LTCG on Shares? Section 68 Notice Can Wipe Your Gains

Indian investors claiming Long Term Capital Gains on shares face a hidden risk: the tax department can reject your LTCG claim under Section 68 and treat the entire sale proceeds as unexplained income, taxed at 60%. Here's what you must keep on file.

Here's what happened: Income Tax tribunals across India have repeatedly examined LTCG claims on listed shares, especially penny stocks, under Section 68 which treats unverified receipts as unexplained income.. When the tax department cannot verify the genuineness of share purchases or the source of investment funds, it adds the full sale value back to taxable income and taxes it at 60% plus surcharge.. Courts have consistently ruled that taxpayers who produce contract notes, demat statements, bank payment proofs, and STT-paid records can successfully defend their LTCG claims against these additions..

What you should do: Download all contract notes and demat account statements for shares you sold in FY2024-25 before filing your ITR — these are your primary defence documents.. Verify that every share purchase was made through a SEBI-registered broker and that payment was made from your own bank account, not cash — cash purchases are the biggest red flag.. If you receive a scrutiny notice questioning your LTCG, respond within the deadline with a complete paper trail: purchase proof, STT challan, exchange transaction records, and demat holdings history..

STT (Securities Transaction Tax) payment is your single strongest proof that a share transaction was genuine and exchange-traded — always save your broker's STT confirmation separately.

For readers weighing their credit and loan options, our personal loan guide and CIBIL score resources put this update in context.