Key Changes in ITR-1 & ITR-4 for AY 2025–26

The Central Board of Direct Taxes (CBDT) has notified new Income Tax Return (ITR) forms for the Assessment Year (AY) 2025–26, bringing significant changes to ITR-1 (SAHAJ) and ITR-4 (SUGAM). These are among the most commonly used return forms by salaried individuals, pensioners, and small business owners or professionals under presumptive taxation.

The updates aim to simplify return filing while enhancing the granularity of disclosures, enabling the Income Tax Department to improve compliance checks and reduce tax avoidance.

Below is a comprehensive breakdown of the changes, their implications, and what taxpayers need to keep in mind.

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I. Overview of ITR-1 (SAHAJ): What’s Changed?

What is ITR-1?

ITR-1 is applicable to resident individuals (not ordinarily resident) with a total income up to ₹50 lakh from the following sources:

• Salary or pension

• One house property

• Other sources (excluding winning from lottery, racehorses, etc.)

Major Change: Inclusion of LTCG under Section 112A

Historically, any capital gains, whether short-term or long-term, made a taxpayer ineligible to use ITR-1. However, for AY 2025–26, a key relaxation has been introduced:

Taxpayers earning Long-Term Capital Gains (LTCG) under Section 112A can now file ITR-1.

Section 112A pertains to capital gains from the sale of:

• Listed equity shares

• Units of equity-oriented mutual funds

• Units of business trusts

The gains must be subject to Securities Transaction Tax (STT) and must not exceed the ₹1 lakh exemption threshold for taxability.

Who Benefits from This?

This amendment is especially advantageous for:

• Salaried employees with minor equity investments

• Retired individuals receiving pensions and occasional capital gains

• First-time filers with limited stock market activity

Important Note: Taxpayers with other types of capital gains (e.g., property sales, debt mutual funds, or unlisted shares) are still not eligible to use ITR-1.

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II. Key Updates in ITR-4 (SUGAM): More Clarity, More Disclosure

What is ITR-4?

ITR-4 is used by:

• Resident Individuals

• Hindu Undivided Families (HUFs)

• Firms (excluding LLPs) who have opted for presumptive taxation under:

• Section 44AD (small businesses)

• Section 44ADA (professionals)

• Section 44AE (transport businesses)

Major Changes:

1. Expanded Disclosures

Taxpayers filing ITR-4 must now disclose more detailed information, including:

• Nature and category of business

• Gross receipts segregated into digital and cash modes

• Breakdown of deductions under Chapter VI-A (like 80C, 80D, etc.)

• Bank account details for refund and verification purposes

This increased granularity is designed to:

• Ensure accurate income reporting

• Minimize misuse of presumptive taxation schemes

• Improve data analytics for compliance monitoring

2. Alignment with the New Tax Regime

ITR-4 now includes dedicated fields allowing taxpayers to:

• Opt in or out of the new tax regime under Section 115BAC

• Provide declaration if they are continuing with the old regime

• Choose between regimes clearly while filing

This removes ambiguity and promotes voluntary tax planning, encouraging filers to compare tax liabilities under both regimes before making a choice.

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III. Professional Insights: What Tax Experts Are Saying

According to tax consultants and chartered accountants:

“These updates, especially in ITR-1, reflect a progressive move. Allowing LTCG reporting in simpler forms empowers small investors and improves voluntary compliance.”
— CA Meena R., Tax Consultant, Bengaluru

“Increased disclosures in ITR-4 signal a shift toward transparency. While it may feel like more work, most professionals and business owners are already maintaining digital records, so the transition should be smooth.”
— Rakesh J., Senior Tax Advisor, Mumbai

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Frequently Asked Questions (FAQs)

Q1. Can I now file ITR-1 if I earned ₹70,000 from selling equity mutual funds?
A: Yes, as long as the LTCG falls under Section 112A and your total income is below ₹50 lakh, you can now use ITR-1.

Q2. Is ITR-4 still applicable if I opt for the new tax regime?
A: Yes. ITR-4 now includes an option to choose between the old and new tax regimes.

Q3. What if I have multiple house properties or foreign income?
A: In such cases, you cannot use ITR-1 or ITR-4 and must switch to ITR-2 or ITR-3 depending on your situation.

Q4. Are there changes in the way refunds are processed?
A: While refund processing remains largely the same, the updated bank account disclosures ensure quicker and more accurate refunds.

Q5. Does the new disclosure format make filing more difficult?
A: For most digitally-savvy taxpayers and professionals using e-filing portals or CA services, the impact is minimal. It mainly supports better data tracking by the Income Tax Department.

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Conclusion

The changes in ITR-1 and ITR-4 for AY 2025–26 reflect the government’s balanced approach: easing compliance for ordinary taxpayers while tightening scrutiny through detailed disclosures.

By allowing the inclusion of LTCG under Section 112A in ITR-1, the department acknowledges the growing participation of salaried individuals in capital markets. Meanwhile, ITR-4’s enhanced reporting underlines the importance of transparency in presumptive taxation.