Complete Guide to Choosing the Right ITR Form for Different Incomes

Filing your Income Tax Return (ITR) can often feel like a daunting task, especially when you have to choose the correct form from the many options available. For FY 2024-25 (Assessment Year 2025-26), understanding the nuances of each ITR form is crucial to ensure you file correctly and avoid penalties or missed deductions. The Income Tax Department offers multiple forms designed to cater to different income types and sources, ranging from salaried employees to self-employed professionals and even companies.

The choice of ITR form depends on factors like your income type, deductions, capital gains, and whether you’re filing under the old or new tax regime.

To make the process smoother, platforms like TaxBuddy offer expert assistance in selecting the right form, pre-filling your details, and ensuring you file your return effortlessly. Let's dive into the details and find out which ITR form is best suited for your income profile.

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Table of Contents

• Choosing the Right ITR Form for Different Incomes

• Overview of ITR Forms Relevant for Individuals and Businesses

• Important Updates from Budget 2025 and Latest Notifications

• Conclusion

• FAQs

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Choosing the Right ITR Form for Different Incomes

Choosing the correct ITR form is the first and most important step in the filing process. Each form is designed to cater to specific types of income and tax scenarios, and selecting the wrong one can result in delays, rejections, or unnecessary complications. With the amendments in the Budget 2025 and updates for FY 2024-25, it's more crucial than ever to ensure you're filing the right form.

Let us explore the different Income Tax Return (ITR) forms available for individuals and businesses. We’ll break down which form is suitable based on your income type, whether you're salaried, self-employed, or earning income from multiple sources like business or capital gains. Let us understand the eligibility criteria, limitations, and recent updates that affect the form selection for FY 2024-25 (Assessment Year 2025-26).

Overview of ITR Forms Relevant for Individuals and Businesses

The Income Tax Department provides several ITR forms to cater to the diverse income scenarios of individuals, businesses, and entities. Choosing the correct form ensures accurate reporting and compliance with tax laws. Here's a detailed breakdown of each ITR form and its applicability:

ITR-1 (Sahaj)

• Applicability: ITR-1 is designed for salaried individuals, pensioners, and taxpayers with income up to ₹50 lakh from salary, pension, one house property, and other sources like interest or other small income.

  
  

• Key Updates: The form now allows the reporting of Long-Term Capital Gains (LTCG) of up to ₹1.25 lakh under Section 112A. Previously, individuals with capital gains were restricted from using this form, but now those with small LTCG can use it.

  
  

• Exclusions: ITR-1 cannot be used by individuals who are company directors, have investments in unlisted shares, foreign assets/income, or capital gains above the ₹1.25 lakh threshold.

ITR-2

1. Applicability: ITR-2 is meant for individuals and Hindu Undivided Families (HUFs) who have income from salary, multiple house properties, capital gains, foreign assets, or agricultural income exceeding ₹5,000. It is suitable for individuals with more complex financial profiles but no business or professional income.

   
   

2. Key Updates: This form remains largely unchanged, but it allows taxpayers to report complex income scenarios like foreign income, capital gains, and agricultural income above the exempt limit.

   
   

3. Exclusions: Business or profession income is not covered under ITR-2. Taxpayers with such income must use ITR-3 instead.

ITR-3

1. Applicability: ITR-3 is for individuals and HUFs who have income from business or profession. This includes self-employed individuals, freelancers, professionals (like doctors, lawyers, etc.), and partners in firms. It allows a more detailed reporting of income, including business profit and professional fees.

   
   

2. Key Updates: ITR-3 continues to cater to individuals with income from business/profession and various other sources. It includes detailed reporting requirements and account disclosures.

   
   

3. Exclusions: Those who are not involved in business or profession (such as salaried individuals) should use ITR-2.

ITR-4 (Sugam)

• Applicability: ITR-4 Sugam is for resident individuals, HUFs, and firms (excluding LLPs) who opt for presumptive taxation under Sections 44AD, 44ADA, or 44AE. These sections simplify the process for businesses by providing a presumed profit margin based on turnover, rather than requiring detailed accounting.

  
  

• Key Updates: A key update is the inclusion of LTCG reporting up to ₹1.25 lakh under Section 112A, making this form accessible to small businesses and professionals who have some capital gains.

  
  

• Exclusions: Directors, individuals with foreign assets or income, those reporting agricultural income over ₹5,000, or those with unlisted equity shares cannot use this form.

ITR-5

1. Applicability: ITR-5 is used by firms, Limited Liability Partnerships (LLPs), Associations of Persons (AOPs), Bodies of Individuals (BOIs), and Artificial Juridical Persons (AJPs). It is designed for non-individual entities that need to report their business income, capital gains, and other sources.

   
   

2. Key Updates: ITR-5 remains similar to previous years, but the recent updates streamline the filing for non-individual entities, improving transparency and ease of filing.

   
   

3. Exclusions: Individuals and HUFs should use the appropriate individual-based forms (ITR-1, ITR-2, or ITR-3).

ITR-6

1. Applicability: ITR-6 is for companies (except those claiming exemption under Section 11 for charitable or religious purposes). It covers business income, capital gains, and other income for corporate taxpayers.

   
   

2. Key Updates: ITR-6 ensures that companies comply with tax obligations and include all relevant income types.

   
   

3. Exclusions: Charitable organizations and entities that qualify for Section 11 exemptions must file ITR-7.

ITR-7

1. Applicability: ITR-7 is for trusts, political parties, and other specific entities required to file under specific sections of the Income Tax Act, such as Section 139(4). This includes charitable and religious trusts, political organizations, and other designated entities.

   
   

2. Key Updates: ITR-7 has specific provisions to ensure compliance with tax laws for these types of organizations.

   
   

3. Exclusions: Not applicable to individuals or businesses not operating as entities under specific tax regulations.

Important Updates from Budget 2025 and Latest Notifications

1. Income Tax Bill, 2025: The government introduced the Income Tax Bill, 2025, aiming to simplify the tax code, remove redundant provisions, and make the language more accessible. However, the tax rates and regimes for FY 2024-25 remain unchanged, and the proposed changes will only take effect starting FY 2025-26.

   
   

2. Tax Rates for FY 2024-25 & 2025-26:

New Regime Tax Rates for FY 2025-26

The revised tax slabs under the new tax regime for FY 2025-26 are as follows:

• Up to ₹4 lakh: Nil

• ₹4 lakh to ₹8 lakh: 5%

• ₹8 lakh to ₹12 lakh: 10%

• ₹12 lakh to ₹16 lakh: 15%

• ₹16 lakh to ₹20 lakh: 20%

• ₹20 lakh to ₹24 lakh: 25%

• Above ₹24 lakh: 30%

This adjustment in the new regime is aimed at providing more relief to taxpayers, particularly those with income up to ₹4 lakh, who will now benefit from a zero tax liability.

New Regime Tax Rates for FY 2024-25

The new regime tax rates for FY 2024-25 (Assessment Year 2025-26) are:

• Up to ₹3 lakh: Nil

• ₹3 lakh to ₹7 lakh: 5%

• ₹7 lakh to ₹10 lakh: 10%

• ₹10 lakh to ₹12 lakh: 15%

• ₹12 lakh to ₹15 lakh: 20%

• Above ₹15 lakh: 30%

While the tax slabs for FY 2024-25 remain unchanged, the new tax regime continues to offer lower rates and no deductions.

Old Regime Tax Rates for FY 2025-26 and FY 2024-25

The old tax regime for both FY 2025-26 and FY 2024-25 remains as follows:

• Up to ₹2.5 lakh: Nil

• ₹2.5 lakh to ₹5 lakh: 5%

• ₹5 lakh to ₹10 lakh: 20%

• Above ₹10 lakh: 30%

  
  

This regime allows taxpayers to claim deductions such as Section 80C, HRA, 80D, and more, making it an attractive choice for many individuals despite the higher tax rates.

1. ITR-1 and ITR-4 Updates: For FY 2024-25 (Assessment Year 2025-26), the significant update for ITR-1 and ITR-4 is the inclusion of LTCG reporting up to ₹1.25 lakh under Section 112A, which allows more taxpayers with small capital gains to file these simpler forms.

   
   

2. Due Date for Non-Audit Cases: The last date for filing ITR for most taxpayers (non-audit cases) is July 31, 2025. For businesses requiring audit, the deadline is extended to October 31, 2025.

   
   

3. TDS andTCS Rules Update:

The Union Budget of July 2024 introduced several key amendments to TDS and TCS provisions, along with other important tax changes. These updates are designed to simplify compliance, encourage voluntary filing, and help taxpayers navigate the filing process for FY 2024-25 (Assessment Year 2025-26) more efficiently.

Key Updates from the Budget 2024

1. Reduction in TDS RatesThe Budget 2024 proposed the following reductions in TDS rates for specific payments, effective from October 1, 2024:

   
   

2. Insurance Commission (Section 194D): TDS rate reduced from 5% to 2%.

   
   

3. Life Insurance Policy Payments (Section 194DA): TDS rate reduced from 5% to 2%.

   
   

4. Commission or Brokerage (Section 194H): TDS rate reduced from 5% to 2%.

   
   

5. Rent Payments by Certain Individuals or HUF (Section 194IB): TDS rate reduced from 5% to 2%.Payments by Certain Individuals or HUF (Section 194M): TDS rate reduced from 5% to 2%.

   
   

6. E-commerce Operators to E-commerce Participants (Section 194O): TDS rate reduced from 1% to 0.1%.

These changes are aimed at easing the tax burden on individuals and simplifying the tax compliance process.

1. New TDS on Payments to PartnersA new section, Section 194T, was introduced, which requires partnership firms to deduct TDS at 10% on payments made to partners exceeding ₹20,000 in a financial year. This will be effective from April 1, 2025.

   
   

2. Rationalization of TDS ThresholdsThe Budget also proposed increases in the TDS threshold limits, making it easier for taxpayers to file their returns without having to worry about minor amounts of income being subject to TDS:

   
   

3. Interest Income (Section 194A): TDS exemption limit for senior citizens increased from ₹50,000 to ₹1 lakh. For others, the limit increased from ₹40,000 to ₹50,000.

   
   

4. Dividend Income (Section 194): TDS exemption limit increased from ₹5,000 to ₹10,000.

   
   

5. Professional Fees (Section 194J): TDS exemption limit increased from ₹30,000 to ₹50,000.

   
   

6. Changes in TCS RatesThe Budget introduced several changes to TCS provisions to streamline the tax compliance process:

   
   

7. Liberalized Remittance Scheme (LRS): The TCS rate for remittances under LRS has been increased from 5% to 20% for amounts exceeding ₹7 lakh, effective from October 1, 2024.

   
   

8. Sale of Motor Vehicles or Luxury Goods: A new section, Section 206C(1F), levies a TCS of 1% on the sale of motor vehicles or other luxury goods. This provision will be effective from January 1, 2025.

   
   

9. Removal of Higher TDS/TCS for Non-FilersIn a significant step towards simplifying the tax system, the Budget 2024 proposed the removal of the higher TDS/TCS rates applicable to non-filers of income tax returns. This change, effective from April 1, 2025, encourages voluntary compliance among taxpayers.

These updates reflect the government's ongoing efforts to simplify tax compliance and encourage timely filings. By staying updated on these changes, taxpayers can ensure they are complying with the latest tax laws while also benefiting from the revised provisions.

Conclusion

Filing your Income Tax Return (ITR) for FY 2024-25 (AY 2025-26) doesn’t have to be a stressful experience. With a little preparation, understanding the right ITR form for your income, and keeping track of important updates from Budget 2025, the process becomes much more manageable. By following the steps outlined here, you’ll be on your way to a smooth filing. The key is to make sure all your documents are in order and that you’ve chosen the correct tax regime, whether the new or old one, to make sure you get the best benefits.

If it still feels overwhelming, using a platform like TaxBuddy can take a load off your shoulders. It helps you avoid mistakes with expert support and easy automation. Remember, filing on time not only keeps you compliant, but it also helps you claim deductions and refunds without any hassle. Take action early and avoid the rush, it'll save you time and stress in the long run!

FAQs

Q1: Can I file ITR-1 if I have long-term capital gains (LTCG)?

Yes, you can file ITR-1 if your LTCG under Section 112A is up to ₹1.25 lakh. Previously, taxpayers with capital gains were required to use ITR-2, but Budget 2024 introduced the ability to report LTCG up to ₹1.25 lakh directly in ITR-1, making it easier for small investors to file. However, if your LTCG exceeds ₹1.25 lakh, or if you have other complex income sources like foreign assets, you will need to use ITR-2.

Q2: What if I have business income exceeding ₹50 lakh?

If your business income exceeds ₹50 lakh, you cannot use ITR-4. You must file ITR-3, which is designed for individuals and Hindu Undivided Families (HUFs) with income from business or profession. ITR-3 is suitable for professionals such as doctors, lawyers, and freelancers, as well as partners in a partnership firm.

Q3: I am a professional earning income from my practice. Which ITR should I use?

If you are a professional (like a doctor, lawyer, or chartered accountant), and you maintain accounts and have income from your business or profession, you should file ITR-3. This form is specifically meant for professionals who earn income from business or profession and need to report their income comprehensively.

Q4: I have income from multiple house properties and capital gains, but no business income. Which form should I use?

If you have income from multiple house properties, capital gains, or foreign income, but no business or professional income, you should file ITR-2. ITR-2 is designed for individuals and HUFs who have income from salary, capital gains, foreign assets, or agricultural income above ₹5,000, but no business income.

Q5: Are there any changes in tax rates for FY 2024-25?

For FY 2024-25 (Assessment Year 2025-26), the tax rates under the old tax regime remain unchanged. The new tax regime, however, has revised the tax slabs starting from ₹4 lakh. The main change in the new regime is that the old ₹2.5 lakh exemption limit has been increased to ₹4 lakh, and the rates now apply as follows:

• Up to ₹4 lakh: NIL

• ₹4 lakh - ₹8 lakh: 5%

• ₹8 lakh - ₹12 lakh: 10%, and so on.These changes make the new regime more beneficial for middle-income taxpayers.

Q6: Can I file ITR-1 if I earn a salary and rental income?

Yes, you can file ITR-1 if your total income is up to ₹50 lakh and you have income from salary, one house property, and other sources like interest. You can report rental income from one house property under ITR-1. However, if you have rental income from more than one property or other complex sources, you should use ITR-2.

Q7: What is the difference between ITR-2 and ITR-3?

The key difference between ITR-2 and ITR-3 lies in the income type. ITR-2 is meant for individuals and HUFs who have income from salary, capital gains, foreign assets/income, or agricultural income above ₹5,000 but no business income. On the other hand, ITR-3 is for individuals or HUFs who have business or professional income, such as self-employed individuals, professionals, or business owners.

Q8: Can I claim deductions under both regimes?

No, under the new tax regime for FY 2024-25, you are not allowed to claim most deductions available under the old tax regime (such as 80C, 80D, HRA, and others). The new tax regime offers concessional tax rates but removes these deductions. If you wish to claim deductions, you will need to opt for the old tax regime while filing your return.

Q9: Is ITR-4 applicable if I have income from salary and business income?

No, ITR-4 (Sugam) is applicable only if you have income from presumptive business or profession under Sections 44AD, 44ADA, or 44AE, and your total income does not exceed ₹50 lakh. It can be used by residents with business income, salary, pension, and other sources, but it is not applicable if you have income from salary and business income exceeding ₹50 lakh.

Q10: What if I miss the ITR filing deadline?

If you miss the deadline (July 31, 2025, for most taxpayers), you can still file a belated return by December 31, 2025, for FY 2024-25. However, a penalty under Section 234F will apply, and you may lose certain benefits like carry-forward of losses. Additionally, you will be liable to pay interest on any outstanding tax payable under Section 234A.

Q11: What documents are needed to file ITR?

The documents you need to file ITR include:

• Form 16: Issued by your employer, showing salary income and TDS deducted.

• Form 26AS: A tax credit statement showing TDS, advance tax, and high-value transactions.

• Aadhaar and PAN card details.

• Bank account details for processing refunds.

• Investment proofs (PPF, ELSS, insurance premiums, NPS).

• Capital gains statements for income from shares, mutual funds, or property sales.

• Rental income proof, including municipal taxes and home loan interest.

• Other income proofs, such as interest income, dividend income, etc.

Q12: How does TaxBuddy assist with ITR filing?

TaxBuddy simplifies the entire ITR filing process, from selecting the correct form to submitting your return. The platform auto-fills data from your documents (like Form 16 and Form 26AS), checks for errors, and ensures that you are compliant with the latest tax laws. TaxBuddy also provides expert assistance, ensuring that you choose the right regime (old or new) and maximize your tax savings. Additionally, the platform helps with e-verification and provides timely reminders about important filing deadlines.