Income Tax Return forms changed; Govt notifies forms 1 and 4 for assessment year (AY) 2025-26

In a move set to ease the tax filing burden for a significant portion of the taxpayer base, the Income Tax Department has officially notified the Income Tax Return (ITR) forms 1 and 4 for the assessment year (AY) 2025-26. These simplified forms are designed for individuals and entities reporting a total annual income of up to ₹50 lakh.

Key changes announced the ITR filing notifications

The most noteworthy change comes as a welcome relief for small investors. Now, individuals who have accrued long-term capital gains (LTCG) of up to ₹1.25 lakh within a financial year are also eligible to file the user-friendly ITR-1 (Sahaj) form. Previously, these individuals were required to navigate the more complex ITR-2 form.

With this notification in effect, individuals, Hindu Undivided Families (HUFs), and firms (excluding Limited Liability Partnerships – LLPs) earning up to ₹50 lakh, including income from business and profession in the fiscal year 2024-25 (April-March), can now commence the process of filing their income tax returns for the income earned during this period.

ITR Form 1 (Sahaj) and ITR Form 4 (Sugam) are known for their straightforward structure, catering specifically to a large segment of small and medium-sized taxpayers.

Who can use these simplified forms?

• ITR Form 1 (Sahaj): This form is applicable to resident individuals with an annual income of up to ₹50 lakh, deriving income from salary, ownership of a single house property, other sources (such as interest), and agricultural income not exceeding ₹5,000 per year. Importantly, this now includes those with LTCG up to ₹1.25 lakh.
• ITR Form 4 (Sugam): Individuals, HUFs, and firms (excluding LLPs) with a total annual income of up to ₹50 lakh and income generated from business and profession can utilize this form.
• ITR-2: This more detailed form is now specifically for individuals and HUFs who do not have income from profits and gains in business or profession, or those with LTCG exceeding ₹1.25 lakh or capital losses to carry forward.

Tax experts have lauded these changes. Sandeep Sehgal, Partner-Tax at AKM Global, a prominent tax and consulting firm, stated, “The Central Board of Direct Taxes (CBDT) has introduced significant changes to the Income Tax Return (ITR) forms for Assessment Year (AY) 2025-26, particularly benefiting salaried taxpayers with long-term capital gains (LTCG) from equity shares and mutual funds.”

Sehgal further elaborated, “With the latest amendments, individuals can now utilize the simpler ITR-1 (Sahaj) or ITR-4 (Sugam) forms if their LTCG under Section 112A does not exceed ₹1.25 lakh and they have no capital losses to carry forward or set off.”

He emphasized that “this change streamlines the tax filing process, making it more accessible and less burdensome for small investors and salaried individuals, thereby encouraging timely and accurate compliance.”

This notification from the I-T department signals a clear move towards simplifying the tax filing process for a large segment of taxpayers, especially those with modest investment gains. The ability to use simpler forms will likely save time and reduce the complexity associated with tax compliance.