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Time of India
4 days ago
- Business
- Time of India
Which ITR form you should use to file your income tax return depends on your income sources and taxpayer category: Here's how to pick right
Choosing the right ITR form is the first and most crucial step, as a wrong form can lead to defective returns, penalties, or refund delays. The Income Tax Department has notified the updated forms for Assessment Year 2025-26 . Here's a quick guide to help you identify the correct form based on your income type and tax situation . ITR 1 (Sahaj) For salaried individuals with simple income YOU CAN USE THIS IF You are a resident individual (not HUF or NRI/RNOR). Your total income is less than or equal to Rs.50 lakh. Your income includes: Salary or pension. One house property (no carry-forward loss). Interest or other sources (excluding lottery/racehorses). Agricultural income up to Rs.5,000. Capital gains up to Rs.1.25 lakh from shares/mutual funds (Section 112A, new from FY 2024-25). No carry-forward loss allowed. You cannot use this if: You're a director in a company. Hold ESOP/unlisted shares. Profit from virtual digital assets (crypto). Have foreign assets or income. Own more than one house. Have business or professional income. Have capital losses to carry forward. New for this year Live Events You can now declare up to Rs.1.25 lakh in LTCG from shares or equity mutual funds in ITR 1 without needing ITR 2 or ITR 3. ITR 2 For investors, NRIs, and those with capital gains or multiple properties YOU CAN USE THIS IF You are an individual or HUF. Your income includes: Salary/pension. Income from multiple house properties. Capital gains (any amount). Foreign income or assets. Agricultural income > Rs.5,000. You're an RNOR/NRI. You're a director or hold unlisted shares. You have clubbing of income (spouse's income). You cannot use this if: You have income from business or profession. New feature: The Excel utility now supports filing revised returns under Section 139(8A). ITR 3 For business owners, freelancers, and partners in firms YOU MUST USE THIS IF You are an individual or HUF with: Income from business or profession (proprietorship). You are a partner in a firm (not an LLP). Income includes capital gains (any amount or with carry-forward loss). You hold unlisted equity shares. Income/loss from futures & options. You also earn salary, rent, or other income along with business income. Use this if you cannot file ITR 1, ITR 2, or ITR 4 due to your income mix. If you're opting out of the new tax regime, Form 10-IEA confirmation is required ITR 4 (Sugam) For small businesses and professionals under presumptive tax YOU CAN USE THIS IF You are a resident individual, HUF, or partnership firm (not LLP). Your total income is less than or equal to Rs.50 lakh. You earn from: Presumptives (Section 44AD or 44AE). Presumptiven (Section 44ADA). One house property. Salary/pension. Other sources (excluding lottery/racehorses). LTCG under Section 112A: Rs.1.25 lakh (no carry-forward loss). You cannot use this if: Income is > Rs.50 lakh. You have foreign assets or income. You are an RNOR or NRI. You're a company director or hold unlisted equity. Your business turnover is > Rs.2 crore. You have capital losses to carry forward. Freelancer tip Use ITR 4 only if you're under presumptive taxation (44ADA). Otherwise, file using ITR 3. ITR 5 For LLPs, AOPs, co-operative societies, and others You can use this if you are: A partnership firm (excluding proprietorships). An LLP. Association of Persons (AOP). Body of Individuals (BOI). Estate of a deceased or insolvent person. Business trust or investment fund. Certain cooperative societies or trusts (not filing ITR 7). You cannot use this if: You are an individual, HUF, or company. You are a trust required to file ITR 7. Note If you opt out of the new tax regime, submit Form 10-IEA Don't forget... If you've received ESOPs or hold startup shares not listed on stock exchanges, you own unlisted equity even if you haven't sold it. This disqualifies you from using ITR 1 or ITR 4. Even if your salary is under Rs.50 lakh, having capital gains above Rs. 1.25 lakh or owning more than one property requires ITR 2. Using ITR 1 here can lead to a defective return notice. Only ITR 2 or ITR 3 lets you carry forward capital losses to offset future gains. If you use ITR 1/4, these losses lapse, potentially costing you thousands in future tax savings. If you've returned to India recently after living abroad, you may be an RNOR, not a regular resident. You are an RNOR if you were an NRI in nine out of the last 10 years or stayed in India for 729 days or less in the last seven years. If you're a freelancer, small business owner, or professional with modest income, you can opt for presumptive taxation to simplify filing. Under this, you declare a fixed percentage of your total receipts as income. There's no need to maintain detailed books or get audited. Use this only if your turnover is within limits (Rs.2 crore for business, Rs.50 lakh for profession). If you're salaried and traded in F&O, you must file ITR 3. F&O income is treated as business income, not capital gains, even if it's just a side activity.
Time of India
29-05-2025
- Business
- Time of India
NRIs to pay lower LTCG tax on these equity shares due to proposed forex fluctuation benefit in New Income Tax Bill 2025
The New Income Tax Bill , 2025 has a provision with which non-residents individuals (excluding FIIs) can effectively pay a lower capital gains tax than allowed under the Income Tax Act, 1961. This provision is called 'forex fluctuation benefit' and using it NRIs can pay a lower long term capital gains tax (LTCG) on sale of unlisted equity shares of an Indian company. As per calculations, if this beneficial provision in the new tax bill, 2025 is incorporated by the Indian government in the final act, then NRIs can pay as much as 72% lower long term capital gains tax when compared to before. The reason for this high percentage of savings in capital gains tax payment for NRIs is earlier under the old tax act of 1961, NRIs had to pay income tax on artificially high income due to depreciation of Indian Rupee (INR). This disadvantage is now removed and NRIs are only required to pay income tax on their actual gains in USD terms. Read below to understand what the forex fluctuation benefit about which Income Tax Bill 2025 talks is about and how NRIs stand to gain from this benefit if the government implements it in the final income tax act. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Empresas de Uberlândia reduzem custos agora [Saiba mais] Sistema TMS embarcador Saiba Mais Undo What is the forex fluctuation benefit which can result in lower LTCG tax outgo for NRIs? When NRIs invest in unlisted Indian equity shares, the USD is exchanged for INR, but when the same shares are sold, NRIs exchange INR for USD to take the gains back to their resident country. Now a situation may arise when an NRI who invested in an Indian share when 1 USD was Rs 60 and at the time of sale 1 USD became Rs 80, so this NRI gained Rs 20 due to depreciation of INR. But if the share price also rose from Rs 60 to Rs 80 during this period then from the NRI's perspective he earned zero income since he invested 1 USD for one share and got back 1 USD only after selling one share. But despite this fact, the said NRI used to pay capital gains tax, as in INR terms he earned Rs 20. This exact problem is what the forex fluctuation benefit solves under the new Income Tax Bill, 2025. Live Events If the forex fluctuation benefits feature is implemented in the final tax act, then NRIs will only pay income tax on the actual gains in United States Dollar (USD) terms and not INR terms. 'Currently, Income Tax Act, 1961 does not allow the forex fluctuation benefit to non-residents for sale of unlisted equity shares. This leads to a higher taxable gain, especially where Indian Rupee depreciates significantly during the holding period,' says Pavan Sisodia, Tax Partner, EY India. The table below shows how an NRI can potentially save as much as 72% tax when forex fluctuation benefit is given to the LTCG transaction. Particulars INR INR/ USD Converted in USD Full value of Consideration (assumed sold in 2026) [A] 8,50,000 85 10,000 Cost of Acquisition (assumed acquired in 2014) [B] 5,40,000 60 9,000 Without benefit of foreign exchange fluctuation Taxable capital gains [C = A-B] 3,10,000 Tax on capital gains (@12.5%* on C) 38,750 With the benefit of foreign exchange fluctuation Capital gains [D = A - B] 1,000 Taxable capital gains (converted in INR) 85,000 Tax on capital gains (@12.5%* on D) 10,625 Source: EY India Chartered Accountant (Dr.) Suresh Surana says this benefit- forex fluctuation ensures investors are not overtaxed. 'This method intends to ensure that the capital gains reflect the real economic gain or loss in the investor's home currency, thereby neutralising the distorting impact of currency fluctuations. As such, it prevents over-taxation that may result from rupee depreciation and aligns the tax liability more closely with the actual financial outcome realised by the non-resident,' says Surana. What did the New Income Tax Bill 2025 say about giving NRIs forex fluctuation benefit? The New Income Tax Bill, 2025 said that the forex fluctuation benefits as explained above is applicable to NRIs only for unlisted Indian equity shares like NSE, etc and not for listed equity shares like BSE, etc. Clause 72(6) of the New Income Tax Bill 2025 said: ' In the case of an assessee, who is a non-resident, capital gains arising from the transfer of a capital asset being shares in, or debentures of, an Indian company (other than equity shares referred to in section 198) shall be computed–– by converting the cost of acquisition, expenditure incurred, wholly and exclusively, in connection with such transfer and the full value of the consideration received or accruing as a result of the transfer of the capital asset into the same foreign currency as was initially utilised in the purchase of the shares or debentures; ….' The above legal provision in the new income tax bill, 2025 means forex fluctuation benefit is available only for Indian unlisted equity shares and not for listed equity shares under Section 198. Surana, says: 'The proposed change in the new Income-tax Bill, 2025, seeks to extend the benefit of foreign exchange fluctuation to non-residents (other than foreign institutional investors) in respect of LTCG arising from the transfer of unlisted shares.' Surana explains: 'In accordance with the proposed mechanism i.e. clause 72(6) of the new Income Tax Bill 2025, the cost of acquisition, sale consideration, and transfer-related expenses are first converted into the same foreign currency that was initially utilised for the acquisition of the unlisted shares or debentures. Capital gains are then computed in such foreign currency and subsequently reconverted into INR for tax purposes.' How can this provision in the new tax bill help NRIs? Here is a calculation to show how exactly NRIs are going to benefit from forex fluctuation feature: Example 1 Particulars Existing Regime (Without Forex Benefit) Proposed Regime (With Forex Benefit – Sec 72(6) Currency of Computation Indian Rupees (INR) US Dollars (USD), then reconverted to INR Amount Invested USD 1 million USD 1 million Exchange Rate at Time of Purchase Rs 70/USD Rs 70/USD Cost of Acquisition (INR equivalent) Rs 7 crore USD 1 million Sale Consideration USD 1.5 million USD 1.5 million Exchange Rate at Time of Sale Rs 90/USD Rs 90/USD Sale Value in INR Rs 13.50 crore USD 1.5 million Capital Gain (computed) Rs. 6.50 crore (Rs 13.50 crore less Rs 7.00 cr) Rs. 4.50 crore [(USD 1.5 mn less USD 1 mn) Rs. 90/USD)] Tax Rate on LTCG 12.5% 12.5% Tax Payable in INR Rs. 81.25 lakh (Rs. 6.50 crore * 12.5%) Rs. 56.25 lakh (Rs.4.50 crore * 12.5%) Effective Tax Saving Due to Forex Benefit Not applicable Rs 25 lakh Source: Chartered Accountant (Dr.) Suresh Surana CA J Jambukeswaran, Founder, CEO & Managing Director of Uniqey by JJ tax, says: "The introduction of this benefit through the new Section 42 – 'Variation in Liability' is a strategic move that strengthens India's position as an attractive investment destination for private equity, venture capital, and international strategic investors. So far, while the concessional LTCG tax rate of 12.5% did apply to non-residents, it did not account for currency fluctuations—especially the depreciation of the Indian rupee against the investor's home currency. This created a situation where tax was levied on inflated capital gains that were notional in nature and not reflective of true economic benefit." Jambukeswaran explains how this helps NRIs: Fair Valuation of Capital Gains: Non-residents investing in India using foreign currency can now adjust the acquisition cost based on exchange rate movement. So, if the rupee depreciates during the holding period, their cost in INR terms increases—leading to a lower taxable gain. This ensures tax is applied only on real, economic gains, not on notional appreciation due to currency erosion. Higher Net Returns for Long-Term Investors: Private equity and venture capital funds, which typically operate on 5–7-year investment cycles, benefit significantly. By reducing the tax outgo on paper gains inflated by forex movements, the amendment improves post-tax internal rate of return (IRR) and makes India more competitive for long-term strategic capital. Surana says this proposed change in the New Income Tax Bill, 2025 enhances India's competitiveness as an investment destination by removing a structural disincentive for long-term non-resident and NRI investors. Surana says: 'By proposing this relief under clause 197 read with 72(6) of the new Income Tax Bill, 2025 the government seeks to address a longstanding concern faced by foreign investors namely, the inflation of taxable gains due to depreciation in the Indian rupee over the holding period.' Surana adds: 'It tends to ensure tax neutrality for currency fluctuations, enabling non-resident investors to compute their capital gains in the same foreign currency used for the initial investment. This aligns the tax outcome with the investor's economic reality, as gains are taxed only to the extent of the actual increase in value measured in their base currency. It eliminates artificial gains caused solely by INR depreciation, which had the effect of increasing the tax burden even in cases where real returns were modest or flat in foreign currency terms.'
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Business Standard
19-05-2025
- Business
- Business Standard
Selling two homes? New tax ruling says you can still save on capital gains
A recent ruling by the Income Tax Appellate Tribunal (ITAT), Mumbai, has clarified that taxpayers selling two different residential properties can still claim long-term capital gains (LTCG) exemption under Section 54 of the Income Tax Act, if the sale proceeds are reinvested in a single residential property, provided all other conditions are met. Experts say this interpretation could ease tax pressures for middle-class families and joint property owners navigating complex real estate transactions. 'Judgment based on liberal interpretation' 'This judgement is based on a liberal interpretation of Section 54, thereby emphasising that denial of exemption merely on literal interpretation or pure technical grounds is not the intent of law,' said Riaz Thingna, partner, Grant Thornton Bharat. He added that the ITAT allowed the exemption even though two houses—owned separately by a husband and wife—were sold and proceeds were jointly reinvested in one new home. The ruling sets a precedent that as long as each co-owner claims LTCG exemption only on their respective share and avoids double benefit, the exemption under Section 54 cannot be denied. Multiple sales, one house still valid According to Dipesh Jain, partner, Economic Laws Practice, 'There is no restriction under Section 54 if long-term capital gains from multiple house properties are invested in one residential property, as long as the conditions of the section are fulfilled.' He further clarified that although Section 54 limits the investment to only one (or in some cases, two) residential houses, it does not restrict gains arising from the sale of multiple properties. While both experts agree that the ruling brings flexibility, they caution that risks at the initial assessment stage still exist. 'The decision offers greater clarity, but taxpayers must be cautious. If multiple properties are sold by the same person and the total gain is reinvested into a single house, exemption may be denied,' warned Thingna, citing the specific wording of the law that refers to 'a residential house'. Jain noted that litigation risks cannot be ruled out at the assessing officer level, even though higher appellate forums may offer relief. Precautions for claiming exemption Taxpayers planning to use this benefit should take the following precautions suggested by both of the experts: · Maintain clear documentation proving ownership and transaction details. · Ensure compliance with all conditions of Section 54, especially investment limits. · Avoid double claiming of exemption in case of joint ownership. · Keep judicial precedents handy to support claims if challenged by tax authorities. 'The taxpayer must show that joint owners are not taking double benefit and have claimed exemption only on their respective share,' emphasised Thingna. The ITAT's interpretation aligns with the intent of Section 54 to promote reinvestment in housing, but taxpayers must tread carefully and consult professionals to ensure compliance and avoid potential disputes.
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Business Standard
07-05-2025
- Business
- Business Standard
ITR filing for AY 2025-26?Expert explains what's new and which form to pick
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-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.
Mint
05-05-2025
- Business
- Mint
Filing ITR 2025: As ITR forms 1, 2, 3, 4 and 5 are notified, check which form applies to you
The income tax department has now notified ITR (income tax return) forms 1, 2, 3, 4 and 5. On April 29, the department notified ITR-1 (sahaj) and ITR-4 (sugam). This was followed by notifying ITR form 3 on April 30. Later, ITR forms 5 and 2 were notified on May 1 and May 3, respectively. These reurn forms are meant to be used for filing income tax returns (ITR) for FY 2024-25. Let us understand which income tax return form applies to you based on the category you fall under. ITR-1: This form is meant for resident individual with total income of upto ₹ 50 lakh. The sources of income include salary/ pension, income from one house property (excluding cases where loss is brought forward), income from other sources (like interest from savings accounts, fixed deposits) and agricultural income (up to ₹ 5,000 only). You are not eligible if you are director in a company, and invested in unlisted equity shares during previous year, have income from business or profession or residents having foreign assets or foreign income or capital gains more than permitted threshold with LTCG under section 112A more than ₹ 1.25 lakh or having carried forward/ brought forward losses. ITR-2: ITR-2 can be filed by individuals or HUFs who are not eligible to file ITR-1 (Sahaj). Taxpayers who do not have income from profit and gains of business or profession and also do not have income from profits and gains of business or profession in the nature of interest, salary, bonus and commission or remuneration, by whatever name called, due to, or received by him from a partnership firm. Or those who have the income of another person such as spouse, minor child to be clubbed with their income if income to be clubbed falls in any of the above categories. ITR-3: The ITR-3 form is meant for individuals and HUFs engaged in business or profession, requiring the maintenance of elaborate books of accounts. This category includes working professionals such as doctors, advocates and CAs., whose income is calculated based on actual profits ITR-4: ITR-4 can be filed by a Resident Individual / HUF / Firm (other than LLP) who has income not exceeding ₹ 50 Lakh during the FY, income from Business and Profession which is computed on a presumptive basis u/s 44AD, 44ADA or 44AE, income from Salary/Pension, one House Property, Agricultural Income (up to ₹ 5000) and other Sources. ITR-5: This income tax form can be used to file ITR by a person being a firm, Limited Liability Partnership (LLP), Association of Persons (AOP), Body of Individuals (BOI), Artificial Juridical Person (AJP) For all personal finance updates, click here First Published: 5 May 2025, 04:56 PM IST
