The Central Board of Direct Taxes (CBDT) has officially notified the updated ITR-1 (Sahaj) and ITR-4 (Sugam) forms for Assessment Year 2025-26 (Financial Year 2024-25), effective from April 29, 2025. These simplified forms are designed to facilitate return filing for salaried individuals, pensioners, and small business owners or professionals with straightforward income profiles. While the core structure of the forms remains largely familiar, several noteworthy amendments have been made to align with recent policy updates and improve transparency and ease of compliance.
Below is a detailed overview of the key changes and eligibility criteria:
1. Expanded Scope for Reporting Long-Term Capital Gains under Section 112A
One of the most significant changes this year is the inclusion of long-term capital gains (LTCG) under Section 112A-up to Rs 1.25 lakh-in both ITR-1 and ITR-4. Previously, any LTCG necessitated the use of ITR-2 or ITR-3, even if the gains were nominal.
Now, if:
- The total LTCG under Section 112A does not exceed Rs 1.25 lakh, and
- There is no brought forward or carry forward capital loss,
Then the taxpayer can file ITR-1 or ITR-4.
Section 112A applies to LTCG on the sale of:
- Listed equity shares,
- Units of equity-oriented mutual funds,
- Units of business trusts,
Provided Securities Transaction Tax (STT) has been paid at the time of transfer. Gains up to Rs 1 lakh are exempt, and gains exceeding this (up to Rs 1.25 lakh for simplified ITR eligibility) are taxed at 10% (effective rate with surcharge and cess may vary).
2. New Disclosure for Exempt Capital Gains
A new subsection titled “Income on which no tax is payable” has been introduced to capture details of exempt LTCG under Section 112A. Taxpayers must disclose:
- Total Sale Consideration
- Cost of Acquisition
- Resulting LTCG
This change ensures greater clarity and traceability of exempt income and supports more robust compliance monitoring.
3. Clarification on Form 10BA for Section 80GG Deduction (Rent Paid)
For taxpayers claiming a deduction under Section 80GG (rent paid where HRA is not received), it is now mandatory to electronically submit Form 10BA along with the income tax return. Failure to do so may disqualify the claim.
This deduction remains inapplicable to taxpayers opting for the new tax regime under Section 115BAC.
4. Enhanced Reporting in TDS/TCS Schedule
The revised ITR forms require taxpayers to specify the section under which TDS or TCS has been deducted. For instance:
- Section 194 for dividend income,
- Section 194A for interest on bank deposits.
These can be cross-referenced with Form 16A, Form 26AS, or AIS/TIS to ensure accuracy. This change enhances traceability and minimizes mismatches between reported income and tax credits.
5. Opting In or Out of New Tax Regime – Section 115BAC
ITR-4 now includes a dedicated section for taxpayers to disclose their status under the optional new tax regime:
- Taxpayers must indicate whether Form 10-IEA was filed in AY 2024-25.
- If not filed previously, Form 10-IEA must be submitted for AY 2025-26 before or on the due date (July 31, 2025, for non-audit cases) to opt out of the new regime under Section 115BAC(6).
This clarification is vital, especially for taxpayers shifting between the old and new regimes, as this choice has long-term implications unless revoked under permitted timelines.
Eligibility for ITR-1 (Sahaj) – AY 2025-26
ITR-1 can be used by an individual who meets all the following conditions:
- Is a resident individual (other than “not ordinarily resident”),
- Has total income up to Rs 50 lakh,
- Has income from salary, one house property, other sources (interest, etc.),
- Has LTCG under Section 112A up to Rs 1.25 lakh,
- Has agricultural income up to Rs 5,000.
ITR-1 cannot be used if the individual:
- Has capital gains other than those under Section 112A,
- Has foreign assets or income,
- Is a director in a company or has unlisted equity shares,
- Has income taxable under Section 115BAC without opting through Form 10-IEA (if applicable),
- Has deferred tax on ESOPs or TDS under Section 194N.
Eligibility for ITR-4 (Sugam) – AY 2025-26
ITR-4 can be used by:
- Individuals, HUFs, or Firms (excluding LLPs),
- Who are residents, and
- Have total income up to Rs 50 lakh,
- Have income under presumptive taxation (Sections 44AD, 44ADA, 44AE),
- Have LTCG under Section 112A up to Rs 1.25 lakh.
ITR-4 cannot be used by those:
- With agricultural income over Rs 5,000,
- Holding foreign assets or foreign income,
- Being directors in companies or holding unlisted equity shares,
- Having deferred tax on ESOPs,
- Who requires audit under any provision other than the presumptive scheme.
Conclusion
The recent updates to ITR-1 and ITR-4 forms for AY 2025-26 reflect the government’s continuing efforts to simplify return filing for small taxpayers while ensuring robust compliance. The inclusion of small capital gains within simplified forms, mandatory electronic filing of declarations like Form 10BA, and enhanced reporting requirements mark a shift towards more structured, data-driven tax administration.
