Determine the appropriate ITR form for your situation: Accurately report any capital gains in your tax declaration
Simplified Income Tax Return Filing for AY 2025-26
For the Assessment Year (AY) 2025-26, taxpayers in India have a new and easier way to report long-term capital gains (LTCG) up to Rs 1.25 lakh under Section 112A.
Previously, taxpayers had to report such exempt gains on the ITR-2 or ITR-3 forms. However, for AY 2025-26, taxpayers can now use the simpler ITR-1 (Sahaj) or ITR-4 (Sugam) forms if they meet the eligibility criteria, such as no carry-forward capital loss. This change was introduced to simplify compliance [1][2].
The exemption threshold for LTCG under Section 112A has also been increased from Rs 1 lakh to Rs 1.25 lakh, as per the Union Budget 2024 for the Financial Year 2024-25/AY 2025-26 [1][3]. LTCG arising from the sale of listed equity shares and equity-oriented mutual funds up to Rs 1.25 lakh is exempt from tax and can be reported in ITR-1 or ITR-4 [1][2].
If LTCG exceeds Rs 1.25 lakh, taxpayers must opt for the more complex ITR-2 or ITR-3 forms. In these forms, taxpayers enter the sale value and cost of acquisition, and the form auto-calculates the LTCG. The form restricts filing if the exempt LTCG limit is exceeded [2].
It is essential for taxpayers to exercise due diligence in classification and disclosure to ensure compliance and mitigate the risk of litigation. Neglecting to maintain proper documentation of asset sales or inconsistencies between Form 26AS/AIS and the return can trigger compliance issues.
Other changes in the ITR utilities for AY 2025-26 include a new schedule for reporting home loan interest deductions under Section 24(b), requiring disclosure of lender details and loan particulars. Taxpayers must specify the section under which TDS has been deducted while filing their ITR.
Taxpayers must also bifurcate capital gains based on the date of transfer: before and on/after July 23, 2024, due to revised tax rates. Failing to disclose the exact transfer date or misclassifying gains can result in incorrect tax computation.
For resident individuals with total income up to Rs 50 lakh from salary or pension, one house property, and other sources, excluding certain exceptions, ITR-1 is the appropriate form. Individuals must specify whether their place of work is in a metro or non-metro city for HRA calculation in AY 2025-26.
ITR-2 is applicable to individuals and HUFs who are not engaged in any business or professional activity and have income from multiple sources, capital gains, and house properties, but not profits and gains from business or profession. Taxpayers with short-term capital gains or LTCG exceeding Rs 1.25 lakh must opt for ITR-2 or ITR-3.
A new row has been inserted in ITR-2 and ITR-3 for reporting capital loss on buyback of shares and respective deemed dividend income. Additional schedules for deductions under Sections 80C, 80E, 80EE, 80EEA, and 80EEB have been introduced for declaration of respective details.
Sandeep Sehgal, partner, Tax, AKM Global, a tax and consulting firm, emphasized the importance of these steps to avoid issues. He advised taxpayers to be careful in their selection of the ITR form, accurate reporting of gains, and a thorough review of all schedules to avoid pitfalls.
The deadline for filing income tax returns (ITR) is September 15, 2025. The ITR utilities have undergone significant updates for AY 2025-26, making it easier for taxpayers to file their returns accurately and efficiently.
References: [1] The Hindu [2] Livemint [3] Business Standard
- To maximize personal-finance gains from the enhanced LTCG exemption limit, one could consider investments in listed equity shares and equity-oriented mutual funds.
- With the exemption threshold for LTCG now at Rs 1.25 lakh, it's crucial for taxpayers to opt for the appropriate ITR form based on the nature and amount of capital gains, as well as other sources of income.
- The updates in the ITR utilities for AY 2025-26 introduce new schedules for reporting capital gains and various deductions, such as those under Sections 80C, 80E, 80EE, 80EEA, and 80EEB.
- The world of finance extends beyond traditional markets, with DeFi (Decentralized Finance) gaining traction as a digital alternative for individuals managing their personal-finance were it not for the fact that such platforms are not considered for income tax reporting in India at present.
