A primer on changes to filing income tax returns

The Income Tax Returns (ITRs 1 to 7) for the Assessment Year 2025-26 for the financial year ended on March 31, 2025, are finally available, though delayed by a month. There are major changes compared to last year’s, such as new disclosure requirements, reporting of sources of income, and further easing of compliance and transparency. Let us look at key changes made in revised ITRs 1 to 4.  

New income tax returns

ITR-1: A resident and ordinarily resident individual taxpayer having total income up to Rs. 50 lakh (including income from salary, pension, one house property but excluding loss brought forward, bank interest, agricultural income of up to Rs. 5,000) can use this form and declare his/her income earned during the previous financial year.  

Who cannot use: An individual who is a director in a company, holding unlisted equity shares, having income from business/profession, foreign assets and income, capital gains more than Rs. 1.25 lakh or having carry forward loss, cannot use this form.

Latest changes: A taxpayer from now onwards can even declare long-term capital gains up to Rs. 1.25 lakh on listed equity shares and mutual funds without brought forward loss. The revised form has made it mandatory to quote the Aadhaar number instead of the Aadhaar enrolment ID. Enhanced reporting for deductions, such as NPS, house rent (when paid from one’s own pocket, unsupported by HRA), interest on education/housing loan, and specific TDS sections under which tax was deducted, among others.   

ITR-2: Those individuals and HUFs with income exceeding Rs. 50 lakh, not having income from business/profession, can declare their income from salary, pension, more than one house property including brought forward loss, short and long-term capital gains or losses on sale of property/investments, dividend, agricultural income exceeding Rs. 5,000, foreign assets and liabilities by using this form. 

Latest changes: A taxpayer is now required to report long-term capital gains that occurred before and after July 23, 2024, separately, with or without indexation benefits. Buyback proceeds received on or after October 1, 2024, have to be declared under income from other sources. The threshold annual total income for mandatory disclosure under Schedule-AL (assets and liabilities) has now increased from Rs. 50 lakh to Rs. 1 crore. In other words, taxpayers with annual total income `up to Rs. 1 crore need not fill the above schedule.      

ITR-3: Those individuals and HUFs having income from business/profession can use this form. Interestingly, all the incomes covered under ITR 1 and 2 are valid for this form as well. However, if an individual is a partner in a firm, then he/she must use ITR 3.

Latest changes: Capital loss on share buyback on and after October 1, 2024,​ shall be allowed if the corresponding dividend income is shown as income from other sources.  

ITR-4: A resident individual, HUF, partnership firms (other than LLPs) having total income up to Rs. 50 lakhs, having income from business/profession and wish to avail the simplified presumptive taxation scheme, can use this form.  

Who cannot use: If an individual is a director in a company/partner in a firm, holding unlisted equity shares, having income from more than one house property, foreign assets and liabilities, or  businesses/professionals who have not opted for the simplified taxation scheme, cannot use this form. 

Latest changes: Those taxpayers having business income are now required to provide previous year’s details if he wishes to opt out of the new tax regime, provided in Form 10-IEA. Nevertheless, reporting of long-term capital gains up to Rs. 1.25 lakh made life simpler to taxpayers, who were earlier compelled to use more complicated ITR 2 and ITR 3. 

With several courts holding that when ITR forms are not made available by April 1, the tax authorities should allow extension of the due date for filing ITR (which is usually July 31), many expect that this year after the a month’s delay in availing the forms, the due date would also be extended by 10-15 days. However, there is no such official announcement yet on this.