ITR-2 vs ITR-3: Which Form Should You File for Capital Gains?

If you have earned capital gains from selling stocks, mutual funds, or property during the financial year, you cannot file the basic ITR-1 (Sahaj). You will need to use either ITR-2 or ITR-3, and choosing the wrong form can lead to defective returns and notice from the Income Tax Department.

ITR-2: For Individuals With Capital Gains (Not Business Income)

ITR-2 is the correct form if you have income from:

• Capital gains (equity, debt funds, real estate, gold, etc.).
• Salary or pension income.
• More than one house property.
• Foreign income or foreign assets.
• Agricultural income above ₹5,000.

If you sold stocks, redeemed mutual funds, or sold your apartment, and you do not have any business or professional income, ITR-2 is your form.

ITR-3: For Professionals and Business Owners With Capital Gains

ITR-3 is for individuals and HUFs who have income from a proprietary business or profession. If you are a freelancer, consultant, trader in derivatives/futures, or run any business — even if you also have capital gains — you must file ITR-3. Derivative trading (F&O) is treated as business income, not capital gains, and this alone requires ITR-3.

Common Mistakes to Avoid

• Filing ITR-1 when you have LTCG above ₹1 lakh from equity — this is incorrect and results in a defective return notice.
• Reporting intraday equity trading as capital gains rather than speculative business income.
• Missing the disclosure of foreign mutual fund investments in Schedule FA if you hold any international ETFs or funds.