Income Tax Return (ITR) forms for Assessment Year (AY) 2025-26, incorporating amendments proposed in the Finance Act, 2024 (“Act”) has been notified. ITR-1 (SAHAJ), ITR-2, and ITR-3 forms aim to enhance compliance, streamline disclosures, and simplify reporting—especially for salaried taxpayers. IT website claims that together these forms accounted for nearly 70% of all ITRs filed for AY 2024–25.

Capital Gains (CG) reporting

• ITR-1 enhancements:

Individuals with salary income and having long-term capital gains (LTCG) from listed equity shares, equity oriented mutual funds, etc. up to an aggregate of ₹1.25 lakhs during the year will not be required to file ITR-2. They may file ITR-1, a much simpler form. As the new ITR-1 form includes a dedicated section to report LTCG exempt up to ₹1.25 lakh. However, those with LTCG beyond ₹1.25 lakhs and short-term capital gains or carry-forward losses must continue using ITR-2.

• ITR-2 & ITR-3 Changes:
  • Split reporting due to change in tax rates: The CG schedule now mandates separate reporting of gains/losses from transactions conducted up-to July 23, 2024, and afterwards. This was required to accommodate varying tax rates applicable for transactions made in the corresponding period. The new column-wise disclosure format increases complexity, especially for taxpayers with multiple transactions but this was unavoidable being a transition year.
  • Change in holding period & computation: The ITR forms now require holding period to be tracked by reporting the date of transfer. Since the transfers made on or before July 23, 2024, requires three year holding period to qualify as long-term capital assets (for instance immovable property, etc.) and transfers after July 23, 2024, requires two years  to qualify as LTCA. Also, computations both with and without indexation at specified rates requires reporting in the new form. Therefore, taxpayers must report and compute gains carefully considering these nuances.
  • Buyback Losses: Specific fields have been introduced to report capital losses from share buyback, allowing taxpayers to offset the entire cost of acquisition as capital loss against CG and report the buyback proceeds as dividend under the “Income from Other Sources.”

TDS Disclosure

A new column in the TDS schedule requires taxpayers to specify the section under which it is deducted, such as, section 192 for salary, section 194A for interest etc. This might help to reconcile TDS claimed in the ITR by the taxpayer with Form 26AS, potentially minimizing mismatches.

Assets & Liabilities

The income threshold for mandatory disclosure of assets and liabilities has been raised from ₹50 lakh to ₹1 crore. This will ease the compliance burden for many salaried taxpayers.

Exemptions & Deductions

Taxpayers claiming various exemptions like life insurance (section 80C), home loan interest (section 24b), HRA (section 10(13A)) etc. will be required to provide specific details like policy number and other granular details in a menu driven drop down. Details awaited until utility and instructions are issued. Taxpayers will have to keep a tab on specific details and receipts relating to payments made for claiming

exemption.

Others

A specific bank account for refunds by ticking a checkbox next to a pre-validated account may be selected, while all active accounts still need to be reported, regardless of their validation status.

• Aadhaar: Only the 12-digit Aadhaar number is now accepted. The option to provide an enrolment ID has been removed, which may impact taxpayers awaiting Aadhaar issuance close to the filing deadline.

• Tax Regime Selection & Form 10-IEA: ITR-3 required taxpayers opting out of the new tax regime under section 115BAC to file Form 10-IEA, but now it comes with some additional specific information.

The changes introduced in the ITR forms reflect a significant step toward a tech-driven, compliance-focused tax ecosystem. With greater disclosures, smarter segmentation, and larger emphasis on detailed reporting, we envisage that the department will aim for an even faster and accurate ITR processing. The e-filing utility and instructions to the form should be released on priority by the department so that taxpayers could source specific information collate required data collation for a smooth filing experience within a short window until 31^st July 2025.

Views expressed in this article are strictly personal.