Govt notifies ITR forms; individuals with LTCG up to ₹1.25 lakh can file ITR 1, 4
The government has notified Income Tax Return (ITR) forms 1 and 4 for Assessment Year (AY) 2025-26, simplifying the filing process for individuals earning salary or presumptive income who have long-term capital gains (LTCG) up to ₹1.25 lakh from listed equities. Previously required to file the more complex ITR-2, these taxpayers can now use the simpler ITR-1 (Sahaj) and ITR-4 (Sugam) forms, respectively.
This change addresses a specific inconvenience highlighted by tax experts. Sandeep Jhunjhunwala, Tax Partner at Nangia Andersen LLP, explained that previously, 'salaried individuals having income under the head capital gains were required to file form ITR-2 even where the capital gains were exempt by virtue of the threshold limit prescribed under Section 112A, resulting in elaborate disclosure requirements.'
The new ITR-1 and ITR-4 forms for AY 2025-26 incorporate a section for reporting LTCG exempt under Section 112A up to the ₹1.25 lakh limit. According to the Income Tax law referenced in the notification context, LTCG up to ₹1.25 lakh per annum from the sale of listed shares and mutual funds are exempt, with gains exceeding this threshold subject to a 12.5 per cent tax.
However, Mr. Jhunjhunwala clarified that salaried individuals must still use Form ITR-2 if their LTCG under Section 112A exceeds ₹1.25 lakh, if they have other types of LTCG or short-term capital gains, or if they have capital losses to carry forward or bring forward. A similar simplification for reporting exempt LTCG (up to ₹1.25 lakh under Section 112A) has been incorporated into the new ITR-4 form for taxpayers using the presumptive taxation scheme.
Experts lauded the simplification. EY India Tax Partner Samir Kanabar stated that allowing those with minimal LTCG to use ITR-1 or ITR-4 'reduces the burden of navigating more complex forms.' He added, 'This move reflects a clear shift towards enhancing taxpayer services... [it] is expected to encourage greater voluntary compliance, reduce filing-related stress, and make the system more user-friendly for small taxpayers.' AKM Global Partner-Tax Sandeep Sehgal echoed this, noting the change 'streamlines the tax filing process, making it more accessible and less burdensome... thereby encouraging timely and accurate compliance'.
ITR Form 1 (Sahaj) and ITR Form 4 (Sugam) cater to small and medium taxpayers with total annual income up to ₹50 lakh. Sahaj is for resident individuals with income from salary, one house property, other sources (like interest), and agricultural income up to ₹5,000. Sugam is for individuals, Hindu Undivided Families (HUFs), and firms (excluding LLPs) with income from business and profession under the presumptive scheme. ITR-2 is filed by individuals and HUFs without business or profession income.
Beyond the LTCG change, the government has introduced other modifications. The forms now feature a drop-down menu in the utility for selecting deductions claimed under sections like 80C and 80GG. Additionally, assessees must furnish section-wise details regarding Tax Deducted at Source (TDS) deductions within the ITR.
Consistent with last year, ITR-1 continues to seek details on expenditures exceeding ₹2 lakh on foreign travel and over ₹1 lakh on electricity consumption during the previous year.
Regarding the timeline, the ITR forms are typically notified earlier, around February or March. The delay this year was attributed to Revenue Department officials being preoccupied with the new Income Tax Bill introduced in Parliament in February. Taxpayers can begin filing their returns for income earned in the 2024-25 financial year once the I-T department makes the filing utility available. The deadline for individuals not requiring an audit remains July 31.
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