CBDT Notifies Revised ITR-1 and ITR-4 for AY 2025–26

The Central Board of Direct Taxes (CBDT) has notified revised Income Tax Return (ITR) Forms ITR-1 (SAHAJ) and ITR-4 for the Financial Year 2024–25 (Assessment Year 2025–26), introducing several key changes aimed at enhancing transparency, accuracy, and compliance. These revisions have been introduced through the Income-tax (Twelfth Amendment) Rules, 2025, notified via Notification No. 40/2025, dated April 29, 202. These forms bring notable modifications to eligibility conditions, capital gains reporting, deduction disclosures, and presumptive taxation norms. Below are the most significant changes introduced in ITR-1 and ITR-4:

ITR-1 & ITR-4 for FY 2024–25: Key Updates & Changes

Here’s a quick breakdown of the most important updates you need to know before filing your return for FY 2024–25 (AY 2025–26):

1. Reporting Long-Term Capital Gains (LTCG) Now Allowed in ITR-1

Taxpayers can now show long-term capital gains (LTCG) under Section 112A in ITR-1, if the gains are from selling listed shares or equity mutual funds, the total gains are ₹1.25 lakh or less, and there are no capital losses to carry forward. Earlier, even small gains had to be reported in ITR-2.

Example: Rina invested in an equity mutual fund a few years ago. In FY 2024–25, she sold some units and earned a long-term capital gain of ₹95,000. Since the gain is below ₹1.25 lakh and she has no capital losses, she can now report it easily in ITR-1.

Similar Relaxation in ITR-4 (SUGAM) for Presumptive Income Earners

ITR-4, the form used by taxpayers under the presumptive taxation scheme (Sections 44AD, 44ADA, and 44AE), has been updated to offer more flexibility. Taxpayers can now report long-term capital gains (LTCG) under Section 112A up to ₹1.25 lakh in ITR-4, as long as there are no capital losses to carry forward.

Additionally, the turnover threshold for businesses under Section 44AD has been raised to ₹3 crore (up from ₹2 crore), provided 95% or more of the transactions are digital. For professionals under Section 44ADA, the limit has been increased to ₹75 lakh (up from ₹50 lakh) if at least 95% of the receipts are digital.

Example: A small business owner with a turnover of ₹2.8 crore and digital payments exceeding 95% can now file under ITR-4 with the benefits of the enhanced presumptive taxation scheme. Similarly, a consultant earning ₹60 lakh, with over 95% of payments received through digital methods, can benefit from the increased limit under Section 44ADA.

2. Simplified Filing for Small Investors

The updated ITR-1 form is now more user-friendly for salaried taxpayers who invest lightly in the stock market or mutual funds. It allows small long-term capital gains to be reported directly. However, ITR-1 cannot be used if your long-term capital gains are over ₹1.25 lakh, if you have any short-term capital gains (STCG), or if you sold property like land or a house.

Example: Arjun, a salaried employee, sold some mutual fund units after holding them for less than a year and earned a short-term capital gain of ₹40,000. Since STCG is not allowed in ITR-1, he must use ITR-2 to file his return.

3. Mandatory Disclosure of Tax Regime Selection New vs. Old Tax Regime

Taxpayers opting out of the new tax regime (Section 115BAC) now need to provide more detailed information regarding their choice between the new and old tax regimes.

• If they opted out in AY 2024–25, they must declare whether they wish to continue with the old regime or switch back to the new tax regime.
• First-time opt-outs in AY 2025–26 are required to submit the acknowledgement details of Form 10-IEA.
• The rules regarding late filing of Form 10-IEA have also been clarified, and taxpayers will need to justify the delay if applicable.

Example: An individual who chose the old tax regime in AY 2024–25 must now specify in their return whether they wish to stay with the old regime or switch to the new one. If they are opting out for the first time in AY 2025–26, they must submit their Form 10-IEA acknowledgement details, and if filed late, they will need to explain the delay.

Click here to know more about  Old Regime vs New Regime: Which is Better for You? 

4. Form 10-IEA Acknowledgement Now Compulsory

Taxpayers opting for the old tax regime for the first time in AY 2025–26, after previously defaulting to the new regime, must mention their Form 10-IEA acknowledgement number in their return. If the form is submitted late, they will need to provide a justification for the delay.

Example: Ramesh, a salaried employee, used the new tax regime last year but now decides to switch to the old regime to claim deductions like 80C. He must file Form 10-IEA and include the acknowledgement number in his return. If he files the form late, he will need to explain why.

5. Drop-Down Selection for Deductions

In both ITR-1 and ITR-4, taxpayers must now select deductions under Sections 80C to 80U from a drop-down menu with more detailed, clause-level precision. This change aims to make deductions more transparent and accurate.

Example: Instead of simply entering “80C – ₹2.5 lakh,” you will now need to break it down by specifying each deduction separately, such as “80C – Life Insurance Premium – ₹50,000” and “80C – PPF – ₹2,00,000” using the drop-down options.

6. Improved Relief Mechanism for Foreign Retirement Accounts

The process for claiming tax relief on income from foreign retirement funds, as per Section 89A, has been streamlined in the new ITR format, allowing for easier tracking of deferred tax relief.

Example: Rajesh, who worked in the UK for several years and contributed to a pension scheme there, returns to India and withdraws his pension. With the updated ITR form, he can now more easily track and claim the tax relief on the deferred income from his UK pension.

7. Higher Presumptive Tax Limits for Digital Businesses and Professionals

The turnover limit for businesses under Section 44AD has increased to ₹3 crore (from ₹2 crore) if 95% of receipts are digital. Similarly, for professionals under Section 44ADA, the turnover limit has been raised from ₹50 lakh to ₹75 lakh, provided 95% of their income is digital.

Example: Neha, a chartered accountant earning ₹70 lakh with over 95% of her income coming through bank transfers or UPI payments, can now file under the presumptive taxation scheme using ITR-4. This allows her to avoid detailed bookkeeping and enjoy simplified tax filing.

8. Mandatory Reporting of Non-Dormant Bank Accounts

Taxpayers must now report all active bank accounts held in India during the financial year. Dormant accounts, which have been inactive for over two years, are exempt from this reporting requirement.

Example: If you have four bank accounts, and one has been dormant for over two years, you must still report the other three active accounts in your return, even if there were no transactions during the year.

9. Clarity and Expanded Scope in Simplified Returns

The ITR-1 and ITR-4 forms have been broadened to allow more taxpayers to file simplified returns, as long as their income profile falls within the updated criteria. This expansion makes it easier for a larger number of individuals and businesses to benefit from the simpler filing process.

Example: A salaried individual with income from salary, interest, and small capital gains, who previously may not have qualified for ITR-1, can now use the form if their income meets the new conditions under the expanded scope.

Below, we have attached the official CBDT notification regarding the new ITR-1 and ITR 4 Form for FY 2024–25 for your reference.   

Key Takeaways:

• Simplified Capital Gains Reporting: Small long-term capital gains (up to ₹1.25 lakh) can now be reported in ITR-1.
• Expanded Scope for Small Investors: ITR-1 is now more accessible for salaried individuals with minor capital market involvement.
• Tax Regime Selection Disclosure: Taxpayers opting out of the new tax regime must declare their choice to continue with the old regime or switch back.
• Form 10-IEA Acknowledgment Required: First-time opt-outs in AY 2025–26 must submit Form 10-IEA acknowledgment details.
• Drop-Down for Deductions: Taxpayers must now specify deductions under Sections 80C to 80U with more detailed clause-level precision.
• Relief for Foreign Retirement Income: Improved tracking for tax relief on foreign retirement fund withdrawals (Section 89A).
• Higher Presumptive Tax Limits: The turnover limit for digital businesses and professionals has been increased under Sections 44AD and 44ADA.
• Mandatory Bank Account Reporting: All active bank accounts must be reported, with dormant accounts exempt.
• Broader Eligibility for Simplified Returns: More taxpayers are eligible to file under simplified ITR-1 or ITR-4, making tax filing easier for a wider audience.

Confused about the updated ITR forms or need assistance with tax filing?

Let IndiaFilings help you navigate these changes with ease! Our experts can guide you through the revised ITR-1 and ITR-4 forms, ensuring accurate and hassle-free filing. Contact us today to get started and make tax filing simple and stress-free!

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FAQs: Revised ITR-1 and ITR-4 Forms for AY 2025–26

1. What are the major changes in ITR-1 for AY 2025–26?

ITR-1 now allows reporting of long-term capital gains (LTCG) under Section 112A up to ₹1.25 lakh from listed equity shares or equity mutual funds, provided there are no capital losses to carry forward. It also features clause-level deduction selection via a drop-down menu.

2. Who is eligible to file ITR-4 for AY 2025–26?

ITR-4 is for individuals, HUFs, and firms (excluding LLPs) under the presumptive taxation scheme (Sections 44AD, 44ADA, 44AE). It now permits LTCG reporting under Section 112A up to ₹1.25 lakh, and increased turnover thresholds apply for digital transactions.

3. Can I report short-term capital gains (STCG) in ITR-1?

No. ITR-1 cannot be used if you have any STCG. You must file ITR-2 in such cases.

4. What is Form 10-IEA, and when is it required?

Form 10-IEA is required for taxpayers opting out of the new tax regime. For AY 2025–26, first-time opt-outs must mention the acknowledgment number in the return. Delayed submissions must be justified.

5. I used the old tax regime last year. Do I need to do anything this year?

Yes. You must indicate in your return whether you want to continue with the old regime or switch to the new regime.

6. How has the presumptive income limit changed under Section 44AD and 44ADA?

For digital businesses, the limit is now ₹3 crore under Section 44AD. For professionals under Section 44ADA, the limit is raised to ₹75 lakh, provided 95% or more of transactions are digital.

7. Are there changes to deduction reporting in ITR-1 and ITR-4?

Yes. Deductions under Sections 80C to 80U must now be selected from a detailed drop-down menu, improving accuracy and clarity.

8. Do I need to report all my bank accounts in the return?

You must report all active bank accounts held in India during the financial year. Dormant accounts (inactive for over two years) are exempt from reporting.

9.Can I now use ITR-1 if I have small investments in mutual funds or stocks?

Yes, if your LTCG is up to ₹1.25 lakh, with no STCG or capital losses, and you meet other eligibility conditions.

10. How can IndiaFilings help with ITR filing?

IndiaFilings offers expert assistance in choosing the correct ITR form, ensuring compliance with the latest rules, preparing and filing your return, and resolving any related queries.

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