ITR-3 filing starts: Who needs to file, what's changed & what to watch for

Individuals with F&O trades, business income, or multiple sources must file ITR-3. Here's what's new in rules, risks, and return selection for AY 2025-26.

The Income Tax department has opened an online filing of Income Tax Return Form ITR-3 for Assessment Year (AY) 2025–26, according to its recent announcement on X. This is welcome news for individuals and Hindu Undivided Families (HUFs) earning income from business, profession, capital gains, or multiple sources.

 

Who needs to file ITR-3?

According to Naveen Wadhwa, vice president, Taxmann, ITR-3 is applicable to:

 

-Individuals with income from business or profession (non-presumptive)

 

-Freelancers or consultants providing services such as IT, legal, or marketing

 

-Traders involved in regular buying/selling of shares, including F&O

 

-Partners in firms/LLPs earning taxable remuneration or interest

 

-Persons with income from multiple house properties

 

-Taxpayers holding unlisted equity shares

 

-Individuals with capital gains or foreign assets

 

Importantly, salaried individuals who also earn from stock trading or freelancing must use ITR-3, not the simpler ITR-1 or ITR-2.

 

ITR-3 is mandatory for those earning from Futures and Options (F&O) as it is treated as non-speculative business income, explains Shefali Mundra, chartered accountant and tax expert at ClearTax.  Calculate Income Tax: Income Tax Calculator Tool

 

“F&O income falls under ‘Profits and Gains of Business or Profession’ and not capital gains, making ITR-3 the correct form,” she says. It also allows for accurate loss reporting and carry-forward provisions, she adds.

 

Additional disclosures for ITR-3

-Capital gains split based on whether the asset was sold before or after 23 July 2024, as this impacts tax rate

 

-Detailed TDS section codes must be reported to match AIS/Form 26AS

 

-Loan details for claiming Section 24(b) housing interest deduction

 

-Expanded crypto/VDA reporting, including acquisition and sale dates

 

-Foreign income/assets and opt-out details for new tax regime (Section 115BAC)

Simplifying a complex form

ITR-3 is among the most complex forms due to its exhaustive disclosures, said Akhil Chandna, partner, Grant Thornton Bharat. However, he noted that the Income Tax portal has improved the filing experience this year with:

 

-Pre-filled data for TDS, interest, salary, etc.

 

-Real-time error checks to prevent mismatches

 

-Simplified UI with tooltips and help prompts

 

These enhancements aim to reduce filing errors and ease the burden, especially for first-time users.

 

Common mistakes to avoid

 

-Incorrectly classifying F&O income as capital gains

 

-Choosing presumptive schemes (Sections 44AD/44ADA) without eligibility

 

-Filing ITR-1 or ITR-2 despite business income

 

-Assuming pre-filled data is accurate without cross-verification

 

Capital gains: Watch out for misreporting and form mismatch

 

Mundra also flags common errors in reporting capital gains.

 

“Misclassifying LTCG as STCG or vice versa, especially under the revised rules from July 23, 2024, can result in wrong tax computation,” she notes.

 

Errors such as ISIN mismatches and incorrect grandfathering (for assets bought before Feb 1, 2018) are frequent and can lead to tax notices. She advises cross-checking returns with AIS and TIS to ensure accuracy.

 

Word of caution

While the system is smoother, over-reliance on pre-filled info or filing at the last minute during peak load could lead to issues. Users should manually verify all figures and file early to avoid portal lags.

 

With online filing now active, those eligible for ITR-3 should gear up to file their returns accurately and in time for AY 2025–26.