“CBDT Unveils Simplified ITR-1 and ITR-4 Forms for AY 2025-26: Key Changes Explained”

In a significant move aimed at simplifying the tax filing process, the Central Board of Direct Taxes (CBDT) has notified the revised Income Tax Return (ITR) forms ITR-1 (Sahaj) and ITR-4 (Sugam) for the Assessment Year 2025-26. These updates are designed to make tax compliance more straightforward for salaried individuals, pensioners, and small business owners.

“Expanded Eligibility for ITR-1 and ITR-4 Filers”

The updated ITR-1 form is now applicable to resident individuals (excluding those not ordinarily resident) with a total income up to Rs 50 lakh. This includes income from salaries, one house property, other sources like interest, and long-term capital gains (LTCG) under Section 112A up to Rs1.25 lakh. Previously, the presence of any capital gains necessitated the use of more complex forms like ITR-2.

Similarly, the ITR-4 form caters to resident individuals, Hindu Undivided Families (HUFs), and firms (excluding Limited Liability Partnerships) with total income up to Rs 50 lakh. This includes income from business and profession computed under sections 44AD, 44ADA, or 44AE, and LTCG under Section 112A up to Rs1.25 lakh.

“Key Changes Introduced in the New Forms”

• Inclusion of LTCG under Section 112A: Taxpayers with LTCG up to Rs1.25 lakh from the sale of listed equity shares and equity-oriented mutual funds can now use the simplified ITR-1 and ITR-4 forms, provided there are no capital losses to carry forward or set off.
• Enhanced Disclosure of Deductions: All deductions under sections 80C to 80U must now be selected from a drop-down menu in the e-filing utility, ensuring precise reporting of tax-saving investments.
• Mandatory Bank Account Reporting: Taxpayers are required to report all bank accounts held during the financial year, excluding dormant accounts. At least one account must be selected for refund credit, with the Centralized Processing Centre (CPC) determining the account for refund processing if multiple accounts are provided.
• Structured Declaration Section: The declaration section now includes structured drop-downs and enhanced filing confirmations to improve accuracy and compliance.

“Implications for Taxpayers”

These changes are expected to benefit a significant number of taxpayers by simplifying the filing process and reducing the need to navigate more complex forms. Small investors, in particular, will find it easier to file returns without the burden of using detailed forms like ITR-2, as long as their LTCG does not exceed Rs1.25 lakh and there are no capital losses to report.

Tax experts have lauded these updates. Sandeep Sehgal, Partner-Tax at AKM Global, noted, “The inclusion of LTCG under Section 112A in ITR-1 and ITR-4 is a welcome move that simplifies the filing process for many taxpayers.”

“Filing Deadlines and Compliance”

The due date for filing income tax returns for non-audit cases for the Assessment Year 2025-26 is July 31, 2025. Taxpayers are encouraged to review the new forms carefully and ensure compliance with the updated requirements to avoid penalties and ensure timely processing of refunds.

The CBDT’s notification of the revised ITR-1 and ITR-4 forms marks a significant step towards simplifying tax compliance for individuals and small businesses. By expanding eligibility and enhancing disclosure requirements, the new forms aim to make the tax filing process more transparent and user-friendly.