Taxmann's Analysis | What's New?—ITR Forms [Assessment Year 2025-26]

Page 1


What’s New? ITR Forms

[Assessment Year 2025-26]

The Central Board of Direct Taxes (“CBDT”) has notified the Income Tax Return (ITR) Forms 1 to 7 for the Assessment Year (“AY”) 2025–26, applicable for income earned during the Previous Year (“PY”) 2024–25 (01-04-2024 to 31-03-2025).

Unlike in the last couple of years, when these forms were released well in advance, typically before March, the ITR forms have been released with a delay of more than a month. This created an anticipation that the department may have to extend the due date to file the return of income. This apprehension is based on the instructions given by the High Courts1 to the CBDT to extend the due date for filing income-tax returns to alleviate, to a certain extent, hardships caused to assessees due to the delay in providing ITR filing utilities on time.

This article highlights the key changes in the revised ITR forms.

1. Change in the Applicability of ITR Forms

The CBDT has amended Rule 12 of the Income-tax Rules, 1962, which outlines the criteria for the applicability of ITR forms to different classes of taxpayers and the method of furnishing returns. This amendment seeks to simplify the return filing process for small taxpayers, particularly salaried persons and small businessmen, who have capital gains under Section 112A of up to Rs. 1,25,000.

The Finance Act (No. 2), 2024, increased the exemption limit under Section 112A of the Income-tax Act from Rs. 1,00,000 to Rs. 1,25,000. This section deals with long-term capital gains (LTCG) arising from the sale of listed equity shares, equity mutual funds, or units of a business trust.

Under the previous ITR forms, even if an assessee’s LTCG under Section 112A was within the exemption limit and there was no tax payable, the presence of capital gains income made them ineligible to file the simpler ITR-1 or ITR-4 forms. Instead, they were required to file the return in ITR-2 or ITR-3 forms, which are more complex and time-consuming. This resulted in a genuine hardship for small taxpayers.

To address this, the CBDT has notified that salaried individuals or any assessee eligible for ITR-1 and small business owners eligible for ITR-4 can continue to use these forms, even if they have LTCG under Section 112A, provided the total LTCG does not exceed Rs. 1,25,000. There is no brought forward or carry forward capital loss. This move eases the compliance burden and simplifies return filing for small taxpayers with limited capital gains.

The new ITR Forms 1 and 4 have been amended to incorporate this change.

Based on the above changes, the applicable Income-tax return form to be used by the taxpayer for AY 2025-26 is as follows –

1 All Gujarat Federation of Tax Consultants vs. CBDT [2015] 61 taxmann.com 431 (Gujarat) and Vishal Garg vs. UOI [2015] 61 taxmann.com 418 (Punjab & Haryana)

Salary Income

Income from salary/pension (for ordinarily resident person)

Income from salary/pension (for not ordinarily resident and non-resident person)

Any individual who is a Director in any company

If payment of tax in respect of ESOPs allotted by an eligible start-up has been deferred

Income from House Property

Income or loss from one house property (excluding brought forward losses and losses to be carried forward)

Individual has brought forward loss or losses to be carried forward under the head House Property

Income or loss from more than one house property

Income from Business or Profession

Income from business or profession

Income from presumptive business or profession covered under sections 44AD, 44ADA and 44AE (for person resident in India)

Income from presumptive business or profession covered under sections 44AD, 44ADA and 44AE (for not ordinarily resident and non-resident persons)

Interest, salary, bonus, commission or share of profit received by a partner from a partnership firm

Capital Gains

Long-term capital gains taxable under Section 112A and not exceeding Rs. 1.25 lakhs2

Long-term capital gains are taxable under the following provisions:

• Section 112A and it exceeds Rs. 1.25 lakhs

• Section 112

Short-term capital gains taxable under any provision

Taxpayer has held unlisted equity shares at any time during the previous year

Capital gains/loss on sale of investments/property

Income from Other Sources

Family Pension (for ordinarily resident person)

Family Pension (for not ordinarily resident and non-resident person)

2 Inserted by the Income-tax (twelfth Amendment) Rules, 2025, vide Notification No. 40/2025, dated 29-04-2025

Person has incurred more than Rs. 1 lakh towards payment of the electricity bill

Person has turnover from business exceeding Rs. 60 lakhs

Person has gross receipts from profession exceeding Rs. 10 lakhs

Aggregate amount of TDS and TDS is Rs. 25,000 (Rs. 50,000 in case of senior citizen) or more

Aggregate deposit in the savings bank account is Rs. 50 lakh or more

* ITR-1 can be filed by an individual who is ordinarily resident in India. ITR-4 can be filed only by an Individual or HUF who is ordinarily a resident of India and by a firm (other than an LLP) resident in India.

Other Assessees

Status of Assessee

Firm (excluding LLPs) opting for presumptive taxation scheme of section 44AD, 44ADA or 44AE

Firm (including LLPs)

Association of Persons (AOPs)

Body of Individuals (BOI)

Local Authority

Artificial Juridical Person

Companies other than companies claiming exemption under Section 11

Persons, including companies, are required to furnish returns under:

• Section 139(4A)

• Section 139(4B)

• Section 139(4C)

• Section 139(4D)

Business Trust

Investment Fund, as referred to in Section 115UB

ITR 4 ITR 5 ITR 6 ITR 7

2. Aadhaar Enrolment ID is Not Accepted

[ITR 1, 2, 3, 4 and 7]

The Finance (No. 2) Act, 2024 amended Section 139AA of the Income-tax Act (“ITA”), with effect from 01-10-2024, restricting the use of the Aadhaar Enrolment ID in place of the Aadhaar number for PAN applications and Income-tax Returns.

In line with this amendment, new ITR Forms have been updated to remove the reference to the Aadhaar Enrolment ID. Taxpayers are now required to provide their Aadhaar number/the Aadhaar number of partners, members, settlors, trustees, beneficiaries, and executors, as the case may be, when filing their returns, aligning with the new provisions under Section 139AA.

3. Change in Disclosure on Opting Out of the New Tax Regime of Section 115BAC

[ITR 3, 4 and 5]

The ITR forms applicable for AY 2024–25 simply asked whether the assessee had exercised the option to opt out of the new tax regime under Section 115BAC(6) and required the date and acknowledgement number of Form 10-IEA if applicable.

The new ITR forms applicable for AY 2025–26 introduce a more detailed disclosure structure. They seek confirmation of past filings of Form 10-IEA and ask whether the assessee wants to continue opting out of the New Tax Regime in the current year.

4. Reporting of Income Declared Under the Presumptive Tax Scheme of Section 44BBC

[ITR 3, 5 and 6]

To promote the cruise-shipping industry in India and make it an attractive global cruise tourism destination, the Finance (No. 2) Act, 2024 inserted a new presumptive tax scheme under Section 44BBC with effect from the AY 2025-26 providing special provision for computing profits and gains of the business of the operation of cruise ships in the case of non-residents. Under this scheme, 20% of the total amount received or receivable by, or paid or payable to, a non-resident cruise ship operator for carriage of passengers is deemed to be the profits and gains from that business.

To enable reporting of income under Section 44BBC, the following changes have been made under the ITR forms –

(a) The relevant declaration field under Part A- GEN is amended to indicate whether the taxpayer is declaring income under Section 44BBC.

(b) The Schedule BP has been updated to capture the amount of profit and gains deemed under Section 44BBC, similar to the existing reporting mechanism for other presumptive schemes like Sections 44B and 44BBA.

It is important to note that a tax audit under Section 44AB is generally not required when income is declared under a presumptive taxation scheme. While Section 44AB specifically excludes the assessee declaring income under Section 44B from tax audit, there is no such express exclusion for Section 44BBC, even though it is analogous to Section 44B. However, the new ITR forms treat Section 44BBC in the same way as Section 44B. This suggests that tax audit may also not be required for those declaring income under Section 44BBC.

5. Changes Due to the Amendments Made by the Finance (No. 2) Act, 2024 for Taxation of Capital Gains

[ITR 2, 3, 5, 6 and 7]

As per Section 45(1), capital gains are taxable in the year in which a capital asset is transferred. This means the date of transfer plays a critical role in determining the applicable tax provisions.

With the enactment of the Finance (No. 2) Act, 2024, significant changes to the capital gains tax regime have come into effect from 23rd July 2024. Therefore, when filing your return for AY 2025-26 (i.e., for FY 2024-25), it’s important to check whether the asset was transferred before or after this date, as this will impact the tax computation.

If the transfer date is before 23rd July 2024, the old tax provisions will continue to apply, including the 15% tax rate on STCG covered under Section 111A, the 20% tax rate on LTCG covered under Section 112 with indexation benefit, and the 10% tax rate on LTCG under Section 112A.

However, if the transfer occurs on or after 23rd July 2024, new tax provisions will apply as follows –

(a) The tax rate on short-term capital gains covered under Section 111A will be 20% instead of 15%.

(b) A uniform tax rate of 12.5% will apply to long-term capital gains under Section 112, and no indexation benefit will be available on such gains. However, a grandfathering provision is introduced for land or buildings acquired before 23rd July 2024 and transferred on or after that date for resident individuals/ HUF.

(c) The tax rate on long-term capital gains covered under Section 112A will be 12.5% rather than 10%.

(d) The tax rates on capital gains for non-residents have also been amended, which are consistent with changes to Sections 111A, 112, and 112A.

Consequential changes have been made to the new ITR Forms for the AY 2025-26. The return requires disclosure of the date of transfer, separate reporting for transfers made before and on or after 23rd July 2024, and the proper application of revised tax rates and indexation rules.

6. Reporting of Capital Gains from Unlisted Bonds and Debentures as STCG or LTCG Based on the Transfer Date

[ITR 2, 3, 5, 6 and 7]

The Finance Act 2023 introduced a new Section 50AA, effective from AY 2024-25, to bring Market Linked Debentures (MLDs) and Specified Mutual Funds (SMFs) under a special capital gains regime. Any gain arising from the transfer, redemption or maturity of a unit of such specified mutual funds or market-linked debentures is treated as short-term capital gains and is taxable at the rate applicable to the assessee.

The Finance (No. 2) Act 2024 expanded the scope of Section 50AA. Effective from 23rd July 2024, the provision also includes unlisted debentures and unlisted bonds. Therefore, if unlisted debentures or bonds were issued on or before 22nd July 2024 but redeemed, matured, or transferred on or after 23rd July 2024, the entire gain will be taxed as short-term capital gains, regardless of the holding period.

Therefore, if the transfer occurs before 23rd July 2024, the resulting gain will be classified as long-term and taxable according to the old provision. However, if the transfer takes place on or after 23rd July 2024, that gain will be considered short-term and subject to taxation under Section 50AA.

Consequential changes have been made to the new ITR Forms for the AY 2025-26.

7. Reporting of Buy-back Proceeds as Deemed Dividend Starting 1st October 2024

[ITR 2, 3, 5, 6 and 7]

Until 30th September 2024, when a domestic company bought back its own shares, it was required to pay additional tax under Section 115QA on the income distributed. In that case, the amount received by the shareholder was exempt under Section 10(34A), and the shareholder had no further tax liability.

The Finance (No. 2) Act 2024 reversed this approach. Effective from 01-10-2024, the entire consideration received by shareholders on the buy-back of shares by a domestic company will be taxed in the hands of the shareholders as a deemed dividend under Section 2(22) (f). As a result, shareholders will have to pay tax on the full amount received from the buyback. For the calculation of capital gains, the consideration is considered to be nil. The net outcome of the calculation will result in a capital loss.

Consequential changes have been made to the new ITR Forms for the AY 2025-26. The taxpayers will report buy-back proceeds as dividend income in Schedule OS and show nil consideration for capital gains, resulting in a notional capital loss in Schedule CG.

8. Withdrawal of Section 80-IC Deduction Schedule

[ITR 3, 5 and 6]

Section 80-IC of the ITA allows a deduction to any assessee deriving profits and gains from manufacturing or producing specified articles or things in a new unit or an existing unit after substantial expansion. The deduction shall be allowed for 100% of the profits in the first 5 years and 25%/30% of the profits in the next 5 years, provided the unit commenced operations or substantial expansion between 07-01-2003 and 31-03-2012.

If an assessee commenced a manufacturing unit in the FY 2011–12, the deduction under Section 80-IC would be available up to AY 2021–22. However, since the deduction period has lapsed, the Schedule for claiming deduction under Section 80-IC has been removed from the new ITR Forms.

9. Reporting of Disability Certificates for Deductions Under Sections 80DD and 80U

[ITR 2 and 3]

The deduction under Section 80DD is available to a resident individual or Hindu Undivided Family (HUF) who incurs medical expenditure or pays an insurance premium for the care of a dependent family member with a disability or severe disability.

The deduction under Section 80U is available to a resident individual who is suffering from a disability or severe disability.

In cases where the assessee or his dependent has autism, cerebral palsy, or multiple disabilities, he is required to obtain a certificate issued by the medical authority in Form 10-IA. For other types of disabilities, the assessee must obtain a disability certificate in accordance with the guidelines issued by the expert committee.

In the previous ITR Forms, taxpayers could enter the acknowledgement number of Form 10-IA only, while there was no facility to report the acknowledgement number of certificates for other disabilities. However, the new ITR Forms have introduced a separate column to provide this information as well.

13. Schedule TDS Requires Disclosure of the TDS Section

[ITR 1 to 7]

In the new ITR Forms, taxpayers are required to mention the specific section under which TDS has been deducted. This detail will be furnished in the Tax Payment schedule.

14. Reporting of Profit from the Eligible Business of Selling Raw Diamonds

[ITR 6]

The CBDT introduced3 Safe Harbour Rules in Rules 10TI, 10TIA, 10TIB, and 10TIC for foreign companies engaged in the business of diamond mining and selling raw diamonds in any notified special zone. The rules contain the following key points –

(a) The Safe Harbour Rules apply to foreign companies engaged in the business of selling raw diamonds in any notified special zone as referred to in clause (e) of Explanation 1 to 9(1)(i).

(b) If the assessee can exercise the option for Safe Harbour, the profits and gains of the business chargeable to tax shall be 4% or more of the gross receipts from such business.

(c) The assessee can exercise the option by furnishing Form No. 3CEFC to the Assessing Officer before furnishing the return of income under Section 139 for the relevant previous year.

To enable reporting of income from selling raw diamonds, the Schedule BP has been updated to capture such an amount.

3 Notification No. 124/2024, dated 29-11-2024

Founded 1972

Evolution From a small family business to a leading technology-oriented Publishing/Product company

Expansion

Launch of Taxmann Advisory for personalized consulting solutions

Our Vision

Aim

Achieve perfection, skill, and accuracy in all endeavour

Growth

Evolution into a company with strong independent divisions: Research & Editorial, Production, Sales & Marketing, and Technology

Future

Continuously providing practical solutions through Taxmann Advisory

Our Core Domain Areas

Income Tax

Corporate Tax Advisory

Trusts & NGO Consultancy

TDS Advisory

Global Mobility Services

Personal Taxation

Training

Due Diligence

Foreign Exchange Management Laws

Due Dilligence

Advisory Services

Assistance in compounding of offences

Transactions Services

Investment outside India

Your Partners for Frictionless Advice

Goods

Transaction Advisory

Business Restructuring

Classification

Due Diligence

Training

Advisory

Trade Facilitation Measures

Corporate

Corporate Structuring

VAT Advisory

Residential Status

Contact Us

Taxmann Delhi

59/32, New Rohtak Road

New Delhi – 110005 | India

Phone | 011 45562222

Email | sales@taxmann.com

Taxmann Mumbai

35, Bodke Building, Ground Floor, M.G. Road, Mulund (West), Opp. Mulund Railway Station Mumbai – 400080 | Maharashtra | India

Phone | +91 93222 47686

Email | sales.mumbai@taxmann.com

Taxmann Pune

Office No. 14, First Floor, Prestige Point, 283 Shukrwar Peth, Bajirao Road, Opp. Chinchechi Talim, Pune – 411002 | Maharashtra | India

Phone | +91 98224 11811

Email | sales.pune@taxmann.com

Taxmann Ahmedabad

7, Abhinav Arcade, Ground Floor, Pritam Nagar Paldi

Ahmedabad – 380007 | Gujarat | India

Phone: +91 99099 84900

Email: sales.ahmedabad@taxmann.com

Taxmann Hyderabad

4-1-369 Indralok Commercial Complex Shop No. 15/1 – Ground Floor, Reddy Hostel Lane Abids Hyderabad – 500001 | Telangana | India

Phone | +91 93910 41461

Email | sales.hyderabad@taxmann.com

Taxmann Chennai No. 26, 2, Rajan St, Rama Kamath Puram, T. Nagar

Chennai – 600017 | Tamil Nadu | India

Phone | +91 89390 09948

Email | sales.chennai@taxmann.com

Taxmann Bengaluru

12/1, Nirmal Nivas, Ground Floor, 4th Cross, Gandhi Nagar

Bengaluru – 560009 | Karnataka | India

Phone | +91 99869 50066

Email | sales.bengaluru@taxmann.com

Taxmann Kolkata Nigam Centre, 155-Lenin Sarani, Wellington, 2nd Floor, Room No. 213

Kolkata – 700013 | West Bengal | India

Phone | +91 98300 71313

Email | sales.kolkata@taxmann.com

Taxmann Lucknow

House No. LIG – 4/40, Sector – H, Jankipuram Lucknow – 226021 | Uttar Pradesh | India

Phone | +91 97924 23987

Email | sales.lucknow@taxmann.com

Taxmann Bhubaneswar

Plot No. 591, Nayapalli, Near Damayanti Apartments

Bhubaneswar – 751012 | Odisha | India

Phone | +91 99370 71353

Email | sales.bhubaneswar@taxmann.com

Taxmann Guwahati

House No. 2, Samnaay Path, Sawauchi Dakshin Gaon Road

Guwahati – 781040 | Assam | India

Phone | +91 70866 24504

Email | sales.guwahati@taxmann.com

Turn static files into dynamic content formats.

Create a flipbook
Issuu converts static files into: digital portfolios, online yearbooks, online catalogs, digital photo albums and more. Sign up and create your flipbook.
Taxmann's Analysis | What's New?—ITR Forms [Assessment Year 2025-26] by Taxmann - Issuu