Filing your taxes for FY25? Here's how to pick the right ITR form based on your income type

Taxpayers can now submit their tax returns for the recently ended financial year using newly released forms by the Central Board of Direct Taxes. The Income Tax Department recently made available ITR Forms 1 to 5, with more forms expected to be released soon. This year, there have been significant changes to the eligibility criteria and requirements in certain cases.

Income Tax Return (ITR) is a document that individuals use to report their income and tax obligations to the tax authorities. Different forms are designated based on the taxpayer's income, the source of income, and other factors such as their residential status. The department has notified 7 forms - ITR-1, ITR-2, ITR-3, ITR-4, ITR-5, ITR-6 & ITR-7 so far. It is important for every taxpayer to submit their ITR on or before the specified deadline.The applicability of ITR forms varies depending on the sources of income of the taxpayer, the amount of the income earned and the category of the taxpayer like individuals, HUF, company, etc.

How to choose the right ITR form

Case 1: ITR-1 vs ITR-3 – Which form should you file, especially with capital gains?

With the CBDT notifying ITR forms for AY 2025–26, the distinction between ITR-1 and ITR-3 has become sharper —especially for those reporting capital gains.

Who should use ITR-1 (Sahaj)?

ITR-1 is designed for resident individuals whose total income does not exceed ₹50 lakh and includes:

Salary/pension income

One house property

Income from other sources (like interest)

Agricultural income up to Rs 5,000

Long Term Capital Gains (LTCG) under Section 112A up to Rs 1.25 lakh, provided there is no carry forward of capital loss

New addition for FY 2024–25: The ITR-1 form now allows small investors to report LTCG (such as from equity mutual funds or listed shares) up to ₹1.25 lakh without requiring a shift to a more complex form—a key benefit for retail investors.

However, ITR-1 cannot be used if you:

Are a company director

Have unlisted equity shares

Own foreign assets

Received ESOPs from a foreign employer

Need to carry forward capital losses

Who should use ITR-3?

ITR-3 is for individuals and HUFs (resident or non-resident) earning:

Income from business/profession

Income as a partner in a firm

Any other income including salary, house property, capital gains, or other sources

Any capital gains income, including carry forward or set-off of losses

So, if your capital gains exceed Rs 1.25 lakh or you want to carry forward losses, you must use ITR-3.

"Small investors reporting long-term capital gains up to Rs 1.25 lakh without any carry-forward losses can file ITR-1, while individuals with complex capital gains or business income are required to use ITR-3," said CA. Akshay Jain, Direct Tax Partner, NPV& Associates LLP.

Case 2: When is ITR-5 applicable?

With the release of the updated ITR-5 for AY 2025–26 (via CBDT Notification No. 42/2025), the filing responsibilities for non-individual entities are now clearer.

Who should file ITR-5?

ITR-5 is applicable to:

Firms (excluding sole proprietorships)

LLPs (Limited Liability Partnerships)

Association of Persons (AOPs)

Body of Individuals (BOIs)

Certain cooperative societies and trusts not required to file ITR-7

ITR-5 is not applicable to:

Individual taxpayers

Companies

Trusts that are mandated to file ITR-7

Key changes in ITR forms for AY2025-26

Easing of Regulations for Small Taxpayers with Capital Gains

Individuals earning a salary or owning a small business with long-term capital gains (LTCG) under Section 112A, up to Rs 1.25 lakh, are now allowed to file ITR-1 or ITR-4, even if they declare such gains.

Revised Capital Gains Tax Rates

Effective for transfers made on or after July 23, 2024:

Short-term capital gains (STCG) under Section 111A will be taxed at 20% (previously 15%)
Long-term capital gains (LTCG) under Sections 112 and 112A will be taxed at 12.5% without indexation
Transfers made before this date will continue to be taxed under the previous regime.
Taxation of Buyback Proceeds as Dividend

Starting October 1 of the previous year, buyback income will now be taxed as deemed dividend in the hands of shareholders. The buy-back tax paid by companies under Section 115QA has been eliminated.

Introduction of Section 115BAC

Forms ITR-3, 4, and 5 now require confirmation regarding opting out of the new tax regime and whether Form 10-IEA was filed in previous years.

Going forward, only valid Aadhaar numbers will be accepted in Income Tax Returns (ITRs) 1, 2, 3, and 5, to comply with recent changes in Section 139AA.