By Neeraj Agarwala
The Income Tax Department has notified the new ITR-1, ITR-3, and ITR-4 forms well in advance for filing income tax returns for Assessment Year (AY) 2025–26. The newly notified forms incorporate recent legislative changes while retaining structural consistency. Here are some key changes taxpayers should be aware of before selecting the appropriate ITR form:
Capital gains now included in ITR-1 & ITR-4
The updated ITR-1 and ITR-4 forms now allow declaration of exempt long-term capital gains (LTCG) under Section 112A up to Rs 1.25 lakh, such as gains from the sale of listed equity shares or units of equity-oriented mutual funds. This inclusion enables eligible taxpayers to use ITR-1 or ITR-4 without shifting to a more complex form solely for reporting exempt capital gains.
Declaration for opting out of new tax regime
The new tax regime remains the default for individual taxpayers. However, individuals can opt for the old tax regime by submitting Form 10-IEA.
For those without income from business or profession, the regime choice can be changed every year. For those with business or professional income, the choice can be changed only once.
This update creates greater transparency, allowing individuals to opt for the old tax regime after ensuring that the necessary declarations were made in the prescribed Form 10-IEA.
Detailed capital gains reporting in ITR-3
The Union Budget 2024 introduced major reforms in capital gains taxation aimed at simplification:
Holding periods are now standardised into: 12 months for listed securities (LTCG beyond 12 months); 24 months for all other assets, including unlisted shares and immovable property. For immovable property, taxpayers can choose: 12.5% without indexation, or 20% with indexation.
These changes were effective from July 23, 2024. The ITR-3 form has been updated accordingly—Schedule CG now includes separate columns to report asset transfers made before or after the effective date, ensuring clarity in capital gains computation.
Drop-Down Option for Section 80C Deductions: Earlier, taxpayers had to declare a lump-sum deduction amount. The new forms introduce a drop-down menu allowing taxpayers to specify the type of eligible investment and the respective deduction amounts. This adds transparency and enables the I-T department to cross-verify claims.
With the inclusion of exempt capital gains in simpler forms, clearer regime declaration mechanisms, detailed capital gains reporting, and structured deduction disclosures, taxpayers are now better equipped to file accurate returns.
The writer is partner, Nangia & Company. Inputs from Neetu Brahma.
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