ITR Filing 2025: Key Tips for Filing Returns on Property Income

As the income tax return (ITR) filing for 2025 approaches, taxpayers must be aware of the specific rules governing income from property sales. The Central Board of Direct Taxes (CBDT) emphasises accurate reporting to ensure compliance. 

Property Sales and the Power of Indexation 

If you've sold a house property that was purchased before July 23, 2024, the Cost Inflation Index (CII) can be your best friend to lower your long-term capital gains (LTCG) tax. CII helps to adjust your property's original cost price to account for inflation over the years. This "indexed" cost reduces your taxable capital gain, thereby decreasing the LTCG tax you pay. 

For these specific properties, taxpayers have two options for calculating their LTCG tax: 

• Option 1: 20% LTCG tax with indexation benefit. This option allows you to use the CII to inflate your purchase cost, reducing your taxable gain. 

• Option 2: 12.5% LTCG tax without indexation benefit. This option applies a lower tax rate directly to the capital gain without adjusting the purchase cost for inflation. 

CII is only relevant if you choose the 20% tax rate with indexation. Ensure you have the correct CII for the year you bought the property and the year you sold it to accurately calculate your indexed cost. The CBDT notifies CII values annually. While there might be delays for the current financial year (FY 2025-26), it's essential to stay updated and use the most recent or estimated CII figures for advance tax calculations if applicable. 

Documents Required for ITR Filing 2025 

When filing your ITR, you'll need to report these property transactions, typically in ITR-2 or ITR-3, depending on your other sources of income. Keep the following documents ready: 

• Sale deed 

• Purchase deed 

• Proof of any improvements made to the property (e.g., renovation expenses) 

• Any other relevant documents related to the sale and purchase.  

Read more: Crypto Under the Scanner: Income Tax Department Cracks Down on Undisclosed VDA Income 

Conclusion 

Filing your ITR correctly is not just a legal obligation but also a way to avoid future complications. For property sales, understanding and properly applying the Cost Inflation Index for indexation benefits is key to optimising your tax liability, especially for properties acquired before July 23, 2024.  
 
 
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.