What Are The Changes In ITR Forms You Need To Know For FY 2024-25 (AY 2025-26) Income Tax Return Filing?

For income earned during FY 2024-25, the Income Tax Department has issued the ITR Form (ITR-1 to ITR-4) updated to file returns in AY 2025-26. The purpose of these changes is to simplify tax filing, increase transparency, and align with the latest provisions introduced under the Finance Act. Updates reflect the government's constant push towards digital compliance and user-friendly reporting, especially for salaried persons, business owners and professionals.

Taxpayers should focus on major additions such as new disclosure requirements, modified programs and updated income classification formats. Quickly understanding these updates will help taxpayers to prepare documents in advance, avoid the confusion of the final-minute and ensure accurate filing. Whether you are a salaried employee or running a small business, knowing which ITR form applies to you is now more important than ever. Based on the responses taken from Preeti Chawla, CA, Wise FinServ, here are the key changes in ITR-1, ITR-2, ITR-3, ITR-4 forms you need to know for FY 2024-25 (AY 2025-26) income tax return (ITR) filing.

1. Easy return to small investor capital gains

Taxpayers earning long-term capital benefits under Section 112A can now use ITR-1 or ITR-4 up to ₹ 1.25 lakh, rather than earlier-essential ITR-2 or ITR-3. This change makes return filing easier and faster for small investors.

2. Increase in asset and liabilities reporting limit

ITR-2, usually the new compliance introduced for AY 2025-26, will be comfortably benefited by the ITR-2, those who file taxes under business owners and professionals. Now, taxpayers need to report assets and liabilities if their total value is above Rs 1 crore. This reduces the burden on small taxpayers.

3. Aadhaar enrollment ID discontinued

The Income Tax Department has discontinued the use of Aadhaar enrollment ID for ITR filing. Taxpayers now only need to submit their valid Aadhaar number.

4. Increased capital profit reporting

In the updated ITR form, taxpayers now need to report a separate capital gain for transactions executed before and after 23 July, 2024. Now, the capital gains should be reported for transactions to be held before July 23, 2024.

5. Buyback proceeds now taxable as dividend

Until now, income from share buybacks was completely tax-free in the hands of investors. But from 1st October 2024, buyback proceeds are treated as deemed dividends and must be reported under 'Income from Other Sources'. However, you can now report the cost of acquisition of shares tendered during buyback as a 'capital loss' while filing your ITR. And this loss can then be offset against other gains or carried forward for up to 8 years.

6. Mandatory Reporting of Disability Certificate Acknowledgement Number

Taxpayers seeking deductions under Section 80DD (for dependents with disabilities) or Section 80U (for self-disability) are now required to provide the acknowledgement number of the disability certificate in their Income Tax Returns (ITRs). This requirement applies specifically to those filing ITR-2 and ITR-3. Previously, it was sufficient to submit Form 10-IA; however, the updated forms now necessitate this additional detail.

7. Separate reporting for capital gain from unlisted bonds and debentures

For the Assessment Year (AY) 2025-26, the Income Tax Department has introduced Schedule VDA in the Income Tax Return (ITR) forms, specifically in ITR-2 and ITR-3 or ITR 5 as applicable, to facilitate detailed reporting of income from Virtual Digital Assets (VDAs) such as cryptocurrencies and Non-Fungible Tokens (NFTs).

8. TDS Reporting

Taxpayers need to report the details of specific TDS section codes in Schedule-TDS, ensuring transparency in tax deduction at an earlier stage, as mentioning sections of the TDS was not mandatory. This update applies to ITR-1, ITR-2, ITR-3,ITR-5 and ITR-6 forms.

9. Mandatory Disclosure of tax regime selection

If a taxpayer has already filed Form 10-IEA in any earlier assessment year (to opt out of the default new tax regime and choose the old regime), they must now mention the last filed Acknowledgement Number in their current ITR form. In case you are opting for the old regime for the first time, no previous number is required-just file Form 10-IEA before ITR filing.

Conclusion

Compliance with income tax returns is not only a matter of law-it also facilitates easy processing of the refund and keeps your financial record clean. Modifications in ITR-1 to ITR-4 indicate the Income Tax Department's emphasis on ease of filing but simultaneously put a greater onus on the taxpayers to declare income clearly and precisely. Be it salary, business, or any other type of income, keeping oneself abreast of the new form structures can avoid penalties and mistakes. It is a good idea to seek advice from a tax professional or check the revised forms carefully on the official website before submitting. With the tax environment increasingly data-driven and transparent, being informed is your greatest resource for smooth compliance during FY 2024-25.

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