The Income Tax Department has notified new ITR forms for FY 2024-25, detailing eligibility and exclusions for each form. Forms cater to different taxpayer categories, with updates including a new section for tax-exempt long-term capital gains.
The Income Tax Department has released the Income Tax Return (ITR) forms 1, 2, 3, 4, and 5 for the financial year 2024-25. These forms were announced between April 29 and May 3, 2025, to streamline the filing process for individuals and entities. ITR-1 (Sahaj) and ITR-4 (Sugam) are designed for small and medium taxpayers, allowing for simplified reporting of income. The Sahaj form is for resident individuals with an income up to Rs 50 lakh from salary, one house property, interest, and agricultural income up to Rs 5,000. Sugam is applicable to individuals, Hindu Undivided Families (HUFs), and non-LLP firms with income up to Rs 50 lakh from business and profession.
ITR-1, also known as Sahaj, is tailored for resident individuals with a total income not exceeding Rs 50 lakh. Eligible income includes salary, pension, income from one house property, and other sources such as interest from savings or fixed deposit accounts. Exclusions apply to individuals who are company directors, have investments in unlisted equity shares, or possess foreign assets or income. Additionally, those with capital gains exceeding the specified threshold, or carrying forward losses, cannot use this form. The updated ITR-1 for AY 2025-26 now includes a section for reporting tax-exempt long-term capital gains (LTCG) under Section 112A.
For individuals and HUFs not eligible for ITR-1, ITR-2 is the appropriate form. This form is intended for those without income from business or profession but allows for income clubbing from a spouse or minor child, provided the income fits within the defined categories. ITR-3 is designated for individuals and HUFs involved in business or professions, requiring comprehensive account maintenance. This form is especially relevant for professionals like doctors, lawyers, and chartered accountants, whose earnings are calculated based on actual business profits.
Further simplifying tax returns for small businesses, ITR-4, or Sugam, can be used by resident individuals, HUFs, and firms (excluding LLPs) with income not exceeding Rs 50 lakh. This form also covers income from business and profession computed on a presumptive basis under sections 44AD, 44ADA, or 44AE, alongside salary, pension, and other sources. Similar to ITR-1, the new ITR-4 form for AY 2025-26 incorporates reporting of LTCG under the exemption limit of Rs 1.25 lakh as per Section 112A.
Finally, ITR-5 is designated for filing by firms, Limited Liability Partnerships (LLPs), Associations of Persons (AOPs), Bodies of Individuals (BOIs), and Artificial Juridical Persons (AJPs). This ensures comprehensive categorisation for diverse taxpayer profiles, enabling them to adhere to their tax obligations efficiently. The latest updates in these forms aim to enhance transparency and compliance within the tax filing system.
ITR Form 1 vs ITR Form 3
“ITR Form 1 or Sahaj is the return filing form for resident individuals with income not exceeding INR 50 lacs from salary, income from one house property and other sources incomes like interest. The said form cannot be used by taxpayers having income from business, taxable capital gains, lottery winnings etc. Of course, with a view to simplify the reporting requirements, in the updated ITR Form 1 individual taxpayers can now report income from long-term capital gains (sale of shares/ mutual funds) not exceeding INR 1.25 lakhs covered under section 112A of the Income Tax Act. Earlier, these taxpayers were required to file more detailed and complex forms ITR-2/ITR-3,” an tax expert said.
She added: “In comparison, ITR Form 3 is more comprehensive and is intended for individuals (both residents and non-residents) and Hindu Undivided Families (HUFs) taxpayers with income from business or profession, capital gains, lottery winnings, multiple house properties. The form now provides for separate reporting of capital gains up to 23 July 2024 and thereafter. The form requires parting with a lot more information such as reporting of specified high value transactions, detailed disclosure of income and profit & loss and requires reporting of assets and liabilities. A notable update in the ITR Form 3 for Assessment Year 2025–26 is that individual taxpayers are now required to fill in the Schedule AL (Assets & Liabilities) only if their total income exceeds Rs 1 crore. This revision is expected to ease the compliance burden taxpayers whose income falls between Rs 50 lakh and Rs 1 crore.”
“The CBDT has officially notified the ITR-3 for AY 2025-26, marking the start of income tax filing for FY 2024-25. Notable updates include the split of capital gains based on the Finance Act 2024, which requires taxpayers to categorise gains before and after 23rd July 2024 for accurate tax calculation. The reporting limit for assets and liabilities has been raised to Rs 1 crore of total income, ensuring greater transparency for higher-income individuals. The form also includes provisions for cruise business taxation under Section 44BBC, enhanced reporting for deductions like 80C and HRA, and the requirement to report TDS section codes for better tracking and compliance,” another tax expert said.
ITR Form 1 vs ITR Form 3 vs ITR Form 5
The Income Tax department has highlighted various changes in the ITR Form 5, with one significant revision being the introduction of a split within the Schedule-Capital Gain. Taxpayers are now required to report capital gains before and after July 23rd, 2024.
Additionally, the updated form now allows for the reporting of capital loss incurred on share buybacks, with the condition that corresponding dividend income from these transactions must be declared as “income from other sources.” This requirement applies to transactions occurring after October 1st, 2024.
Moreover, there is a new reference to section 44BBC of the Income Tax Act included in the form. Another important update is the necessity to specify the Tax Deducted at Source (TDS) section code within Schedule-TDS.
“ITR 5 is designed for firms, Limited Liability Partnerships (LLPs), and including association of persons (AOPs), body of individuals (BOIs), artificial jurisdiction person and other similar entities. Similar to ITR 3, the form provides for separate reporting of capital gains upto 23 July 2024 and thereafter. Further the form allows claiming loss on account of buy back of shares only if associated dividend is offered to tax under income from other sources. This keeps a check on tax payers and only allows genuine claims. The form requires filling of TDS codes mandatorily,” she added.
Capital Gains Tax filing
Salaried individuals and those under the presumptive taxation scheme can now file ITR-1 and ITR-4 for long-term capital gains (LTCG) up to Rs 1.25 lakh in a fiscal year. Previously, they were required to file ITR-2.
According to the Income Tax law, LTCG of up to Rs 1.25 lakh from the sale of listed shares and mutual funds are tax-exempt. Gains exceeding this amount are subject to a 12.5% tax.
ITR 2 is applicable to a majority of taxpayers, especially those who are salaried employees and pensioners. The form will be applied retroactively from April 1, 2025, meaning it will apply since the beginning of the current financial year.
The recently updated ITR-2 includes two significant changes in the capital gains (CG) schedule. The details of capital gains transactions conducted during the year are now to be filled in Schedule CG, found in Part A of the ITR-2 form. Taxpayers must now specify whether the transfer of assets resulting in long/short-term capital gains/losses occurred before or after July 23, 2024.
Another tax expert, stated that this change to allow individuals with minimal LTCG to use ITR-1 or ITR-4 will simplify the return filing process and reduce the burden for taxpayers. This move aims to enhance taxpayer services, promote voluntary compliance, reduce stress related to filing, and make the system more user-friendly for small taxpayers.
“If your total capital gains from mutual funds and listed shares exceed Rs 1 lakh—whether as short-term capital gains (STCG) or long-term capital gains (LTCG)—you must file ITR-2. ITR-1 and ITR-4 allow reporting of LTCG only up to Rs 1.25 lakh and do not support STCG or carry forward of capital losses. ITR-2 is specifically designed for individuals with capital gains above Rs 1.25 lakh, STCG, or multiple capital gain transactions. ITR-3 applies only if you also have income from business or profession,” another tax expert said.
