ITR-1, ITR-2, ITR-3, ITR-4 Changes in Income Tax Return Filing in FY 2024-25 (AY 2025-26)
- Farheen Mukadam
- Jul 14
- 6 min read
The income tax return forms for FY 2024-25 (AY 2025-26) have been released by the Income Tax Department, taking into account the tax legislation amendments mentioned in the July 2024 budget. To file their ITR, taxpayers will need to wait for the income tax portal's ITR filing e-utilities to be released. There are some significant changes in ITR 1, ITR 2, ITR 3, and ITR 4 in particular. Here are the ones taxpayers must know before filing their income tax returns in the financial year 2024-25 (AY 2025-26).
Table of Contents
Eligibility Expansion for ITR 1 and ITR 4
More taxpayers are now able to file their tax returns using ITR 1 and ITR 4 because the Income Tax Department loosened the requirements. Under the new regulations, taxpayers can submit a tax return using ITR1 and ITR4, as relevant, provided that the capital gains from stock and equity mutual funds are under the threshold of Rs 1.25 lakh. This LTCG exemption ceiling was raised from Rs 1 lakh to Rs 1.25 lakh as per the Budget 2024. In prior years' ITR forms, the existence of capital gains income prevented a taxpayer from filing the more straightforward ITR 1 forms, even if their LTCG under Section 112A was within the exemption limit and no tax was due.
Rather, they had to submit the return using the more complicated and time-consuming ITR 2 or ITR 3 forms. For small taxpayers, this created a real burden. The Central Board of Direct Taxes (CBDT) has issued a notification to remedy this, stating that taxpayers who have LTCG under Section 112A are still eligible to file ITR 1 and ITR 4 as long as the total LTCG does not exceed Rs 1.25 lakh and there is no carried forward or carry forward capital loss. For small taxpayers with small capital gains and no losses to be carried forward, this action reduces the burden of compliance and streamlines the filing of returns.
Aadhaar Enrolment ID Not Acceptable for ITR Filing
Removing the requirement to use the Aadhaar enrollment ID when applying for a PAN and when filing an ITR was one of the subtle adjustments implemented in Budget 2024. Following this change, Aadhaar enrolment IDs rather than the actual Aadhaar number can no longer be used to file PAN applications or ITRs.
The section for entering the Aadhaar enrolment ID is no longer present in this year's income tax return forms (ITR 1, ITR 2, ITR 3, and ITR 5). This year, taxpayers will not be allowed to file their ITRs if they do not have an Aadhaar number.
Switching Tax Regimes for Small Business Owners
Unlike those who do not have business income, taxpayers with business income are not allowed to change or select different tax regimes each fiscal year. According to the income tax regulations, taxpayers with company income have the opportunity to transition from the previous system to the new one once in their lifetime. Nevertheless, a form has to be submitted to switch.
Prior to the current system, ITR 4 inquired as to whether the taxpayer had chosen to opt out. If so, the date and, if relevant, the acknowledgement number of Form 10-IEA had to be provided. The ITR-4 for FY 2024–25 (AY 2025–26) contains a more thorough disclosure, though. In the current year, it asks if the taxpayer wants to continue opting out of the new Regime and requests confirmation of previous Form 10-IEA filings.
TDS Section to be Mentioned in ITR Form
The TDS section under which tax was withheld from the income generated in FY 2024–2025 must be mentioned by taxpayers on the income tax return forms (ITR 1, ITR 2, ITR 3, and ITR 5) for this year.
If tax is deducted from income other than salaries, the TDS portion of the ITR form has to be mentioned. In the past, when claiming the tax credit, it was not necessary to include the TDS section on the ITR form. But starting this year, a taxpayer needs to specify which part they are using to claim the TDS credit.
New Rules for Capital Gains in ITR Forms
New capital gains regulations went into effect on July 23, 2024, according to Budget 2024. In order to determine the exact amount of capital gains and the applicable tax, it is crucial to know the date of sale if you have made capital gains from the sale of listed or unlisted shares, equity mutual funds, homes, land, or any other capital asset.
Taxpayers can determine whether the tax will be computed under the old or new regulations by looking up the date of the capital asset's sale and transfer. If the transfer date falls on or before July 23, 2024, the previous tax rates will remain in effect. These include the 15% tax rate on STCG covered by Section 111A, the 20% tax rate on LTCG covered by Section 112 with indexation advantage, and the 10% tax rate on LTCG covered by Section 112A.
However, new tax rules will be in effect if the transfer takes place on or after July 23, 2024. The ITR form mandates the correct application of updated tax rates and indexation rules, the notification of the transfer date, and separate reporting for transfers performed prior to, on, or after July 23, 2024. Income from capital gains, if any, will be reported in ITRs 2, 3, and 5, whichever is relevant.
Capital Gains from Unlisted Bonds and Debentures to be Reported Separately
The taxation of unlisted bonds and debentures was modified in Budget 2024. July 23, 2024 was when the new regulations were implemented. The full gain, regardless of the holding period, will be subject to short-term capital gains tax under the new regulations if unlisted bonds or debentures were issued on or before July 22, 2024, but were redeemed, matured, or transferred on or after July 23, 2024.
Additionally, the gains will be subject to taxation at the rates of the income tax bracket that corresponds to your income. However, the resulting gain will be categorized as long-term and subject to taxation under the previous provision if the maturity, redemption, or transfer takes place prior to July 23, 2024. Capital gains would have been subject to a 20% tax rate with indexation under the previous regulations.
Capital gains on unlisted bonds and debentures must be reported on ITR 2, ITR 3, or ITR 5, depending on the situation.
Buy-Back Proceeds to be Reported as Deemed Dividends
The proceeds from domestic listed firms' share buybacks will be regarded as dividends in the hands of shareholders beginning on October 1, 2024. Budget 2024 included an announcement of the new rule.
The buyback proceeds can now be reported by shareholders as dividend income under the "Income from other sources" portion of ITR 2, 3, and 5. In order for the cost of purchasing shares to be considered a capital loss, the taxpayers will have to report zero as sale proceeds under the capital gains schedule. For the following eight assessment years, this capital loss may be carried forward and offset against other long-term capital gains.
Disability Certificates to be Provided to Claim Deduction u/s 80DD and 80U
In the old tax regime, a taxpayer could deduct expenses for disabled people under Section 80DD or Section 80U. This year, a taxpayer who wants to claim any deduction must also include the disability certificate's acknowledgement number.
According to income tax regulations, a person could claim a deduction under Section 80DD or Section 80U by referencing Form 10-IA in prior years. But from this year, in order to claim a deduction, the taxpayer must also submit Form 10-IA and the acknowledgement number of handicap certificates.
A resident individual or HUF who pays an insurance premium or incurs medical expenses for the care of a dependent family member with a disability or severe disability may claim Section 80DD. A resident who has a handicap or a serious disability of their own is eligible for the deduction under Section 80U. The filing of ITR 2 and ITR 3 is a prerequisite for this reporting requirement. Reporting is not necessary if the taxpayer submits an ITR 1.
Applicability of Asset Reporting for Total Income Exceeding Rs. 1 Crore
For those earning more than Rs 50 lakh, there is good news. A taxpayer is only obligated to disclose their assets and liabilities as of the current year if their gross total income is over Rs 1 crore.
Previously, if a taxpayer's gross total income in a fiscal year surpassed Rs 50 lakh, they had to submit their assets and liabilities. However, starting this year, only gross total income over Rs 1 crore will require reporting in Schedule AL. ITR 2 and ITR 3 can be used to report in Schedule AL.
Conclusion
Taxpayers must stay updated with all the changes in ITR forms and filing rules to stay on the right side of the guidelines. However, these may seem complicated to a taxpayer with basic knowledge of ITR forms and other proceedings. It is best to seek help from tax experts to avoid any inaccuracies or delays in tax filing.
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