The Income Tax Department has introduced significant changes in the Income Tax Return forms ITR-2, ITR-3, and ITR-5 for the Assessment Year 2024-25. These changes reflect amendments in tax laws, procedures, and compliance requirements mandated by the Finance Act 2023 and other regulatory updates. The revised forms incorporate new disclosures, modified schedules, and additional fields aimed at enhancing transparency and aligning with recent legislative changes. Understanding these modifications is critical for taxpayers and professionals to ensure accurate compliance and avoid errors or omissions during the filing process.
Electronic Verification Code Option for Individuals and HUFs Subject to Audit
One of the notable changes pertains to the verification process of income tax returns by individuals and Hindu Undivided Families (HUFs) who are subject to tax audit under Section 44AB. Previously, such taxpayers were mandated to verify their returns electronically only through a digital signature certificate. However, the amendment to Rule 12 now allows these taxpayers to verify their returns using an Electronic Verification Code (EVC) as an alternative method. This amendment simplifies the verification process and makes it more accessible to taxpayers who may not have digital signatures. The introduction of EVC verification is expected to reduce compliance costs and ease the return filing experience for audited taxpayers.
Inclusion of Due Date for Filing the Income Tax Return
The updated ITR-3 and ITR-5 forms include a new field that requires the taxpayer to specify the due date for filing the income tax return. The taxpayer must select the applicable deadline from the dropdown options, which include July 31st, October 31st, or November 30th. This inclusion aims to capture the precise filing timeline chosen or applicable to the taxpayer and enables better tracking of return submission within statutory timelines. The new disclosure helps the tax authorities monitor adherence to prescribed due dates and can assist in penalty or interest assessment processes in cases of delayed filing.
The Default Tax Regime is the New Tax Regime
The Finance Act 2023 has introduced a significant change in the tax regime selection for individual taxpayers, Hindu Undivided Families, Association of Persons, Body of Individuals, and Artificial Juridical Persons. Section 115BAC has been amended to make the new tax regime the default option for these assessees. If a taxpayer prefers to continue under the old tax regime with existing exemptions and deductions, they must explicitly opt out by indicating their choice in the return of income or by filing the prescribed Form No. 10-IEA within the due date for filing returns. For those filing ITR-2, the choice of tax regime must be indicated directly in the return form. Taxpayers filing ITR-3 must submit Form 10-IEA to opt out of the new regime. This change is intended to simplify the tax structure and encourage taxpayers to migrate to the new tax regime unless they have compelling reasons to retain the old regime.
Requirement to Furnish Legal Entity Identifier Details
Another important amendment applicable to ITR-2, ITR-3, and ITR-5 involves the furnishing of the Legal Entity Identifier (LEI) details. LEI is a unique 20-character alphanumeric code assigned to entities participating in financial transactions globally. It enhances the quality and accuracy of financial data reporting and aids in better risk management. According to Reserve Bank regulations, any single payment transaction of INR 50 crores or more undertaken by a non-individual entity must include both the remitter’s and beneficiary’s LEI. To comply with these regulations, the revised ITR forms now include a dedicated column for taxpayers to disclose their LEI when seeking a refund amounting to INR 50 crores or above. This addition aligns income tax reporting with banking transaction regulations and improves transparency in high-value financial dealings.
Additional Information Required for Tax Audit Under Section 44AB
The revised ITR-3 and ITR-5 forms have incorporated new fields requiring more detailed information from taxpayers subject to audit under Section 44AB of the Income Tax Act. Taxpayers must now disclose the specific reasons mandating the audit. This includes whether the sales, turnover, or gross receipts have exceeded the prescribed limits under Section 44AB, or if the assessee falls under presumptive taxation provisions such as Sections 44AD, 44ADA, 44AE, or 44BB but has not declared income on a presumptive basis. Additionally, taxpayers must specify if there are other circumstances requiring audit compliance.
This enhanced disclosure aims to provide greater clarity to the tax authorities regarding the applicability and necessity of the audit. It facilitates better risk assessment and targeted scrutiny where appropriate. Taxpayers need to ensure accurate completion of these details to avoid discrepancies during assessment or scrutiny.
Furnishing Acknowledgment Number and UDIN of Audit Report
To improve audit transparency and verification, the amended ITR-3 and ITR-5 require taxpayers to furnish the acknowledgment number of the audit report along with the Unique Document Identification Number (UDIN) issued by the Institute of Chartered Accountants of India. The UDIN system was introduced to curb fraudulent and fabricated audit reports by allowing authentic validation of documents issued by Chartered Accountants.
This requirement enhances the authenticity of audit reports submitted with the income tax return and provides the tax department with a mechanism to verify the credentials of the audit documents. It is mandatory for all audits carried out under Section 44AB, including transfer pricing audits under Section 92E. Non-compliance or discrepancies in these details can attract scrutiny or penalties.
Inclusion of “Receipts in Cash” for Enhanced Turnover Limits in Presumptive Taxation
The Finance Act 2023 raised the threshold limits for availing presumptive taxation schemes under Sections 44AD and 44ADA, conditional upon limiting cash receipts. The threshold for Section 44AD increased from INR 2 crores to INR 3 crores, provided cash receipts do not exceed 5% of total turnover or gross receipts. Similarly, for Section 44ADA, the limit increased from INR 50 lakhs to INR 75 lakhs under the same cash receipts constraint.
The new ITR-3 and ITR-5 forms reflect this amendment by including a new column to report the amount of receipts in cash or cash equivalent, such as cheques or bank draft, that are not account payee. This disclosure is essential to ascertain eligibility for the enhanced presumptive income thresholds. Taxpayers must carefully report this data to claim the benefit and comply with the new cash receipt norms.
Disclosure of Late Payment to Micro and Small Enterprises (MSMEs)
Section 43B of the Income Tax Act stipulates that certain deductions are allowable only when payment is made, regardless of the accounting method followed. The Finance Act 2023 added a new clause that disallows deductions for sums payable to micro or small enterprises if the payment is made beyond the time frame specified under Section 15 of the Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006.
Accordingly, the amended ITR-3 and ITR-5 include a new disclosure column under Part A-OI (Other Information) where taxpayers must report any such amounts payable to MSMEs beyond the prescribed period. This addition enhances compliance with MSME payment norms and ensures timely payments to smaller vendors. It also aids the tax department in monitoring adherence to MSME regulations and prevents delayed payment abuses.
Expanded Reporting for Capital Gains Account Scheme Deposits
Schedule-CG in the revised ITR-2, ITR-3, and ITR-5 forms has been updated to capture additional information about deposits made under the Capital Gains Account Scheme (CGAS). Earlier, taxpayers were required to disclose only the total amount deposited in the scheme. The updated schedule now requires furnishing details such as the date of deposit, account number, and the IFS code of the bank where the deposit was made.
This enhanced reporting is intended to improve the traceability of capital gains amounts parked in CGAS to claim exemption. It helps the tax authorities verify that taxpayers have complied with the conditions of the exemption by actually depositing the amounts in specified accounts within the stipulated timeframe.
Reporting of Winnings from Online Games Under Section 115BBJ
The Finance Act 2023 introduced Section 115BBJ to tax winnings from online games starting from the Assessment Year 2024-25. It also introduced Section 194BA to provide for tax deduction at source on net winnings. Consequently, the ITR forms have been amended by modifying Schedule OS to include a specific disclosure for income derived from winnings on online games.
Taxpayers who have earned income from online gaming activities must report such winnings under the newly inserted section to ensure compliance with the taxability of such income. The inclusion reflects the government’s intent to widen the tax base by capturing new and emerging forms of income such as online gaming.
New Schedule 80GGC for Contributions to Political Parties
Section 80GGC offers a deduction for contributions made to political parties or electoral trusts. The new ITR forms have introduced Schedule 80GGC, which requires taxpayers to disclose comprehensive details of their contributions beyond the mere amount eligible for deduction. This includes the date of contribution, the amount contributed through cash and other modes, transaction reference numbers for UPI or electronic payments, cheque numbers, and bank IFS codes.
This detailed reporting enhances transparency and accountability in political donations, aiding the tax department in verifying the legitimacy of claims under Section 80GGC. Taxpayers need to meticulously maintain records to support these disclosures and claims.
Enhanced Reporting in Schedule for Tax Deferred on ESOPs
Employees receiving securities under Employee Stock Option Plans (ESOPs) from eligible startups can defer tax liability on perquisites arising from these securities as per Section 17(2)(vi). The new ITR-2 and ITR-3 forms include an amended schedule titled ‘Tax Deferred on ESOP’ which requires taxpayers to furnish additional information such as the Permanent Account Number (PAN) of the employer (startup) and the Department for Promotion of Industry and Internal Trade (DPIIT) registration number of the startup.
This modification ensures greater transparency and traceability of tax deferral claims on ESOP income from eligible startups. It also aligns with efforts to promote startups and provide targeted tax benefits with proper documentation.
Deduction Under Section 80CCH for Agniveer Corpus Fund Contributions
A new deduction under Section 80CCH has been introduced to benefit individuals enrolled in the Agnipath Scheme. This scheme allows eligible subscribers to the Agniveer Corpus Fund to claim deductions for amounts deposited on or after November 1, 2022. The revised ITR-2 and ITR-3 forms include a new column specifically to report the amount eligible for deduction under Section 80CCH.
This provision encourages participation in the Agnipath Scheme by providing tax benefits to individuals contributing to the corpus fund. Taxpayers must accurately disclose these contributions in the new column to avail of the deduction and comply with applicable rules.
Introduction of Schedule 80U for Persons with Disabilities
Section 80U provides a fixed deduction to resident individuals who suffer from disabilities or severe disabilities. The deduction amounts to INR 75,000 for persons with a disability and INR 1,25,000 for persons with severe disability. The revised ITR-3 form now includes a dedicated Schedule 80U that taxpayers must complete to claim this deduction.
This schedule requires detailed information, including the nature of disability y, the date of filing Form 10-IA (which certifies the disability), the acknowledgment number of Form 10-IA, and the Unique Disability ID (UDID) number if available. This additional disclosure ensures proper validation of disability claims and aids the tax authorities in verifying the legitimacy of deductions claimed under Section 80U.
Insertion of Schedule 80DD for Medical Treatment and Maintenance of Disabled Dependents
Another relevant deduction is under Section 80DD, which allows residents to claim deductions for medical treatment or maintenance expenses incurred for a dependent suffering from a disability. The deduction amounts are identical to Section 80U: INR 75,000 for disability and INR 1,25,000 for severe disability.
Previously, such deductions were reported in Schedule VI-A. However, the updated ITR-2 and ITR-3 forms have introduced a new Schedule 80DD requiring detailed disclosures. Taxpayers must provide information such as the nature of the disability, the dependent’s relationship (spouse, child, parent, sibling, or HUF member), PAN and Aadhaar of the dependent, and relevant Form 10-IA filing details, including acknowledgment number and UDID.
This comprehensive reporting framework strengthens the audit trail for disability-related deductions and improves compliance.
Reporting Dividend Income from Units Located in International Financial Services Centre (IFSC)
The Finance Act 2023 amended Section 115A to reduce the tax rate on dividend income received from units located in IFSCs from 20% to 10%. This amendment intends to encourage investments in IFSC units by providing a more favorable tax rate.
The revised ITR-2, ITR-3, and ITR-5 forms reflect this amendment by updating Schedule OS, which captures income chargeable under the head ‘Other Sources’. Taxpayers must accurately report dividend income from IFSC units under this schedule to benefit from the reduced tax rate and comply with the amended law.
Declaration of Bonus Payments Received Under Life Insurance Policies
The Finance Act 2023 introduced a new clause under Section 56(2) to tax sums received from excess or high premium life insurance policies as income from other sources. In response, the ITR-2 and ITR-3 forms have been modified to include an additional column in Schedule OS for disclosing such bonus payments.
Taxpayers receiving these sums must now disclose them as taxable income. This amendment seeks to close loopholes whereby excessive or premium bonuses from life insurance policies previously went untaxed.
Reporting Income Received from Business Trusts
To prevent dual non-taxation of certain sums distributed by business trusts to unitholders, the Finance Act 2023 inserted clause (xii) to Section 56(2). This clause makes the sum received by the unitholder taxable as income from other sources. It also allows the cost of acquisition to be deducted from the redemption proceeds.
Accordingly, the new ITR-2, ITR-3, and ITR-5 forms include a new column in Schedule OS to report income received from business trusts under this provision. Taxpayers holding units in business trusts must disclose such income to ensure compliance and avoid tax evasion.
Mandatory Reporting of All Bank Accounts Held at Any Time
An important new requirement is the mandatory disclosure of all bank accounts held by the taxpayer at any time during the relevant assessment year. This includes current, savings, and other types of bank accounts but excludes dormant accounts.
The revised ITR-2, ITR-3, and ITR-5 forms require taxpayers to provide comprehensive details of these bank accounts to aid in the reconciliation of income and expenditures and to facilitate income tax refund payments. This measure is expected to improve the tracking of financial transactions and reduce the risk of underreporting income.
Adjustment of Unabsorbed Depreciation for Assessees Opting for Section 115BAC
The Finance Act 2020 introduced an alternative tax regime under Section 115BAC, offering lower tax rates but disallowing many exemptions and deductions. The Finance Act 2023 extended this regime to associations of persons, bodies of individuals, and artificial juridical persons.
One critical aspect is the disallowance of setting off unabsorbed depreciation relating to additional depreciation for those opting for Section 115BAC. The unabsorbed depreciation not allowed for set off is required to be added back to the written down value (WDV) of the block of assets as on April 1, 2023.
To reflect this, the new ITR-3 and ITR-5 forms have amended Schedule DPM, which deals with depreciation on plant and machinery. Taxpayers opting for Section 115BAC must report the increased WDV, incorporating the unabsorbed additional depreciation. This ensures the proper computation of depreciation and compliance with tax rules.
Schedule 80-IAC for Eligible Startups in ITR-5
Section 80-IAC provides a deduction to eligible startups for three consecutive assessment years within ten years. The deduction is subject to satisfying certain conditions, including certification by an Inter-Ministerial Board.
The new ITR-5 form includes Schedule 80-IAC, requiring companies to provide detailed information related to their startup status. This includes the date of incorporation, nature of business, certification number, the first assessment year in which the deduction was claimed, and the amount claimed in the current year.
Previously, only the amount eligible for deduction was reported. This change promotes greater transparency and enables the tax department to validate startup claims effectively.
Schedule 80LA for Offshore Banking Units and International Financial Services Centre Units
Section 80LA grants deductions to offshore banking units, foreign banks, and IFSC units for specified incomes for ten consecutive assessment years. The deduction can be up to 100% of income under certain conditions.
The new ITR-5 form has introduced Schedule 80LA to collect details from companies availing this deduction. Information required includes the type of entity, type of income, authority granting registration, registration number, date of registration, the first year the deduction was claimed, and the amount claimed in the current year.
This detailed reporting facilitates the monitoring of these deductions and compliance with eligibility criteria.
Schedule 115TD for Tax Payable on Accreted Income
Entities registered under Section 10(23C) or Section 12AB are liable to pay additional tax on accreted income arising from conversion to a non-charitable form, failure to renew registration, or asset transfer on dissolution.
The new ITR-5 form includes Schedule 115TD to report tax payable on accreted income. The schedule requires computation of accreted income, tax payable on such income, and challan details for tax deposit.
This schedule ensures proper reporting and payment of taxes on accreted income by relevant entities, closing gaps in tax compliance.
Recognition and Reporting of MSME Status in ITR-5
The new ITR-5 form requires taxpayers to disclose their recognition status as a Micro, Small, and Medium Enterprise (MSME) under the MSME Development Act, 2006. Taxpayers must provide the MSME registration number, which serves as proof of their MSME classification.
This disclosure assists tax authorities in identifying MSME taxpayers and monitoring compliance with various provisions that apply specifically to this segment, including timely payments and eligibility for certain tax benefits. It also enhances the transparency of MSME participation in the economy.
Opting for Concessional Tax Regime Under Section 115BAE by Co-operative Societies
The Finance Act 2023 introduced a new concessional tax regime for resident co-operative societies engaged in manufacturing or production. These societies can opt for taxation under Section 115BAE at a concessional rate, provided they fulfill certain conditions.
To align with this amendment, the revised ITR-5 form has a new field where a co-operative society can indicate whether it is opting for taxation under Section 115BAE. This choice must be communicated by furnishing Form No. 10-IFA on or before the due date for filing the income tax return.
This provision aims to incentivize co-operative societies by offering a reduced tax rate and simplified compliance.
Impact of Changes on Filing and Compliance
The numerous additions and amendments in the new ITR forms for AY 2024-25 have significant implications for taxpayers and tax professionals. The increased granularity in disclosures requires greater diligence and accurate record-keeping. Taxpayers must ensure timely and precise reporting of audit details, tax regime options, legal entity identifiers, and all new schedules introduced.
Failing to comply with the enhanced requirements may result in return rejections, increased scrutiny, or penalties. Therefore, understanding these changes and preparing well in advance is crucial for smooth compliance.
Practical Considerations for Taxpayers and Professionals
Given the complexity and volume of new information required in the revised ITR forms, taxpayers and their advisors should adopt systematic approaches to collect, verify, and report data. Automation tools and tax software with updated forms will play a key role in minimizing errors.
Maintaining clear documentation, especially for audit reports, legal entity identifiers, MSME registrations, startup certifications, and disability-related certificates, is essential to substantiate claims and disclosures.
Additionally, taxpayers must be aware of deadlines for filing returns and opting out or opting into different tax regimes to avoid inadvertent tax liabilities or missed benefits.
Conclusion
The amendments introduced in the ITR-2, ITR-3, and ITR-5 forms for Assessment Year 2024-25 represent a step towards greater transparency, enhanced compliance, and alignment with the evolving tax landscape. The integration of new schedules, mandatory disclosures, and revised reporting formats reflects the government’s intent to capture a wider tax base, prevent tax evasion, and facilitate easier monitoring.
Taxpayers and professionals must familiarize themselves thoroughly with these changes to ensure accurate filing, optimize tax benefits, and avoid complications. Early preparation, diligent record maintenance, and understanding the nuances of the new ITR forms are key to successful compliance in the current assessment year.