The Central Board of Direct Taxes (CBDT) has amended Rule 12 of the Income-tax Rules, 1962, which defines the criteria for the applicability of different ITR forms. This amendment aims to simplify the filing process for small taxpayers, especially salaried individuals and small business owners who earn capital gains under Section 112A up to Rs. 1,25,000.
Section 112A of the Income-tax Act pertains to long-term capital gains (LTCG) arising from the sale of listed equity shares, equity mutual funds, or units of a business trust. The Finance Act (No. 2), 2024, increased the exemption limit under this section from Rs. 1,00,000 to Rs. 1,25,000.
Under the previous system, even if the LTCG under Section 112A was within the exemption limit and there was no tax liability, the taxpayer could not file the simpler ITR-1 or ITR-4 forms. Instead, they had to use more complex ITR-2 or ITR-3 forms, causing unnecessary hardship.
To remove this burden, the CBDT now allows eligible salaried individuals and small business owners to file ITR-1 and ITR-4-4,-4 respectively, even if they have LTCG under Section 112A, as long as the total LTCG does not exceed Rs. 1,25,000 and there are no capital losses to be carried forward or brought forward. The new ITR-1 and ITR-4 forms have been modified to reflect this change.
Applicability of ITR Forms for AY 2025-26
Salary Income
Individuals with salary or pension income who are ordinarily resident can use ITR-1, ITR-2, ITR-3, or ITR-4. Those who are not ordinarily resident or are non-residents must use ITR-2 or ITR-3. Individuals who are directors in a company or have deferred tax on ESOPs from eligible start-ups must use ITR-2 or ITR-3.
Income from House Property
Individuals with income or loss from one house property and no carried forward losses may use ITR-1, ITR-2, ITR-3, or ITR-4. If there are carried forward losses or income from more than one house property, ITR-2 or ITR-3 must be used.
Income from Business or Profession
Individuals earning from business or profession must use ITR-3. Those with presumptive income under Sections 44AD, 44ADA, or 44AE and who are residents can use ITR-4. Non-residents or those not ordinarily resident must use ITR-3. Partners in a firm receiving remuneration or profit share must use ITR-3.
Capital Gains
LTCG under Section 112A up to Rs. 1.25 lakhs can now be reported in ITR-1 or ITR-4, in addition to ITR-2 and ITR-3. If LTCG exceeds Rs. 1.25 lakhs or falls under Sections 112 or other types of capital gains, only ITR-2 or ITR-3 is allowed. Holding unlisted shares, or gains/losses from other asset classes, also necessitate the use of ITR-2 or ITR-3.
Income from Other Sources
For family pension and income not chargeable at special rates, all forms (ITR-1 to ITR-4) may be used depending on other criteria. If income includes winnings from lotteries, race horses, or is taxable at special rates, ITR-2 or ITR-3 must be used. Income under Section 115BBDA or unexplained income under Section 115BBE must also be reported through ITR-2 or ITR-3. Those claiming deductions under Section 57 (except for family pension) must also use ITR-2 or ITR-3.
Deductions
Deductions under Sections 80QQB or 80RRB for royalties from patents or books require the use of ITR-2 or ITR-3. Those claiming deductions under Section 10AA or Part-C of Chapter VI-A must file ITR-3.
Total Income
If agricultural income exceeds Rs. 5,000 or total income exceeds Rs. 50 lakhs, ITR-2 or ITR-3 is mandatory. Carried forward or brought forward losses also require these forms.
Computation of Tax Liability
Individuals with income clubbed due to minor children or under the Portuguese Civil Code must use ITR-2 or ITR-3. Similarly, those claiming relief under Sections 90, 90A, or 91 must use ITR-2 or ITR-3.
Other Situations
Taxpayers with foreign income, foreign assets, or signing authority in foreign accounts must file ITR-2 or ITR-3. Those liable for tax under Section 194N or those who deposited over Rs. 1 crore in current accounts must also use ITR-2 or ITR-3. Individuals who spent over Rs. 2 lakhs on foreign travel or Rs. 1 lakh on electricity can use ITR-1 to ITR-3. If turnover exceeds Rs. 60 lakhs or professional receipts exceed Rs. 10 lakhs, ITR-3 or ITR-4 is required. If aggregate TDS is Rs. 25,000 (or Rs. 50,000 for senior citizens) or if savings account deposits exceed Rs. 50 lakhs, ITR-1 to ITR-3 may be used as appropriate.
ITR-1 can only be filed by an individual who is ordinarily resident in India. ITR-4 can be filed by an individual, HUF, or a resident firm (excluding LLPs) who are ordinarily resident in India.
Applicability of Forms for Other Assessees
Firms (excluding LLPs) using presumptive taxation can use ITR-4. Other firms, AOPs, BOIs, local authorities, and artificial juridical persons must use ITR-5. Companies not claiming exemption under Section 11 use ITR-6. Persons required to file under Sections 139(4A) to 139(4D) use ITR-7. Business trusts and investment funds under Section 115UB use ITR-5.
Aadhaar Enrolment ID Not Accepted
The Finance Act (No. 2), 2024 amended Section 139AA to remove the use of Aadhaar Enrolment ID for PAN applications and ITR filings, effective from 1 October 2024. Consequently, all new ITR forms (ITR 1, 2, 3, 4, and 7) have removed the reference to Aadhaar Enrolment ID. Taxpayers must now provide their actual Aadhaar numbers or those of relevant persons such as partners, trustees, or beneficiaries.
Disclosure for Opting Out of the New Tax Regime
In ITR forms for AY 2024–25, taxpayers had to confirm if they opted out of the new tax regime under Section 115BAC(6) and provide Form 10-IEA details. For AY 2025–26, the forms (ITR 3, 4, and 5) require more detailed disclosures, including confirmation of past filings of Form 10-IEA and whether the taxpayer intends to continue opting out of the new regime in the current year.
Reporting Under Section 44BBC for Cruise Ship Operators
To encourage cruise tourism in India, the Finance Act (No. 2), 2024, introduced Section 44BBC. It provides a presumptive taxation scheme for non-resident cruise ship operators, deeming 20 percent of gross receipts as business income.
New ITR forms (ITR 3, 5, and 6) include a field in Part A – GEN to declare income under Section 44BBC. Schedule BP has also been updated to include income under this section. Although Section 44AB does not explicitly exclude audit requirements for Section 44BBC, the treatment is consistent with Section 44B, indicating that tax audit is generally not required under this new provision.
Changes Due to Amendments in Capital Gains Taxation Effective 23rd July 2024
Under Section 45(1), capital gains are taxable in the year in which the transfer of a capital asset occurs. Thus, the date of transfer is essential to determine applicable tax rules. The Finance Act (No. 2), 2024 brought in significant changes to the taxation of capital gains, effective from 23rd July 2024.
If a capital asset is transferred before 23rd July 2024, the old tax provisions will continue to apply. These include the 15 percent tax rate for short-term capital gains under Section 111A, the 20 percent tax rate for long-term capital gains under Section 112 with indexation benefits, and the 10 percent tax rate for long-term capital gains under Section 112A.
If the transfer takes place on or after 23rd July 2024, new rules will apply. The tax rate on short-term capital gains under Section 111A increases to 20 percent. Long-term capital gains under Section 112 will be taxed at a uniform rate of 12.5 percent, and the indexation benefit will no longer be available. A grandfathering provision has been introduced for land or buildings acquired before 23rd July 2024 and transferred on or after that date, but this applies only to resident individuals and Hindu Undivided Families.
Long-term capital gains covered under Section 112A will be taxed at 12.5 percent instead of the previous 10 percent. For non-residents, tax rates for capital gains have also been updated in line with the revised provisions of Sections 111A, 112, and 112A.
The updated ITR forms for AY 2025–26 require taxpayers to disclose the date of transfer, allowing for correct application of either the old or the new tax regime. Separate reporting is required for gains occurring before and after the 23rd of July 2024.
Classification of Gains from Unlisted Bonds and Debentures under Section 50AA
The Finance Act 2023 introduced Section 50AA to tax gains from Market Linked Debentures and Specified Mutual Funds as short-term capital gains, regardless of the holding period. The Finance Act (No. 2), 2024, expanded the scope of this provision to include unlisted bonds and debentures.
From 23rd July 2024, gains arising from the transfer, maturity, or redemption of unlisted debentures or bonds are considered short-term capital gains, irrespective of how long the instruments were held. However, if the transaction occurs before 23rd July 2024, gains will be classified as long-term or short-term depending on the holding period, as per the earlier law.
The ITR forms for AY 2025–26 have been revised to accommodate the changes. Taxpayers are now required to classify and report such gains correctly, depending on the date of transfer.
Buy-back Proceeds Taxable as Deemed Dividend from 1st October 2024
Up to 30th September 2024, when a domestic company bought back its shares, the company paid additional tax under Section 115QA, and the proceeds received by the shareholder were exempt from tax under Section 10(34A). The shareholder did not need to pay any tax or report the proceeds as income.
This approach has been reversed by the Finance Act (No. 2), 2024. From 1st October 2024, the entire amount received by a shareholder from a buy-back of shares will be taxed as a deemed dividend under Section 2(22)(f). Consequently, shareholders are now liable to pay tax on such proceeds. For capital gains purposes, the consideration is deemed to be nil, which will result in a notional capital loss.
ITR forms for AY 2025–26 have incorporated these changes. The Schedule OS in the return now provides space to report such deemed dividends. The Schedule CG requires disclosure of buy-back transactions with nil consideration, producing a notional capital loss.
Removal of Schedule for Deduction Under Section 80-IC
Section 80-IC of the Income-tax Act allowed deductions for profits earned from manufacturing in new or substantially expanded units located in certain specified regions. The deduction was 100 percent of profits for the first five years and 25 percent (or 30 percent in case of companies) for the next five years, provided the unit began operations between 7th January 2003 and 31st March 2012.
Given that the last eligible deduction period under Section 80-IC ended with AY 2021–22, there are no assessees now eligible to claim it. The ITR forms for AY 2025–26 have removed the corresponding schedule for claiming this deduction.
Disability Certificate Reporting for Deductions Under Sections 80DD and 80U
Section 80DD provides deductions to resident individuals and Hindu Undivided Families for expenses incurred on the medical treatment and care of a dependent person with a disability. Section 80U provides deductions to individuals with disabilities for themselves.
When the disability is related to autism, cerebral palsy, or multiple disabilities, Form 10-IA must be furnished as certification. For other disabilities, a standard disability certificate under rules framed by the competent authority is required.
Earlier ITR forms allowed reporting only of the acknowledgement number of Form 10-IA. The new ITR forms now provide a dedicated space to disclose the acknowledgement numbers for other disability certificates as well. This enables better transparency and improved tracking of deduction claims under these sections.
Reporting Pass-Through Income under Section 115U
Venture capital undertakings not covered under Section 115UB enjoy pass-through status under Section 115U. Income earned by such funds, other than business income, is taxed in the hands of the investors rather than the fund itself.
Previously, Schedule PTI in the ITR forms only included reference to Section 115UB. As a result, investors in funds governed by Section 115U had no facility to report pass-through income. The revised ITR forms for AY 2025–26 now include a reference to Section 115U within Schedule PTI. This change enables proper reporting of pass-through income for investors in venture capital undertakings not covered under Section 115UB.
Key Differences Among ITR Forms
Understanding the distinctions between various ITR forms is essential for correct filing. The forms differ in terms of disclosure requirements, applicable taxpayer categories, and complexity. ITR-1 and ITR-4 are the simplest forms, designed for individuals with relatively straightforward income sources. These forms offer a quick and hassle-free method to file returns, especially when using pre-filled data provided by the Income Tax Department. On the other hand, ITR-2 and ITR-3 demand more detailed disclosures regarding capital gains, foreign income, multiple house properties, and business or professional income. These are generally suited to salaried individuals with complex financial profiles or self-employed professionals and business owners. Companies, LLPs, and entities registered as trusts must use the more detailed ITR-5, ITR-6, or ITR-7 forms, each tailored to the legal and operational nature of the organization. For instance, ITR-5 caters to firms, LLPs, AOPs, BOIs, and cooperative societies, while ITR-6 is meant for companies that do not claim exemption under Section 11. ITR-7 is used by entities like trusts, political parties, and institutions claiming exemption under various clauses of Section 139. Choosing the correct ITR form is critical. Using the wrong form can lead to defective return notices or rejection of the return altogether. It’s always advisable to refer to the latest eligibility matrix released by the Income Tax Department each assessment year or consult a tax professional if unsure.
Major Changes in ITR Forms for AY 2025-26
For Assessment Year 2025-26 (FY 2024-25), several modifications have been introduced in ITR forms to align with the latest income tax rules, budgetary changes, and reporting standards. Firstly, a unified ITR form continues to be absent, although there was previous discussion about consolidating ITR-1 through ITR-4 into a single common ITR. As of now, all seven ITR forms remain in place. However, efforts toward pre-filling data and automation have significantly increased. One of the prominent changes is the enhanced reporting requirement for income from Virtual Digital Assets (VDAs), such as cryptocurrency and NFTs. Taxpayers must now report VDA transactions more comprehensively, including purchase and sale details, cost of acquisition, and dates of transfer. Another significant update involves changes in the old vs. new tax regime selection. The default regime for salaried individuals and pensioners is now the new regime under Section 115BAC, with taxpayers required to opt-out annually if they prefer the old regime. Forms have been modified to accommodate this declaration clearly. Additional disclosures are required for taxpayers under the new regime to report specific deductions and exemptions that are disallowed. A noteworthy addition is the reporting of income from overseas retirement accounts, especially for residents returning from abroad. There are also expanded columns for exempt income, foreign assets, and foreign income under ITR-2 and ITR-3, aimed at increasing compliance with international tax norms. For business taxpayers, depreciation schedules have been updated, and additional disclosures regarding turnover, cash receipts, and payments are now sought. This enhances audit trail quality and improves monitoring of presumptive taxation cases. Another procedural change is the auto-population of more details from Form 26AS and AIS (Annual Information Statement) into the ITR form. Salaried taxpayers will find fields like gross salary, allowances, deductions under Section 16, and TDS pre-filled. However, taxpayers must still cross-verify and correct these pre-filled details to avoid errors in the return.
Reporting Virtual Digital Assets in ITR
Virtual Digital Assets (VDAs) have gained regulatory attention due to their increasing use and speculative nature. Under Section 115BBH of the Income Tax Act, income from transfer of VDAs is taxed at a flat rate of 30%, with no deduction allowed except cost of acquisition. Moreover, losses from VDA transfers cannot be set off against any other income, nor can they be carried forward. Starting AY 2025-26, the Income Tax Department has mandated more granular reporting of VDA transactions across applicable ITR forms. Taxpayers are required to provide detailed disclosures of each VDA transaction during the year, including acquisition date, cost, date of sale, consideration received, and computation of net gain or loss. These disclosures are to be made in the newly added VDA schedule in ITR-2, ITR-3, and ITR-5, depending on taxpayer category. Taxpayers who have engaged in multiple transactions must maintain proper documentation, such as wallet logs, exchange transaction summaries, and bank records, to justify the reported figures. For individuals using ITR-1 or ITR-4, it’s important to remember that if they have earned income from VDAs, they must switch to ITR-2 or ITR-3. This switch ensures accurate and compliant disclosure. Failure to report VDA income or underreporting it may lead to tax notices, interest, and penalties under Sections 270A and 234B/C. Additionally, TDS under Section 194S at 1% is applicable on consideration paid during the transfer of VDAs, and such TDS must be reconciled in Form 26AS while filing the return.
New Tax Regime Reporting Requirements
The new tax regime under Section 115BAC, initially introduced in Budget 2020, has been revised and is now the default option for salaried taxpayers and pensioners beginning FY 2024-25. The revised regime offers lower slab rates but eliminates most exemptions and deductions. Taxpayers must report their selection between the old and new tax regimes each year while filing their return. The ITR forms for AY 2025-26 include a dedicated section where individuals can opt out of the new regime and continue under the old regime. This declaration must be made before filing the return, and for individuals with business income, it must be done by submitting Form 10-IEA by the due date. Failure to file this form will result in automatic applicability of the new regime. The revised new regime permits only a few deductions such as NPS employer contribution, Section 80CCD(2), and standard deduction of ₹50,000. Accordingly, the ITR forms require taxpayers to explicitly declare the income components, exemptions claimed (if any), and the tax regime opted for. For salaried employees, this choice affects TDS deductions by employers, and the choice should ideally align with the employer’s system of TDS computation during the year. Taxpayers should compute tax under both regimes to determine which is more beneficial and make the declaration accordingly. Switching between regimes from year to year is allowed for salaried individuals, but for those with business income, once opted out of the new regime, they cannot opt back in again unless certain conditions are met.
Filing of Return of Income
Under the Income Tax Act, a taxpayer is required to furnish a return of income if their total income during the previous year exceeds the basic exemption limit (before claiming deductions). For FY 2024-25 (AY 2025-26), the basic exemption limits are as follows: (a) Under the old tax regime – ₹2,50,000 for individuals below 60 years of age, ₹3,00,000 for senior citizens (60 to 79 years), and ₹5,00,000 for super senior citizens (80 years and above). (b) Under the new tax regime (Section 115BAC) – flat ₹3,00,000 for all individuals regardless of age. Additionally, certain individuals are required to file their ITR even if their income is below the basic exemption limit. For example, if a person has deposited over ₹1 crore in one or more current accounts, incurred expenses exceeding ₹2 lakh on foreign travel, or paid electricity bills exceeding ₹1 lakh in a year, they are required to file a return. Similarly, companies, partnership firms, LLPs, and those claiming refunds or having foreign assets must also file returns irrespective of income thresholds.
Mode of Filing ITR
The Income Tax Department provides both online and offline modes to file ITR. However, the preferred and most widely used method is electronic filing (e-filing) through the official income tax e-filing portal. E-filing can be done with or without a Digital Signature Certificate (DSC). For individuals and HUFs not required to audit their accounts, e-verification through Aadhaar OTP, net banking, or other prescribed modes is acceptable. Super senior citizens (aged 80 and above) have the option to file returns in paper mode. Taxpayers required to get their accounts audited under Section 44AB must mandatorily file returns using DSC. The process of filing the return includes logging into the income tax portal, selecting the appropriate ITR form, furnishing details of income, deductions, taxes paid (including TDS and advance tax), verifying the return, and submitting it electronically.
Due Dates for Filing ITR for AY 2025-26
The due dates for filing ITRs vary depending on the category of taxpayer. For the Assessment Year 2025-26 (FY 2024-25), the due dates are as follows: (a) Individual and HUF taxpayers not subject to audit – 31st July 2025. (b) Companies and other persons whose accounts are required to be audited – 31st October 2025. (c) Assessees required to furnish a report under Section 92E (international or specified domestic transactions) – 30th November 2025. It is important to adhere to these due dates to avoid interest and penalties under Sections 234A, 234B, and 234F.
Belated Return and Revised Return
If a taxpayer fails to file their ITR by the due date, they can still file a belated return under Section 139(4). For AY 2025-26, the belated return can be filed on or before 31st December 2025. However, filing a belated return may attract a penalty under Section 234F and loss of certain benefits such as the ability to carry forward some losses. A return filed (original or belated) can be revised under Section 139(5) if the taxpayer discovers an omission or error. A revised return for AY 2025-26 can also be filed up to 31st December 2025. Both belated and revised returns can now only be filed electronically.
Updated Return under Section 139(8A)
From AY 2022-23 onwards, the Income Tax Act allows filing of an ‘updated return’ under Section 139(8A) within 24 months from the end of the relevant assessment year. An updated return allows a taxpayer to declare additional income not reported earlier and pay the due tax along with additional interest and fees. For AY 2025-26 (FY 2024-25), the updated return can be filed up to 31st March 2028. However, an updated return cannot be filed if it leads to a refund or lowers the total tax liability. This provision aims to improve voluntary compliance by allowing taxpayers to rectify genuine mistakes or omissions without fear of prosecution.
Consequences of Late Filing of ITR
Filing the ITR after the due date attracts several consequences. First, there is a late filing fee under Section 234F – ₹1,000 for income up to ₹5 lakh and ₹5,000 for income above ₹5 lakh. Second, interest under Section 234A is levied at 1% per month or part thereof on the tax payable from the due date till the date of filing. Third, losses under certain heads (such as capital gains or business losses) cannot be carried forward unless the return is filed on time. Fourth, delayed refunds and possible scrutiny may occur due to late filings. Moreover, failure to file ITR may result in penalties, prosecution, and disqualification from certain financial transactions or loans.
Verification of ITR
After filing the ITR electronically, the taxpayer must verify it within 30 days. Verification can be done through several modes: (a) Aadhaar-based OTP, (b) Net banking, (c) Bank account-based EVC, (d) Demat account-based EVC, or (e) Sending a signed ITR-V (acknowledgement) to CPC Bengaluru. Failure to verify the return within the stipulated time renders the return invalid. Once verified, the return is processed by the CPC, and an intimation under Section 143(1) is sent to the taxpayer reflecting the summary of the return and any discrepancies, if any.
Taxpayer Responsibilities Post Filing
Once the ITR is filed and verified, the taxpayer must ensure proper record-keeping of ITR-V, computation sheets, Form 16/16A, bank statements, investment proofs, and other supporting documents for at least six years. They should also check the intimation under Section 143(1) issued by the CPC and respond if any discrepancies arise. If a refund is due, the taxpayer should track the status through the portal or NSDL website and ensure that bank account details are pre-validated for smooth credit of refunds. In case of any demand raised or notice received from the department, timely response and rectification are critical to avoid further consequences.
Key Points to Remember While Filing ITR
Taxpayers should keep in mind the following key points while filing ITR for AY 2025-26: choose the correct ITR form based on income sources and taxpayer category, disclose all income including income from other sources, exempt income, foreign income, and investments, report bank accounts, directorships, and holdings in unlisted companies where applicable, reconcile TDS with Form 26AS and AIS/TIS, claim all eligible deductions and exemptions, and file within due dates to avoid penalties. It is also advisable to use the pre-filled ITR utility provided by the income tax portal, cross-check the data, and preserve all evidence related to claims made in the return.
Conclusion
Filing an accurate and timely income tax return is a vital compliance responsibility for every taxpayer. The changes made in ITR forms for AY 2025-26 reflect the government’s effort to simplify the process, increase transparency, and encourage voluntary compliance. With enhanced integration of financial data through AIS/TIS and pre-filled returns, taxpayers must be more diligent in verifying and reporting correct information. Choosing the correct form, understanding eligibility, knowing the filing deadlines, and being aware of the consequences of errors or delays can help ensure a smooth ITR filing experience. Professional advice may be sought in complex cases involving multiple income sources, foreign assets, or business audits.