ITR Form 7 for AY2025-26 notified: Buyback loss relief, capital gains split bring clarity for exempt entities

ITR filing 2025-26: The Central Board of Direct Taxes (CBDT) has announced the updated Income Tax Return (ITR) Form 7 for the assessment year 2025-26, aligning with changes introduced in the Finance Act, 2024. This form is particularly relevant for entities like charitable trusts, political parties, and research institutions, which are required to file under sections 139(4A), 139(4B), 139(4C), or 139(4D) of the Income Tax Act. 

One of the significant inclusions in the new form is the separation of capital gains based on transaction dates, specifically before and after 23rd July 2024, to reflect the revised capital gains rules.

Entities such as scientific research bodies, news agencies, colleges, and universities must also utilise ITR-7, especially if they claim exemptions under sections like 10(23C) and 10(21). 

The form mandates reporting capital gains separately for transactions executed before and after the specified date, significantly impacting indexation and tax calculations. This update aims to streamline compliance and ensure clarity in tax reporting, addressing the complexities that arise from recent legislative amendments. With these changes, the CBDT seeks to enhance the transparency of tax filings from organisations operating on a not-for-profit basis.

Another major update pertains to the treatment of capital loss from share buybacks, effective from 1st October 2024. If a shareholder lists dividend income under 'income from other sources,' they can now claim the corresponding capital loss on share buybacks. This change rectifies a long-standing issue concerning the double taxation of such transactions, providing taxpayers with a clearer framework for reporting and potentially reducing their taxable income. 

Moreover, the form incorporates new fields for Section 24(b) regarding deductions on interest paid for house properties. In order to enhance transparency and accuracy in reporting, updates have been made to Section 24(b) reporting for interest on housing loans. These updates include the addition of new fields to capture deductions claimed, providing more detailed information on interest paid for house properties owned by the entities. 

Furthermore, entities will now be required to specify the TDS section code in the Schedule-TDS to improve verification of tax deductions.

"ITR Form 7 is the return form to be used by entities such as religious and charitable trusts, political parties, scientific research institutions, educational institutions and other not-for-profit organisations, which are allowed exemptions under the Income Tax Act, 1961. The government has been putting in efforts to make the forms in a manner that bring about more transparency and accountability so as help tax authorities to assess the organisation's income and expenditure accurately. Similar to updated ITR 3 and ITR 5 issued earlier, key amendments to ITR 7 includes detailed disclosure while claiming interest deduction on house property, allowing set off for loss on account of buy back of shares where associated dividend is offered to tax under income from other sources, mandatory disclosure of TDS sections in Schedule TDS and bifurcation of capital gains before and after 23rd July 2024 as per the amendment in capital gains tax rate," said Anita Basrur, Partner, Sudit K. Parekh & Co. LLP.

Filing of  ITR 7

The filing process for ITR-7 will be activated soon, with submissions required to be made electronically via the Income Tax Department’s e-filing portal. For political parties and entities needing audited financial statements, digital signatures are mandatory. This development is part of ongoing governmental efforts to streamline tax compliance, reinforcing the importance of accurate and timely filings for exempt organisations. The amendments aim to facilitate a more efficient tax infrastructure, encouraging better adherence to the legal framework by simplifying the process for filing returns.[4]