What Happens If I Don't Report Capital Gains?

A common assumption among investors is that small or occasional gains might simply go unnoticed. In reality, your broker and depository report your transactions to the Income Tax Department through the Annual Information Statement (AIS) and Statement of Financial Transactions (SFT), and these are cross-checked against your filed return through automated systems.

• A notice under Section 143(1) or Section 148, questioning income that appears to have escaped assessment

• Interest under Sections 234A, 234B, and 234C on the unpaid tax, calculated back to the original due date

• A penalty for under-reporting or misreporting income under Section 270A, which can range from 50% to 200% of the tax on the under-reported amount

• In serious or deliberate cases, prosecution provisions under the Income Tax Act may apply, though this is generally reserved for significant, repeated concealment

Even modest profits from occasional trades need to be reported. The threshold that matters for LTCG is the ₹1.25 lakh annual exemption on tax payable, not an exemption from disclosure — gains below that threshold still need to appear in your return, they simply won't be taxed.

The tax department's response tends to differ based on whether a mismatch looks like an honest oversight or a deliberate attempt to conceal income. Voluntarily correcting an error through a revised or updated return, before the department flags it, is treated far more leniently than waiting to be caught.

Interest accrues from the original due date regardless of when you eventually pay, meaning delay itself carries a direct financial cost even before penalties enter the picture. The earlier a genuine oversight is corrected, the smaller the eventual bill.

Given how thoroughly transaction data is already tracked and cross-verified, treating capital gains reporting as optional or negotiable is a real financial risk, not a grey area. Filtered via Mahir Screener, disciplined investors already track their holdings closely for research purposes — extending that same discipline to tax reporting is a small additional step with an outsized downside if skipped.