. Where the return is selected for scrutiny assessment under Section 143(2), the taxpayer receives a notice within six months of the end of the assessment year.

Refunds (where advance tax and TDS exceed the final tax liability) are credited directly to the bank account provided in the return, typically within four to sixteen weeks of e-verification.

ITR-2 versus ITR-3

The most common source of confusion among active retail investors is whether to file ITR-2 or ITR-3 . The distinguishing criterion is whether any income is treated as business income:

Filing the wrong form does not per se attract a penalty if the total income and tax are correctly disclosed, but it does make the return technically defective and may trigger a notice.

See also

• Capital gains tax in India
• Securities Transaction Tax (STT)
• Section 111A, short-term capital gains on equity
• Section 112A, long-term capital gains on equity
• Grandfathering rule for LTCG
• ITR-3 (Income Tax Return)
• F&O taxation in India
• Tax treatment of listing-day gains
• Annual Information Statement (AIS)

References

1. CBDT, ITR-2 Form and Instructions for AY 2025-26, Income Tax India.
2. Income Tax Act 1961, Sections 111A and 112A, as amended by Finance Act 2024.
3. Finance Act 2024, Clauses relating to STCG/LTCG rate revision and exemption threshold, Ministry of Finance.
4. CBDT Notification, ITR forms for AY 2025-26, published in Official Gazette.
5. Income Tax Act 1961, Section 115BAC (new tax regime), as amended by Finance Act 2023 and Finance Act 2024.
6. CBDT Circular on verification of income tax returns, 30-day e-verification window.