ITR 2025: HRA, Capital Gains, and New ITR Rules—Here’s What You Must Know to Avoid Notices and Penalties

As India enters a fresh tax filing season, individual taxpayers have been handed a temporary bonus: the due date to file Income Tax Returns (ITRs) for FY 2024-25 has been extended from July 31 to September 15, 2025. This 45-day extension was granted to accommodate the major structural revamp in ITR forms as proposed in Budget 2024.

While the extension gives more breathing room, it also brings a fair share of complications, particularly concerning House Rent Allowance (HRA) and capital gains reporting under the new rules. Experts caution that even genuine claims could attract notices if documentation, interpretation, or calculations go wrong.

HRA Claims: Most Common Mistakes and How to Avoid Them
House Rent Allowance (HRA) is one of the most commonly claimed exemptions under the old tax regime. However, experts note that it’s also among the most misunderstood, leading to frequent errors and tax department queries.

“There are many common mistakes that taxpayers usually make while claiming HRA, which often lead to notices and, in some cases, additional tax burden,” said CA Gaurav Makhijani, Associate Partner and Head of Tax (North India & Gujarat) at Rödl & Partner India.

He points out that a major error lies in misapplying the HRA exemption formula, which is restricted to the lowest of the following three:
Actual HRA received
50% of salary (for metro cities) or 40% (for non-metro cities)
Rent paid minus 10% of salary

“Taxpayers often apply the 50% rate for cities they assume are metros simply because they are developed, even though those cities do not qualify under the Income Tax Act’s definition of metros. This results in inflated exemption claims,” Makhijani warned.

Renting from family members is another tricky area. Though technically allowed, it must pass the scrutiny of a genuine transaction. “The Income Tax Act doesn’t prohibit rent payments to parents or relatives, but the transaction must be backed by proper documentation—rent agreement, bank transfers, rent receipts, and evidence of genuine need,” he said.

Another red flag? Claiming both HRA and home loan deductions for properties in the same city. While it may be legitimate in many cases, it must be justified with clear reasons, such as lack of possession, construction delays, or impractical commuting distance from the workplace.

Lastly, administrative details matter too. “If your annual rent exceeds Rs 1 lakh, quoting your landlord’s PAN is mandatory. Errors in quoting PAN or failure to deduct TDS (if rent exceeds Rs 50,000/month) can invite disallowances and penalties,” he added.

Manmeet Kaur, Partner at Karanjawala & Co said, “In certain cases, it is also seen that wherever the annual rental amount exceeds Rs 1,00,000/-, there should be a signed agreement with the landlord reflecting the same. Another issue that taxpayers face is not quoting the landlord’s PAN card details in case the amount exceeds Rs 1,00,000/- p.a. To avoid the same, it is advisable to provide all relevant details of the landlord and to follow up to ensure that the same amount is reflected in his ITR at the time of filing.”

Capital Gains: New Rules After Budget 2024 and Common Pitfalls
Capital gains taxation, especially post-Budget 2024, has undergone a complete overhaul. The new rules, particularly for property, mutual funds, and equity shares, are applicable starting July 23, 2024, leading to a split tax regime for FY25.

“The entire capital gains structure has been revamped in the budget for sale of property as well as equity. These changes would need to be closely monitored and reflected accurately in the ITR,” said Vivek Jalan, Partner at Tax Connect Advisory Services LLP.

‘When selling a residential property, taxpayers may be eligible for certain exemption/ deductions on the capital gains. For instance, deduction from long-term capital gains under Section 54 of the Income Tax Act can be claimed provided the gains so earned are reinvested in another residential property within prescribed timelines i.e., within one year before or two years after the sale, or within three years if constructing a new home/ residential property. There are few other deductions as well. It is not uncommon to find taxpayer missing to claim the exemption and/or fail to deposit the unutilized capital gains into the Capital Gains Account Scheme (special account which for claiming deduction). This must also be carefully considered when filing tax return,’ Makhijani added. 

Property Sales (Long-Term):
Indexation benefits are available only for transactions before July 23, 2024.
For sales after this date, indexation won’t apply, potentially leading to a higher tax outgo.

“The icing on the cake,” Jalan added, “is that the changes are applicable mid-year—from July 23—so for transactions between April and July 22, the old tax regime continues to apply.”

What Should Taxpayers Be Extra Careful About in Capital Gains?
According to Mr. Deepak Kumar Jain, Founder and CEO of TaxManager.in, incorrect capital gains reporting is a significant compliance gap among individual filers.

He shared a checklist of common errors:
Reporting incorrect sale figures or failing to report the sale of assets
Misclassifying the holding period, resulting in the wrong tax slab application
Not applying indexation to long-term capital gains where applicable
Missing out on cost-of-improvement deductions, which can inflate taxable gains
Failing to set off capital losses, which can help reduce taxable income

Filing returns after the due date, which disqualifies taxpayers from claiming capital loss benefits

“It is very important to ensure correct and accurate claims are made while filing income tax returns,” Jain emphasized. “Don’t claim fake HRA without rent proof, or report capital gains without considering all benefits and deductions available under law.”
 

‘When filing Income Tax Returns (‘ITR’) for capital gains, taxpayers often make critical errors such as not reporting gains assuming they’re exempt or already taxed, using the wrong ITR form (like ITR-1 instead of ITR-2 or ITR-3), misclassifying gains as whether short-term or long-term, and failing to apply indexation for equity shares acquired. Considering that the Government cross verifies the data from brokers, property registrars and banks, it is always advisable to match your returns with what you file via Form 26AS,’ said Kaur.

New ITR Forms Demand Extra Caution and Documentation
Beyond specific exemption rules, the revamped ITR forms post-Budget 2024 require more granular disclosures—especially around capital gains, house property, foreign income, and exemptions.
 

This has been a key reason for the deadline extension, according to the Central Board of Direct Taxes (CBDT). Filers must now match pre-filled data with actuals and provide transaction-level details, increasing the risk of mismatch or error.

Key Takeaways for FY25 Filers
Use the 45-day extension wisely—don’t wait till September 15 to start return preparation.
Cross-verify HRA claims with correct exemption calculation, valid documents, and property details.
Ensure capital gains disclosures are split accurately between pre- and post-July 23 transactions.
Avoid auto-pilot filing—consult a tax advisor if you have asset sales, home loans, or exemptions.

Keep proofs handy: rent agreements, bank transfers, sale deed, cost invoices, and PAN details.

Read More - ITR 2025: New Vs Old Tax Regime – Which One Suits You?

Compliance is King in FY25
With greater data-sharing between tax, banking, and real estate databases, paper trail and consistency in returns are under closer scrutiny than ever before.

Take the extra time this season not just to file, but to file smart.