Edit Education & Training Articles

The Income Tax Department has officially released the Income Tax Return (ITR) forms 1 and 4 for the assessment year 2025–26, enabling individual taxpayers, Hindu Undivided Families (HUFs), and firms (excluding LLPs) with total income up to ₹50 lakh to begin filing their income tax returns. This marks the beginning of the tax season for income earned during the financial year April 1, 2024, to March 31, 2025. Taxpayers must submit their returns by the due date of July 31, 2025, to avoid late filing penalties, which can be levied if the deadline is missed.
This year’s release of ITR forms brings a significant change that benefits salaried taxpayers, especially those with modest investments in the stock market. For the first time, ITR-1 (Sahaj) will allow salaried individuals to report long-term capital gains (LTCG) up to ₹1.25 lakh from listed equity shares and equity-oriented mutual funds under Section 112A of the Income Tax Act. Previously, such individuals were compelled to file the more detailed and complex ITR-2, which was often viewed as a hurdle for small investors with otherwise simple tax profiles.
According to Samir Kanabar, Tax Partner at EY India, this change signals a policy shift toward making the tax system more inclusive, accessible, and taxpayer-friendly. “This move reflects a clear shift towards enhancing taxpayer services by allowing individual taxpayers to file simplified tax returns where they have long-term capital gains up to ₹1.25 lakh. It removes the burden of navigating more complex forms,” Kanabar said. He added that the change is expected to encourage greater voluntary compliance, reduce tax filing stress, and simplify processes for small taxpayers.
ITR-1 is designed for resident individuals whose total income does not exceed ₹50 lakh and includes income from salary or pension, one house property, and other sources like interest from savings or fixed deposits. Additionally, it accommodates individuals with agricultural income up to ₹5,000.
However, ITR-1 comes with specific exclusions. Individuals who serve as company directors or have investments in unlisted equity shares are not eligible to use this form. Likewise, those with foreign assets or income sourced outside India must file alternative forms. Individuals with deferred tax on employee stock options (ESOPs) or those covered under Section 194N (relating to large cash withdrawals) are also barred from using ITR-1.
This year’s noteworthy update allows reporting of long-term capital gains up to ₹1.25 lakh under Section 112A in ITR-1, giving small investors an easier option for tax compliance without navigating the complexities of ITR-2.
ITR-4 is meant for resident individuals, HUFs, and firms (excluding LLPs) whose total income does not exceed ₹50 lakh during the financial year. This form caters specifically to those earning income under the presumptive taxation schemes—Sections 44AD (business), 44ADA (professionals), and 44AE (transporters). Freelancers, small business owners, professionals, and transporters with straightforward financials will find ITR-4 to be a suitable and simplified filing option. As with ITR-1, this year’s revision includes the ability to report long-term capital gains under Section 112A up to ₹1.25 lakh, a move that aligns with the government’s broader objective of simplifying tax compliance for smaller taxpayers.
However, the form excludes individuals holding directorships in companies or owning unlisted equity shares. It also cannot be used by those who earn more than ₹5,000 from agriculture, have foreign assets, or earn foreign-sourced income. With these updated forms, the government continues its effort to streamline and digitize the income tax filing process. The integration of new features within simplified forms like ITR-1 and ITR-4 highlights a strategic approach to balancing compliance with convenience.
Taxpayers eligible to use these forms can access and file them online through the official Income Tax e-filing portal. Given the enhanced usability and simplified reporting mechanisms, early preparation and timely submission are advisable to avoid last-minute glitches or penalties. As we approach the financial deadline, these new provisions provide much-needed relief for salaried individuals and small business owners who previously struggled with more intricate tax forms. The introduction of capital gains reporting in the simpler forms sets a new precedent for inclusive and efficient tax administration.