Tax filing eased: ITR-1 to ITR-4 see major changes for AY25-26; check which form is right for you

The Income Tax Department has revised ITR forms for FY 2024-25, introducing a key change that allows individuals with long-term capital gains up to Rs 1.25 lakh from listed equity shares or equity mutual funds to file using ITR-1, provided they’re ordinarily resident and their total taxable income doesn’t exceed Rs 50 lakh. This move aims to simplify tax filing for eligible taxpayers and broaden the use of ITR-1.  

Previously, any taxpayer with capital gains couldn’t use ITR-1. Now, the revised criteria enable more individuals to file with this simpler form. To be eligible, taxpayers must earn income from salary, one house property, other sources like interest or pension, and agricultural income not exceeding Rs 5,000. Long-term capital gains under Section 112A of the Income Tax Act are included in this eligibility expansion, reflecting efforts to ease compliance.

For taxpayers who don’t qualify for ITR-1, ITR-2 has been updated to handle capital gains reporting both before and after 23 July 2024, considering new rules on capital gains calculation. Additionally, the threshold for mandatory reporting of assets and liabilities has doubled to Rs 1 crore from Rs 50 lakh. This change offers relief and convenience for higher-income taxpayers navigating complex financial disclosures.  

Another change in ITR-2 is the provision allowing taxpayers to claim capital losses on share buybacks from 1 October 2024. This update offers greater flexibility in managing tax liabilities for those involved in such transactions. Overall, the ITR-2 updates ensure taxpayers can appropriately account for recent rule changes and handle varied capital gains scenarios more effectively, aligning tax processes with current market realities.  

Professionals like doctors and lawyers can now file ITR-4 if their income is up to Rs 75 lakh, provided most payments are received through banking channels. For businesses under presumptive taxation, the ITR-4 income limit remains Rs 2 crore but extends to Rs 3 crore if payments are mostly digital or bank-based. This flexibility is crucial for small businesses and professionals, helping them benefit from simplified filing processes.  

The Income Tax Department’s updates aim to streamline the filing process and reflect recent legislative changes. Taxpayers must carefully assess these updates to select the correct ITR form for FY 2024-25. The revisions form part of broader efforts to modernise the tax system, making compliance more digital, efficient, and user-friendly. These initiatives signal the government’s focus on easing tax obligations and adapting regulations to evolving economic and taxpayer needs.