1. Introduction

1.1 Digital Filing & Emerging Technical Risks

India's digital-first filing architecture has increased efficiency but introduced dependency on stable utilities. In AY 2025-26, multiple taxpayers reported that the ITR utility rejected or mis-processed negative capital gains (losses), leading to incorrect tax calculations and potential loss of statutory loss-carryforward rights.

1.2 Significance for Equity & Fairness

Accurate capture of capital losses is essential for correct tax computation, avoidance of cascading tax, and preservation of taxpayers' rights. Any technical barrier that prevents recording losses undermines tax fairness.

2. Background — Capital Gains & Negative Values

2.1 Calculation Basics

Capital gains are computed as sale consideration minus cost of acquisition (and indexed cost, where relevant) and allowable transfer expenses. Negative results denote capital losses—short-term or long-term—which are set off, carried forward, and crucial for tax planning.

2.2 Role of Schedules in ITR

Schedules such as Schedule CG, BFLA and CFL are designed to capture gains, set-offs and carry-forward losses. The utility must accept positive, zero and negative values reliably across these schedules.

3. Nature of the Glitch

3.1 Validation Rejections

Many users experienced validation errors: negative entries rejected, auto-zeroing of fields, or XML/JSON generation failures. This primarily affected capital gains schedules and downstream set-off computations.

3.2 Inconsistent Behaviour Across Utilities

The offline Java/Excel utilities, online ITR portal, and prefilled AIS data sometimes behaved inconsistently—accepting negatives in one interface but rejecting them in another—creating confusion for filers and advisors.

3.3 Auto-Calculation Failures

Even when negative values were accepted, auto‑calculation modules occasionally ignored these for set-off computations, resulting in overstated taxable income.

4. Root Causes

4.1 Schema & Data Type Mismatches

Backend JSON/XML schemas may incorrectly constrain fields to unsigned numbers or positive-only types. This technical mis-specification is a primary cause of rejections.

4.2 AIS/TIS Prefill Discrepancies

Prefill data from AIS/TIS occasionally lacks purchase/acquisition details. When only sale data arrives, utilities may assume gains and block negative entries unless manual override is allowed.

4.3 Late Utility Updates & Regression Bugs

Rapid mid-season patches to utilities without comprehensive regression testing introduce new bugs—especially for less common scenarios like fractional shares, bonus impacts, or consolidated mutual fund redemptions that produce negative values.

5. Impact Analysis

5.1 Tax Liability Distortion

Failure to report losses causes higher tax liabilities, unfairly increasing tax burdens for affected taxpayers.

5.2 Loss of Carry-Forward Rights

If negative values are not recorded in the return for the relevant year, taxpayers may lose the statutory right to carry forward capital losses for set-off in future years.

5.3 Operational Delays

Tax professionals spend excess hours troubleshooting utilities, applying workarounds, and communicating with clients—delaying filings and increasing compliance costs.

5.4 Administrative Burden

Tax authorities face increased helpdesk loads, revision requests, and potential litigation arising from misreported returns.

6. Interim Workarounds Practiced

6.1 Manual JSON Edits (High Risk)

Advanced practitioners sometimes edit JSON/XML to force negative values. This method is error-prone, unsupported, and may lead to file corruption or rejection.

6.2 Alternative Schedule Entry

Some filers entered zero in the CG schedule and recorded losses in BFLA/CFL manually. This preserves carry-forward in practice but disrupts standard presentation and auto-calculation consistency.

6.3 Using the Online Portal Over Offline Utility

The online ITR form occasionally accepts negative values when the offline utility does not. Filers have shifted to online filing where feasible.

6.4 Awaiting Official Patch

Often the safest approach is to wait for the CBDT release of a tested fix; however this delays compliance and may miss due dates if extensions are not granted.

7. Policy & Governance Implications

7.1 Reliability of Digital Tax Tools

Frequent utility glitches erode public trust. Tax administrations must prioritise robustness, rigorous QA and user communication.

7.2 Fairness & Correctness

Denial of lawful loss reporting undermines the fundamental tax principle of correctly assessing taxable ability, and can be challenged on grounds of natural justice.

7.3 Administrative Efficiency

Resolving these issues proactively reduces downstream burdens—helpdesk requests, corrigendum filings, and litigations—saving administrative resources.

8. Recommended Technical & Administrative Fixes

8.1 Mandate Comprehensive Pre-Release Testing

Utilities should be subjected to exhaustive test suites including negative value scenarios, AIS/TIS mismatch cases, and edge-case capital asset events prior to release.

8.2 Schema Hardened for Signed Numbers

All capital gains-related fields must accept signed decimal numbers, with clear validation messaging rather than hard rejections.

8.3 Graceful Prefill Handling

Prefill modules must allow manual overrides where AIS/TIS data is incomplete and provide clear warnings to filers instead of blocking entries.

8.4 Clear Communication & Temporary Protocols

CBDT should publish official advisories and interim protocols (e.g., accept online entries, automatic carry-forward entitlement if documented) until a patch is released.

8.5 Post‑Issue Reconciliation Window

Introduce a short reconciliation window allowing affected taxpayers to file corrected returns without penalties once the utility issue is resolved.

9. Guidance for Stakeholders

9.1 For Tax Professionals

• Document all attempts and screenshots when filing errors occur.
• Keep client communication transparent—explain workarounds and risks.
• Prefer online filing when it accepts the correct values.

9.2 For Taxpayers & Investors

• Retain broker statements, contract notes and proof of acquisition.
• Do not accept a filing that omits losses without seeking correction.
• Reach out to professionals to record losses in alternate schedules where safe.

9.3 For the Tax Administration

• Prioritise a tested patch and publish clear guidance.
• Provide a penalty‑free correction window for affected returns.
• Enhance the helpdesk and publish FAQs addressing common scenarios.

10. Conclusion

The ITR utility glitch that affects reporting of negative capital gains is a significant technical and policy issue. It impacts taxpayer rights, increases administrative workload, and undermines confidence in digital tax systems. A combination of immediate patches, interim administrative relief and long‑term QA and schema hardening will restore system reliability while protecting taxpayer interests.