Preparing for Filing: Important ITR Form Changes for FY 2024-25

The filing period for the Assessment Year 2025-26 (covering income accrued during the Financial Year 2024-25) has commenced, and the Income Tax Department has released the updated Income Tax Return (ITR) forms – ITR-1, ITR-2, ITR-3, and ITR-4, among others. These forms include several critical updates that taxpayers need to understand to ensure accurate and compliant submissions.

Here are 9 important adjustments in ITR forms for FY 2024-25 (AY 2025-26):

1. Increased Eligibility for ITR-1 (Sahaj) and ITR-4 (Sugam):

In an effort to simplify the filing process for smaller taxpayers, the eligibility requirements for ITR-1 and ITR-4 have been relaxed. Formerly, individuals with any amount of Long-Term Capital Gains (LTCG) from selling listed equity shares or equity-focused mutual funds were required to file ITR-2 or ITR-3. For AY 2025-26, taxpayers with LTCG under Section 112A up to ₹1.25 lakh can now utilize the simpler ITR-1 or ITR-4, provided they satisfy the other eligibility criteria for these forms and do not possess any carried forward capital losses. This is a significant relief for minor investors.

2. Compulsory Mention of TDS Section:

A significant update across ITR forms (ITR-1, ITR-2, ITR-3, ITR-4) is the mandatory requirement to mention the specific section of the Income Tax Act under which Tax Deducted at Source (TDS) has been deducted. Previously, taxpayers could claim TDS credit without detailing the particular section. This heightened reporting aims to provide the tax department with more detailed information regarding the nature of income and the applicable TDS provisions. Ensure you have your Form 16A (for income other than salary) available to properly report the TDS sections.

3. Aadhaar Enrolment ID No Longer Accepted:

Beginning this assessment year, the Aadhaar Enrolment ID will no longer be permissible for PAN applications or ITR submissions. Taxpayers must now provide their actual Aadhaar number. The section for entering the Aadhaar Enrolment ID has been eliminated from all ITR forms. This modification emphasizes the necessity of having a valid Aadhaar number linked to PAN for smooth tax compliance.

4. Expanded Disclosure for Opting Out of the New Tax Regime (ITR-4):

For those with business income filing ITR-4 (Sugam) who choose to opt out of the default new tax regime and select the old tax regime, the disclosure requirements have become more detailed this year. The form now requests confirmation of previous submissions of Form 10-IEA (for opting to switch tax regimes) and requires taxpayers to clearly indicate whether they wish to continue opting out of the new tax regime for the current financial year. This aims to enhance clarity and consistency in tax regime selection for business income earners.

5. Divided Reporting of Capital Gains Based on Transaction Date (ITR-2, ITR-3):

With the revised capital gains tax regulations introduced in Budget 2024, effective from July 23, 2024, ITR-2 and ITR-3 now necessitate taxpayers to report capital gains arising from the transfer of assets separately based on whether the transaction took place before or after this date. This separation is crucial due to the variations in tax treatment, including applicable rates and indexation benefits, for transactions occurring prior to and subsequent to July 23, 2024. This is relevant for various capital assets, such as shares, mutual funds, and property.

6. Reporting of Buyback Proceeds as Deemed Dividends (ITR-2, ITR-3):

With the amendments effective from October 1, 2024, proceeds from the buyback of shares by domestic listed entities will now be classified as 'deemed dividends' for shareholders. ITR-2 and ITR-3 have been revised accordingly. Taxpayers are required to disclose the buyback amount under "Income from Other Sources" and report a 'Nil' sale consideration in the capital gains section. Any capital loss that arises from the buyback can be carried forward and offset against future capital gains.

7. Raised Threshold for Asset and Liability Disclosure (ITR-2, ITR-3):

The threshold for compulsory reporting of assets and liabilities in Schedule AL has been increased for AY 2025-26. Formerly, individuals and Hindu Undivided Families (HUFs) with a total income exceeding ₹50 lakh needed to provide information about their assets and liabilities. This threshold has now been adjusted to ₹1 crore, alleviating compliance demands for a significant number of taxpayers. This adjustment applies to ITR-2 and ITR-3.

8. Certificate Acknowledgement Required for Disability Deduction (ITR-2, ITR-3):

Taxpayers seeking deductions under Section 80DD (related to supporting a disabled dependent) or Section 80U (for individuals with disabilities) must now include the acknowledgment number of the disability certificate in their ITR forms (ITR-2 and ITR-3), in addition to submitting Form 10-IA. This requirement is intended to strengthen the verification process for these deductions and ensure that only legitimate claims are processed.

9. Capital Gains Reporting Streamlined (ITR-3):

For those filing ITR-3, the capital gains schedule has been further streamlined. This encompasses updates concerning the holding periods for specific assets and the relevant tax rates for both Long-Term Capital Gains (LTCG) and Short-Term Capital Gains (STCG). Taxpayers engaged in business or professional activities who also realize capital gains should carefully understand these updated sections to accurately reflect their gains and losses.

These modifications underscore the Income Tax Department's commitment to simplifying the filing process while improving the reporting standards for certain types of income and transactions. Taxpayers are encouraged to thoroughly review the guidelines for the relevant ITR form and ensure all pertinent information is correctly provided to prevent any discrepancies or notifications from the tax authorities. Consulting a tax expert may also aid in navigating these changes and ensuring compliance in filings.

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