What all has changed Form ITR-1 (Sahaj), Form ITR-4 (Sugam) for AY2025-26? Expert decodes forms for taxpayers

The Income Tax Department has introduced simplified Income Tax Return (ITR) forms for the assessment year (AY) 2024–25 to streamline the filing process for taxpayers with long-term capital gains (LTCG) of up to Rs 1.25 lakh.

Individuals earning income from salary, pension, rental income from a single house, or interest on investments, and who also have LTCG from specified instruments like listed equity shares, equity mutual funds, and business trusts, can now opt for filing their returns using ITR-1 (Sahaj) or ITR-4 (Sugam) if their total annual income does not exceed Rs 50 lakh. Previously, these taxpayers were required to use ITR-2 alongside ITR-1 or ITR-4.

The updated forms, issued by the Central Board of Direct Taxes (CBDT), aim to lighten the compliance load for small taxpayers. However, if the LTCG surpasses Rs 1.25 lakh, or if there are short-term capital gains, LTCG from immovable property, or carried-forward capital losses, taxpayers will still need to utilise ITR-2.

"The CBDT, vide Notification No. 40/2025 dated April 29, 2025 [G.S.R. 271(E)], has notified the Income Tax Return (ITR) FORMS ITR-1 (Sahaj) and ITR-4 (Sugam) for the Assessment Year (AY) 2025–26, in exercise of the powers conferred under Section 295 of the Income-tax Act, 1961 (hereinafter referred as the “IT Act”). The notification amends the Income-tax Rules, 1962 (hereinafter referred as the “IT Rules”), making these revised forms applicable for filing returns with effect from 1st April 2025. This update enables taxpayers to file returns using the updated forms in alignment with the provisions of the Act," said CA (Dr.) Suresh Surana.

Dr Surana decoded the tax forms, highlighting the key changes:

Recent update in ITR forms regarding Capital Gains reporting

> Previously, Form ITR-1 (Sahaj) and Form ITR-4 (Sugam) did not contain any specific provision to report income under the head Capital Gains, including exempt long-term capital gains. As a result, taxpayers with such income were required to file other applicable ITR forms that provided the necessary reporting structure.

> However, CBDT through Notification No. 40/2025 dated 29th April 2025, has introduced significant amendments to Form ITR-1 (Sahaj) and Form ITR-4 (Sugam) for the Assessment Year 2025–26, with the objective of simplifying the return filing process.

> As per the revised Form ITR-1 (Sahaj), a new option has been introduced under the 'Exempt Income' category in the dropdown menu, providing a specific field for reporting Long-Term Capital Gains (LTCG) under Section 112A that are not chargeable to Income-tax i.e., gains within the exemption limit of Rs. 1.25 lakhs on which no tax is payable.

Form ITR-4 (Sugam)

> Similarly, the revised Form ITR-4 (Sugam) now includes a separate line item titled 'Income on which no tax is payable: Long-Term Capital Gains under Section 112A not chargeable to Income-tax,' also allowing taxpayers to report such exempt LTCG.

> This update enables taxpayers who are otherwise eligible to use ITR-1 or ITR-4 and who also have exempt LTCG income under Section 112A (such as gains from the sale of listed equity shares or units of equity-oriented mutual funds) to report such income directly within these simplified forms. However, carry forward and/or set-off of capital losses details cannot be provided in these forms.

Revised compliance requirement for rent deduction

> Individuals who do not own a residential property at their place of work or residence, and do not receive House Rent Allowance (HRA) as part of their salary. The benefit is available to self-employed persons and salaried individuals alike. A taxpayer can claim the least of the following as deduction:

 
Ø  Rent paid minus 10% of total income,

 
Ø  Rs. 5,000 per month, or

 
Ø  25% of total income.

 > The Income Tax Department has introduced a significant compliance requirement for individuals claiming deductions under Section 80GG of the Act, which permits deduction of rent paid by taxpayers not receiving HRA. Accordingly, in order to avail this benefit, it is mandatory to file a declaration in Form No. 10BA. While earlier there was no specific deadline prescribed under the IT Rules for submitting this form, CBDT via Notification No. 40/2025 dated 29th April 2025, has now mandated that Form 10BA must be furnished along with the return of income.

 > Additional compliance requirement
 
> From AY 2025–26, Form ITR 4 further seeks disclosure as to whether the assessee had filed Form 10-IEA in AY 2024–25 i.e. in the previous financial year alongside the question “whether the assessee intends to continue with or opt out of the new regime for the current assessment year”.