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ITR-2 — Who Must File and How

ITR-2 is for individuals with capital gains, foreign income, or multiple house properties. Here is who must use it, how capital gains are taxed, and what documents to gather before filing.

Introduction

ITR-2 is the Income Tax Return form for individuals and HUFs whose financial situation goes beyond a simple salary. If you sold shares, a property, or mutual funds; if you have income from foreign sources; or if you have more than one house property with losses brought forward — you file ITR-2.

ITR-2 requires more detail than ITR-1. You must report each capital gains transaction separately, disclose foreign income and assets, and include income from multiple properties. The extra detail is necessary because capital gains and foreign income are taxed differently from salary income.

Key facts

Who must file ITR-2

ITR-2 is for individuals and HUFs who have income from capital gains (shares, mutual funds, property), foreign income or foreign assets, or income from more than one house property with loss carried forward. It is more complex than ITR-1.

Capital gains included

ITR-2 includes Schedule SH (short-term capital gains) and Schedule CG (long-term capital gains) from the sale of shares, mutual funds, property, and other capital assets. Each transaction must be reported with the date of sale, date of acquisition, and gain or loss.

Foreign income and assets

ITR-2 requires disclosure of foreign income (salary, interest, dividends from overseas), foreign assets (bank accounts, immovable property, shares in foreign companies), and foreign financial accounts. This is required under the Foreign Account Tax Compliance Act (FATCA) and Indian tax law.

Not for business income

If you have income from a business or profession, you must use ITR-3, not ITR-2. ITR-2 covers only capital gains, foreign income, and passive income — it does not accommodate the profit and loss statement required for business income.

Capital gains rates at a glance

Asset type Short-term rate Long-term rate
Listed equity shares 20% (with STT) 12.5% (with STT)
Equity mutual funds 20% (with STT) 12.5% (with STT)
Property (immovable) Slab rates 20%
Debt mutual funds Slab rates 20%

Frequently asked questions

I sold shares during the year — do I need to file ITR-2?
If the sale of shares results in a long-term or short-term capital gain, you must report it in your ITR. For listed shares with STT paid, you can use ITR-1 if your other income qualifies. For all other capital gains (property, unlisted shares, mutual funds without STT), ITR-2 is required. If in doubt, use ITR-2 to be safe — it accommodates both.

How are capital gains taxed in ITR-2?
Short-term capital gains (STCG) on listed shares and equity mutual funds are taxed at 20% (with STT). Long-term capital gains (LTCG) on listed shares are taxed at 12.5% (with STT). Other capital gains are taxed per slab rates for short-term and 20% for long-term. ITR-2 computes each type separately in the appropriate schedule.

Do I need to disclose foreign bank accounts in ITR-2?
Yes. If you have a foreign bank account, foreign financial account, foreign immovable property, or foreign assets, you must disclose them in the Foreign Assets section of ITR-2. This is required under Section 139 of the Income Tax Act 2025. Failure to disclose foreign assets is a serious compliance issue.

Can I use ITR-2 if I have a home loan?
Yes. You can include home loan interest in ITR-2. Under the new regime, interest on self-occupied property is capped at ₹2 lakh per year. Under the old regime, the full interest is deductible. ITR-2 handles both regimes and applies the appropriate deduction.

What happens if I file ITR-1 when I should have filed ITR-2?
Filing the wrong ITR form triggers a notice from the CPC under Section 139(9) of the Income Tax Act 2025 asking you to file the correct return. You can file a revised return using ITR-2 before the CPC processes the original, or respond to the notice with the corrected ITR-2.

Sources

Last reviewed by FinWiz24 Research Desk.