Hero Benefits:
Correct ITR form selection avoiding defective return notices and processing delays.
Proper capital gains computation maximizing exemptions under Section 54 and 54EC.
Comprehensive reporting of multiple income sources ensuring full tax compliance.
ITR Filing for Salaried Individuals with Property Sale
Many salaried employees sell property during their career – whether it’s an inherited ancestral home, an investment property, or a residential flat for upgrading to a bigger house. When you have both salary income and capital gains from property sale in the same financial year, your ITR filing becomes more complex. The form changes from simple ITR-1 to ITR-2, additional schedules need completion, and capital gains must be accurately computed with applicable exemptions.
Understanding how to report both income types correctly ensures you claim all eligible exemptions, avoid defective return notices, and remain compliant with Income Tax regulations. This guide walks you through the complete process of filing ITR when you have salary income along with property sale in the same assessment year.
Which ITR Form to File
If you’re a salaried individual with only salary and one house property income under ₹50 lakh, you’d typically file ITR for salary income using ITR-1 (Sahaj form). However, the moment you have capital gains from property sale, ITR-1 is no longer applicable. You must file ITR-2, which accommodates salary income, multiple house properties, and all types of capital gains including property sale.
ITR-2 is Mandatory When You Have:
- Capital gains from sale of property (house, land, plot)
- Capital gains from shares, mutual funds, or other assets
- Income from more than one house property
- Total income exceeding ₹50 lakh
- Foreign income or foreign assets
Understanding Capital Gains on Property Sale
When you sell property, the profit (sale price minus purchase cost) is taxable as capital gains. The tax treatment depends on the holding period. For properties held more than 24 months, gains are classified as Long-Term Capital Gains (LTCG). Properties held for 24 months or less result in Short-Term Capital Gains (STCG). When filing ITR for property sale transactions, accurate classification and computation are essential for correct tax liability.
Long-Term Capital Gains (LTCG)
- Holding period: More than 24 months
- Tax rate: 12.5% (without indexation) from FY 2024-25
- Indexation benefit: Not available from FY 2024-25
- Exemptions available: Section 54, Section 54EC, Section 54F
Short-Term Capital Gains (STCG)
- Holding period: 24 months or less
- Tax rate: Added to total income, taxed at applicable slab rate
- Exemptions available: Limited exemptions under specific conditions
Capital Gains Calculation
| Component | Description |
|---|---|
| Sale Consideration | Actual sale price or stamp duty value, whichever is higher |
| Less: Cost of Acquisition | Original purchase price paid |
| Less: Cost of Improvement | Renovation, construction, or addition expenses |
| Less: Transfer Expenses | Brokerage, legal fees, stamp duty on sale |
| = Capital Gains | Taxable amount before exemptions |
Exemptions Available on Property Sale
Section 54: Reinvestment in Residential Property
- Applicable to: LTCG on sale of residential house property
- Investment required: Purchase or construct another residential house
- Timeline: Purchase within 1 year before or 2 years after sale; construction within 3 years
- Exemption amount: Lower of capital gains or cost of new house (max ₹10 crore)
Section 54EC: Investment in Specified Bonds
- Applicable to: LTCG on sale of land or building
- Investment required: NHAI or RECL bonds
- Timeline: Within 6 months of property sale
- Maximum investment: ₹50 lakh in a financial year
- Lock-in period: 5 years
Documents Required for ITR-2 Filing
For Salary Income:
- Form 16 from employer
- Salary slips (if Form 16 unavailable)
- Form 26AS / AIS for TDS verification
- Investment proofs for deductions (80C, 80D, etc.)
For Property Sale:
- Sale deed with registration details
- Purchase deed (original acquisition)
- Improvement cost receipts
- Buyer’s PAN and Aadhaar
- Property address details
- TDS certificate (Form 16B) if TDS deducted by buyer
Step-by-Step ITR-2 Filing Process
- Step 1: Login to Income Tax e-filing portal (incometax.gov.in)
- Step 2: Select ‘File Income Tax Return’ and choose Assessment Year
- Step 3: Select ITR-2 form and filing mode (online/offline)
- Step 4: Fill Schedule S (Salary) using Form 16 details
- Step 5: Complete Schedule CG (Capital Gains) with property sale details
- Step 6: Enter exemption claims under Section 54/54EC if applicable
- Step 7: Fill Schedule VI-A for deductions (80C, 80D, etc.)
- Step 8: Verify tax computation and pay any remaining tax due
- Step 9: Submit ITR and e-verify using Aadhaar OTP, net banking, or DSC
- Step 10: Download ITR-V acknowledgment for records
TDS on Property Sale
When property is sold for more than ₹50 lakh, the buyer must deduct TDS at 1% of sale consideration under Section 194-IA and deposit it using Form 26QB. The buyer issues Form 16B to the seller as TDS certificate. This TDS reflects in your Form 26AS and can be claimed as credit while filing ITR-2. If TDS exceeds your actual tax liability (after exemptions), you’re eligible for refund.
Important Deadlines
| Activity | Due Date (AY 2025-26) |
|---|---|
| ITR-2 Filing (non-audit cases) | 31st July 2025 |
| Belated Return Filing | 31st December 2025 |
| Revised Return Filing | 31st December 2025 |
| Section 54 Investment (purchase) | 2 years from sale date |
| Section 54EC Bond Investment | 6 months from sale date |
Conclusion
Filing ITR with both salary income and property sale requires ITR-2 form with careful attention to Schedule S for salary and Schedule CG for capital gains. Calculate your capital gains accurately, claim applicable exemptions under Section 54 or 54EC, and ensure all TDS credits are properly reflected. Keep complete documentation including sale deeds, purchase records, and improvement receipts. File before the due date to avoid penalties and interest. If the computations seem complex, consider professional assistance to ensure accurate filing and maximum tax savings.
Frequently Asked Questions
Can I file ITR-1 if I sold property during the year?
No, ITR-1 (Sahaj) doesn’t allow capital gains from property sale. You must file ITR-2 if you have any capital gains from property, regardless of your salary income.
Is TDS deducted on property sale adjusted against my tax liability?
Yes, TDS deducted by the buyer under Section 194-IA is reflected in your Form 26AS and credited against your total tax liability while filing ITR-2.
Can I claim both Section 54 and 54EC exemptions?
Yes, you can claim both exemptions together if you invest in a new residential property (Section 54) and specified bonds (Section 54EC), subject to respective conditions and limits.
What if I haven’t purchased new property before ITR filing due date?
Deposit the unutilized capital gains in Capital Gains Account Scheme (CGAS) before ITR due date. Declare this in ITR-2 and utilize it within the prescribed timeline for exemption.
How is holding period calculated for inherited property?
For inherited property, holding period includes the period the previous owner held the property. Cost of acquisition is also based on the previous owner’s purchase cost.
Is stamp duty value considered if actual sale price is lower?
Yes, if the actual sale consideration is lower than stamp duty value by more than 10%, the stamp duty value is deemed as sale consideration for capital gains computation.
Can capital loss from property be set off against salary income?
No, capital loss can only be set off against capital gains. Long-term capital loss can be set off only against LTCG. Unabsorbed losses can be carried forward for 8 years.
What documents does the buyer need from me for TDS?
Provide your PAN to the buyer for Form 26QB filing. After TDS deposit, request Form 16B from the buyer as your TDS certificate.
Is indexation available for property sold in FY 2024-25?
From FY 2024-25, indexation benefit is not available for property sale. LTCG is taxed at flat 12.5% without indexation, making computation simpler but potentially increasing tax for old properties.
What is penalty for not filing ITR with property sale?
Late filing attracts penalty up to ₹5,000 under Section 234F. Additionally, interest under Section 234A applies on tax due. You also lose ability to carry forward capital losses if ITR is not filed on time.