Property sale? Here’s the ITR mistake that could cost you lakhs in capital gains tax
Section 54 provides relief for gains arising from the sale of a long-term residential house, while Section 54F covers gains from any other long-term capital asset, provided the proceeds are reinvested in a residential property.
- Sep 7, 2025,
- Updated Sep 7, 2025 10:10 AM IST
If you sold a residential property or land in FY 2024-25, the September 15 ITR deadline is approaching fast, and failing to report capital gains or claim exemptions correctly could cost you big.
Individuals who sold property during the financial year must disclose any capital gains in their Income Tax Return (ITR) for AY 2025-26. One of the most effective ways to reduce or eliminate tax on long-term capital gains is by reinvesting in another residential property — a benefit available under Sections 54 and 54F of the Income Tax Act.
Section 54 provides relief for gains arising from the sale of a long-term residential house, while Section 54F covers gains from any other long-term capital asset, provided the proceeds are reinvested in a residential property.
To qualify, the new property must be purchased within one year before or two years after the sale, or constructed within three years. If the entire gain isn’t used, experts say, the unused portion must be deposited into a Capital Gains Account Scheme (CGAS) before the ITR filing deadline. That amount is treated as part of the investment — but the exemption is capped at ₹10 crore of new property cost.
The correct ITR form is crucial. Individuals with capital gains cannot file ITR-1 or ITR-4. Instead, they must use ITR-2 or ITR-3 depending on income sources. In the return, Schedule CG must be filled with sale details, indexed cost, reinvestment data, and CGAS deposit info (if applicable).
If only a part of the capital gain is reinvested, the remaining amount is taxable. For transfers before July 23, 2024, the tax is 20% with indexation; for transfers on or after that date, it’s 12.5% without indexation. Tax must be paid via advance or self-assessment before filing the ITR.
Importantly, if CGAS funds remain unused after three years, they become taxable in the year the deadline lapses.
If you sold a residential property or land in FY 2024-25, the September 15 ITR deadline is approaching fast, and failing to report capital gains or claim exemptions correctly could cost you big.
Individuals who sold property during the financial year must disclose any capital gains in their Income Tax Return (ITR) for AY 2025-26. One of the most effective ways to reduce or eliminate tax on long-term capital gains is by reinvesting in another residential property — a benefit available under Sections 54 and 54F of the Income Tax Act.
Section 54 provides relief for gains arising from the sale of a long-term residential house, while Section 54F covers gains from any other long-term capital asset, provided the proceeds are reinvested in a residential property.
To qualify, the new property must be purchased within one year before or two years after the sale, or constructed within three years. If the entire gain isn’t used, experts say, the unused portion must be deposited into a Capital Gains Account Scheme (CGAS) before the ITR filing deadline. That amount is treated as part of the investment — but the exemption is capped at ₹10 crore of new property cost.
The correct ITR form is crucial. Individuals with capital gains cannot file ITR-1 or ITR-4. Instead, they must use ITR-2 or ITR-3 depending on income sources. In the return, Schedule CG must be filled with sale details, indexed cost, reinvestment data, and CGAS deposit info (if applicable).
If only a part of the capital gain is reinvested, the remaining amount is taxable. For transfers before July 23, 2024, the tax is 20% with indexation; for transfers on or after that date, it’s 12.5% without indexation. Tax must be paid via advance or self-assessment before filing the ITR.
Importantly, if CGAS funds remain unused after three years, they become taxable in the year the deadline lapses.