Which ITR Form to File for AY 2025-26 | Complete Guide to ITR 1, 2, 3 and 4

The Central Board of Direct Taxes (CBDT) typically updates the ITR forms annually to incorporate amendments made to the Income Tax Act by the preceding Finance Act. However, the ITR forms notified for the Assessment Year 2025-26 include some additional reporting requirements beyond the changes resulting from the Finance Act 2024 amendments. Some key changes introduced in the new ITR forms include:

1. 1. LTCG Reporting in ITR-1/4 – Long-term capital gains up to ₹25 lakh under Section 112A can now be reported in ITR-1 and ITR-4. Earlier, taxpayers had to file ITR-2 or ITR-3
   2. Aadhaar Requirement – Only the Aadhaar number is now accepted. Aadhaar Enrolment ID, which was allowed in AY 2024-25, is no longer valid
   3. Opting for New Tax Regime – Taxpayers choosing Section 115BAC must confirm continuation of the opted-out regime and furnish details of Form 10-IE/10-IEA filed in earlier years
   4. Presumptive Taxation for Cruise Business – A new schedule has been added in ITR-3, 5 and 6 for non-residents engaged in the cruise business under Section 44BBC
   5. Revised Capital Gains Tax Rates – From 23 July 2024, STCG under Section 111A is taxable at 20% and LTCG under Sections 112/112A at 12.5%. ITR forms now require date-wise reporting
   6. Unlisted Bonds and Debentures – Gains from transfer after 23 July 2024 are treated as short-term under Section 50AA, even if held for more than 12 months
   7. Disability Deduction Proof – To claim deductions under Sections 80DD and 80U, certificates other than Form 10-IA must now be furnished
   8. Schedule 5A Disclosure – Individuals governed by the Portuguese Civil Code must also disclose audits done under any Income Tax provision or other law, not just under Section 44AB
   9. Schedule AL Threshold Raised – Disclosure of assets and liabilities in ITR-2 and ITR-3 is now required if total income exceeds ₹1 crore (earlier ₹50 lakh)
   10. TDS Schedule Update – Deductors must now specify the section number under which TDS has been deducted
   11. Safe Harbour Rule Reporting – A new reporting field has been introduced in ITR-6 for companies opting for the Safe Harbour Rule in raw diamond businesses under Rule 10TIC

You can read about all the changes notified in the new ITR forms in the following article published on taxmann.com:

• Changes in ITR Forms 1 to 7

Up to Assessment Year 2024-25, even if an assessee’s LTCG under Section 112A was within the exemption limit and there was no tax payable, the presence of capital gains income made them ineligible to file the simpler ITR-1 or ITR-4 forms. Instead, they were required to file the return in ITR-2 or ITR-3 forms, which are more complex and time-consuming. This resulted in a genuine hardship for small taxpayers.

To address this, the ITR forms notified for AY 2025–26 allow salaried individuals eligible to file ITR-1 and small business owners eligible for ITR-4 to continue using these forms, even if they have long-term capital gains (LTCG) provided the total LTCG does not exceed Rs. 1,25,000 which are taxable under Section 112A and there is no brought forward or carry forward capital loss.

Accordingly, a salaried individual having LTCG of Rs. 1,20,000 can choose ITR-1 to file a return of income for Assessment Year 2025-26.