ITR filing for AY 2025-26?Expert explains what's new and which form to pick

Forms has key changes on rules for capital gains, buybacks, Aadhaar as proof of identity

The Central Board of Direct Taxes (CBDT) has notified Income Tax Return (ITR) Forms 1 to 5 for Assessment Year (AY) 2025-26, incorporating changes brought in by legislation last year. The forms apply to income earned in FY25 and reflect changes in tax rules, disclosures, and eligibility criteria.

 

Naveen Wadhwa, vice-president at Taxmann, explains the forms in detail. 

 

ITR 1 to 5: What and for whom 

ITR-1 (Sahaj): For ordinarily resident individuals earning up to Rs 50 lakh from salary, one house property, and other income (like interest). Not applicable to directors or those with capital gains beyond Rs 1.25 lakh.

 

 

ITR-2: For individuals and Hindu Undivided Families (HUF) not having business income but having capital gains, more than one house property, or foreign assets.

 

ITR-3: For individuals and HUF with income from business/profession, or those who are partners in a firm.

 

ITR-4 (Sugam): For resident individuals, HUF, and firms (other than LLPs) under presumptive taxation (Sections 44AD, 44ADA, 44AE).

 

ITR-5: For LLPs, partnership firms, AOPs, BOIs, and others (excluding companies and trusts).

   

Key changes for AY 2025-26

 

According to Wadhwa, the following changes are the most significant:

 

1. Relaxation for small taxpayers with capital gains

 

Salaried individuals or small business owners with LTCG under Section 112A up to Rs 1.25 lakh can now file ITR-1 or ITR-4, even if they report such gains. “This move eases compliance for small taxpayers with limited capital gains,” says Wadhwa.

 

2. Capital gains tax rates revised

 

For transfers on or after July 23, 2024:

 

STCG under Section 111A taxed at 20per cent (previously 15 per cent)

 

LTCG under Sections 112 and 112A taxed at 12.5 per cent with no indexation

 

Transfers before this date remain under the old regime

 

3. Buyback proceeds now taxable as dividend

 

From October 1 last year, buyback income will be taxed as deemed dividend in the hands of shareholders. The buy-back tax paid by companies under Section 115QA is removed.

 

4. Section 115BAC

 

Forms ITR-3, 4 and 5 now require confirmation on opting out of the new tax regime, and whether Form 10-IEA was filed in earlier years.

 

5. Aadhaar enrolment ID no longer accepted

 

Only valid Aadhaar numbers will be accepted in ITRs 1, 2, 3 and 5, aligning with changes in Section 139AA.

 

6. Other notable updates

 

New fields for reporting income under Section 44BBC (cruise ship operators)

 

Inclusion of unlisted bonds under Section 50AA for STCG treatment

 

Buy-back gains must now be shown as dividend in Schedule OS

 

Reporting of disability certificates under Sections 80DD and 80U

 

Schedule AL (assets/liabilities) threshold raised to Rs 1 crore (from Rs 50 lakh)

 

Takeaway

 

“These changes attempt to reduce compliance burdens for small taxpayers while enhancing the granularity of reporting where needed,” says Wadhwa. Taxpayers must assess their income and filing status before choosing a form.