The Central Board of Direct Taxes (CBDT) has notified the revised Income Tax Return (ITR) Forms—ITR-1 (SAHAJ) and ITR-4—for the Financial Year 2024–25 (Assessment Year 2025–26), incorporating key changes aimed at improving transparency, accuracy, and compliance. These revisions have been made through the Income-tax (Twelfth Amendment) Rules, 2025, as per Notification No. 40/2025 dated April 29, 2025. The updated forms introduce significant modifications related to eligibility criteria, capital gains reporting, deduction disclosures, and presumptive taxation provisions. The major changes introduced in ITR-1 and ITR-4 are summarized below:
CBDT Issues Revised ITR-1 and ITR-4 Forms for AY 2025–26
Revised ITR-1 & ITR-4 for FY 2024–25: Key Highlights and Changes
The Central Board of Direct Taxes (CBDT) has introduced several significant updates to Income Tax Return Forms ITR-1 (SAHAJ) and ITR-4 for the Financial Year 2024–25 (Assessment Year 2025–26). These changes, brought through the Income-tax (Twelfth Amendment) Rules, 2025, aim to enhance filing convenience, compliance, and transparency. Below is a concise overview of the major updates you should know before filing your return:
1. LTCG Reporting Now Permitted in ITR-1 and ITR-4
Taxpayers can now report Long-Term Capital Gains (LTCG) under Section 112A in ITR-1 and ITR-4, provided:
Gains arise from listed equity shares or equity-oriented mutual funds.
Total LTCG does not exceed ₹1.25 lakh.
No capital losses are carried forward.
Example: Rina earned ₹95,000 in LTCG from equity mutual funds in FY 2024–25. With no capital losses, she can now report this directly in ITR-1.
2. Relaxation for Presumptive Income Filers (ITR-4)
ITR-4 has been updated to:
Allow LTCG under Section 112A (up to ₹1.25 lakh) without carried forward losses.
Raise the turnover threshold for presumptive taxation:
Section 44AD: From ₹2 crore to ₹3 crore (if 95%+ of receipts are digital).
Section 44ADA: From ₹50 lakh to ₹75 lakh (if 95%+ of receipts are digital).
Example: A business owner with ₹2.8 crore turnover and 95% digital receipts can now file under ITR-4. A consultant earning ₹60 lakh digitally can also avail the new limit under 44ADA.
3. Simplified Return Filing for Small Investors
Salaried individuals with modest capital market activity can now report eligible LTCG in ITR-1. However, ITR-1 cannot be used if:
LTCG exceeds ₹1.25 lakh.
There are short-term capital gains (STCG).
Property (e.g., land or house) is sold.
Example: Arjun earned ₹40,000 in STCG by selling mutual funds. He must use ITR-2, as STCG is not allowed in ITR-1.
4. Mandatory Disclosure of Tax Regime Choice
Taxpayers must now explicitly declare their choice between the old and new tax regimes:
Those who opted out of the new regime in AY 2024–25 must confirm whether they’ll continue or switch.
First-time opt-outs in AY 2025–26 must submit Form 10-IEA acknowledgement.
Late filers of Form 10-IEA must provide a valid justification.
Example: A taxpayer shifting to the old regime in AY 2025–26 must attach Form 10-IEA’s acknowledgement and explain any filing delay.
5. Form 10-IEA Acknowledgement Now Mandatory
If opting for the old regime for the first time in AY 2025–26, taxpayers must:
Include the Form 10-IEA acknowledgement number in their ITR.
Provide a reason if the form was submitted late.
Example: Ramesh, who used the new tax regime last year, opts for the old one to claim deductions and must submit Form 10-IEA with his return.
6. Drop-Down Menus for Deduction Claims
ITR-1 and ITR-4 now feature drop-down menus for deductions under Sections 80C to 80U, requiring clause-level selection.
Example: Instead of entering “80C – ₹2.5 lakh,” you must now break it down:
“80C – Life Insurance Premium – ₹50,000”
“80C – PPF – ₹2,00,000”
7. Streamlined Relief for Foreign Retirement Funds (Section 89A)
The ITR forms now allow easier reporting and tracking of deferred tax relief on income from foreign retirement accounts.
Example: Rajesh, returning from the UK with a pension fund, can now claim tax relief more seamlessly through the updated form.
8. Enhanced Limits for Digital Presumptive Taxpayers
New thresholds for presumptive schemes:
Businesses (44AD): Limit raised to ₹3 crore (from ₹2 crore).
Professionals (44ADA): Limit raised to ₹75 lakh (from ₹50 lakh).
Condition: 95% or more of income/receipts must be digital.
Example: Neha, a CA earning ₹70 lakh digitally, qualifies for presumptive taxation via ITR-4.
9. Reporting of Non-Dormant Bank Accounts
All active Indian bank accounts must be reported. Dormant accounts (inactive for 2+ years) are excluded.
Example: Out of four accounts, if one is dormant for over two years, only the other three need to be reported.
10. Expanded Eligibility for Simplified Returns
The scope of ITR-1 and ITR-4 has been broadened, enabling more taxpayers with simple income profiles to file returns easily.
Example: A salaried employee with interest income and small capital gains may now use ITR-1, subject to revised limits.
Refer to the official CBDT Notification No. 40/2025 dated April 29, 2025, for complete details and instructions on the revised ITR-1 and ITR-4 forms
Key Highlights at a Glance
Simplified Capital Gains Reporting: Taxpayers can now report long-term capital gains up to ₹1.25 lakh under Section 112A directly in ITR-1, easing compliance for small investors.
Wider Access for Salaried Investors: ITR-1 has been expanded to accommodate salaried individuals with limited capital market transactions.
Mandatory Tax Regime Disclosure: Those opting out of the new tax regime must clearly indicate whether they are continuing with the old regime or switching back.
Form 10-IEA Compliance: First-time opt-outs for AY 2025–26 must furnish acknowledgment details of Form 10-IEA; late filers must justify the delay.
Detailed Deduction Reporting: Deductions under Sections 80C to 80U must now be selected via a drop-down menu with clause-level breakdowns, enhancing accuracy.
Improved Relief for Foreign Retirement Funds: Taxpayers withdrawing from foreign retirement accounts (Section 89A) benefit from streamlined reporting and tracking of deferred tax relief.
Enhanced Presumptive Tax Limits: The turnover thresholds under Sections 44AD and 44ADA have been increased for digital transactions, offering greater flexibility to small businesses and professionals.
Active Bank Account Disclosure: Reporting of all active bank accounts is now mandatory; dormant accounts (inactive for over two years) are exempt.
Broadened Eligibility for Simplified Returns: More individuals and businesses now qualify to file under ITR-1 or ITR-4, simplifying the return filing process.
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Muskan
muskan is a skilled legal content writer known for her ability to simplify complex legal and tax topics into practical, easy-to-understand insights. Her work equips entrepreneurs and professionals with the clarity they need to confidently navigate business regulations and make informed decisions.
