Individual taxpayers with LTCG up to ₹1.25 lakh can use simplified ITR-1

Individual taxpayers earning long-term capital gains (LTCG) up to ₹1.25 lakh under Section 112A of the Income Tax Act, 1961, can now file their income tax returns (ITRs) using the simplified ITR-1 (Sahaj) form for assessment year (AY) 2025-26.

 

The Central Board of Direct Taxes (CBDT) notified ITR 1 and ITR 4 for AY 2025-26 on Tuesday. 

 

Section 112A of the IT Act provides for taxation of  LTCG arising from the transfer of equity shares in a company or units of an equity-oriented fund or units of business trust where securities transaction tax (STT) has been paid on acquisition or transfer or on both, as provided in the section.

 

According to the latest CBDT notification, the ITR-1 (Sahaj) form can be used by individual taxpayers meeting the following criteria: The individual is a resident (other than not ordinarily resident); Total income up to ₹50 lakh during the financial year; Income sources include: Salary or pension; Income from one house property (excluding cases with brought-forward losses); Income from other sources such as interest; LTCG under Section 112A, from the sale of listed equity shares or equity-oriented mutual funds, up to ₹1.25 lakh; Agricultural income up to ₹5,000.

 

Until now, salaried individuals having income under the head LTCG were required to file Form ITR-2 even where the capital gains were exempt by virtue of the threshold limit prescribed under Section 112A. This resulted in elaborate disclosure requirements, including information about accrual or receipt of capital gains and details of securities, among others. 

 

“This inconvenience is reduced with the new Form ITR-1 for AY 2025-26, incorporating a small section for reporting the income in the nature of LTCG on which tax is not payable by virtue of the exemption limit provided in Section 112A. However, in cases where the taxpayer earns LTCG under Section 112A of over ₹125,000 or where the taxpayer earns any other LTCG other than that taxable under Section 112A or earns short-term capital gains (STCG) or has carried forward or brought forward capital losses or derived income from any combination of the above, the salaried individual would have to resort to Form ITR-2 for filing return of income,” said Sandeep Jhunjhunwala, tax partner at Nangia Andersen LLP.  

 

A similar change has been made in Form ITR-4 which applies to taxpayers such as individuals, Hindu undivided families (HUFs) and firms, excluding limited liability partnerships (LLPs), resorting to presumptive taxation for their business income.

 

The new ITR-4 form for AY 2025-26 subsumes reporting of LTCGs subject to tax under Section 112A of the IT Act within the limit of ₹1.25 lakh. 

 

ITR-4 cannot be used by individuals who are company directors, hold unlisted shares, have foreign assets or income, earn agricultural income exceeding ₹5,000, or have deferred tax on employee stock options (ESOPs).

 

“With the latest amendments, individuals can now utilise the simpler ITR-1 and ITR-4 forms if their LTCG under section 112A doesn’t exceed ₹1.25 lakh. Also, if they have no capital losses to carry forward or set off,” said Sandeep Sehgal, partner at AKM Global.