Introduction
The Income Tax Department has introduced several significant changes in ITR-1 (Sahaj), ITR-2 and ITR-4 (Sugam) applicable for Assessment Year (AY) 2026-27 corresponding to Financial Year (FY) 2025-26. These changes are largely driven by amendments announced in the Union Budget 2025 and are intended to simplify return filing, improve transparency, strengthen compliance requirements, and encourage wider adoption of the New Tax Regime. Taxpayers and tax professionals should carefully understand these modifications before filing their returns to ensure accurate compliance and avoid unnecessary notices or processing issues.
Revised Tax Slabs under the New Tax Regime
One of the most important changes introduced through Budget 2025 is the restructuring of income tax slabs under the New Tax Regime. The revised slab rates applicable from AY 2026-27 provide greater relief to taxpayers by increasing the basic exemption threshold and rationalizing tax rates across different income brackets.
Under the revised structure, income up to Rs.4 lakh is exempt from tax, while progressive rates ranging from 5% to 30% apply thereafter. This amendment is expected to reduce the tax burden on middle-income taxpayers and further strengthen the attractiveness of the New Tax Regime.
Enhancement of Rebate under Section 87A
Along with the revised tax slabs, the Government has substantially increased the rebate available under Section 87A of the Income-tax Act, 1961. The rebate limit has been enhanced from Rs.25,000 to Rs.60,000 for taxpayers opting for the New Tax Regime.
This significant increase may result in nil tax liability for eligible taxpayers whose income falls within the prescribed threshold, thereby providing substantial relief and promoting voluntary adoption of the new tax regime.
Expansion of Eligibility for Filing ITR-1 and ITR-4
A noteworthy relaxation has been provided in the eligibility conditions for filing ITR-1 and ITR-4. Previously, these simplified return forms were available only to taxpayers having income from one house property. From AY 2026-27 onwards, taxpayers earning income from up to two house properties can also file ITR-1 and ITR-4, subject to satisfaction of other prescribed conditions. This amendment expands the scope of simplified return filing and benefits a large segment of salaried individuals and small taxpayers.
Introduction of Separate Reporting for Unrealised Rent in ITR-1,2&4.
The revised return forms have introduced a dedicated field for reporting unrealised rent. Earlier, taxpayers did not have any separate disclosure mechanism for rent that could not be recovered from tenants. The newly introduced field titled “The amount of rent which cannot be realized” enables taxpayers to report such amounts distinctly and enhances the accuracy of house property income reporting.
Mandatory Disclosure of Tenant Details in ITR-1,2&4.
To strengthen compliance and facilitate better verification of rental transactions, the Income Tax Department has made tenant-related disclosures mandatory in specified cases. Where tax has been deducted under Section 194-IB, the taxpayer is required to furnish the tenant’s PAN or Aadhaar. Similarly, where tax has been deducted under Section 194-I, the tenant’s TAN must be reported. This information was not mandatory in earlier return forms and reflects the Department’s increasing focus on data matching and verification.
Relief from Reporting Foreign Retirement Benefit Accounts in ITR-1&4.
Another taxpayer-friendly amendment relates to retirement benefit accounts maintained outside India. From AY 2026-27, retirement benefit accounts maintained in notified and non-notified foreign countries are no longer required to be reported in ITR-1 and ITR-4. This change reduces compliance requirements and simplifies return filing for individuals holding such foreign retirement accounts.
Removal of the “Others” Category for Exempt Allowances in ITR-1&2
In earlier versions of ITR-1 & 2, taxpayers could claim exemption for allowances under Section 10 by selecting an “Others” option and providing a description of the allowance claimed. The revised return form has removed this option entirely. Consequently, taxpayers can now claim exemption only for allowances specifically listed in the return form. This amendment aims to standardize reporting practices and eliminate ambiguity regarding exempt allowances.
Additional Communication Details Now Required in ITR-1, 2&4.
The personal information section has been expanded to require additional communication details. Taxpayers must now furnish a secondary mobile number, secondary email address, and secondary address along with their primary contact information. The objective of this amendment appears to be ensuring uninterrupted communication between taxpayers and the Income Tax Department.
Enhanced Financial Disclosures in ITR-4
Taxpayers opting for presumptive taxation under ITR-4 will now face additional disclosure requirements. A new field relating to investments has been introduced under the Financial Particulars section of Schedule BP.
Although this disclosure is presently optional, the requirement to report the balance with banks has become mandatory. These changes indicate a gradual move towards obtaining greater financial transparency even from taxpayers covered under presumptive taxation schemes.
Expanded Compliance Requirements for Form 10-IEA in ITR-1,2&4.
The disclosure requirements relating to Form 10-IEA have been considerably expanded from AY 2026-27. Earlier, taxpayers were required to provide details relating only to the previous assessment year and the current assessment year. Under the revised framework, details of Form 10-IEA filed in any assessment year for opting out of the New Tax Regime must now be disclosed. Additionally, a new reporting field has been introduced for taxpayers who had opted out of the New Tax Regime and subsequently re-entered it. These enhanced disclosures are intended to improve transparency and maintain a comprehensive record of taxpayers’ tax regime choices.
Simplification in Reporting of Representative Assessee in ITR-1,2&4.
The reporting requirements relating to Representative Assessees have been simplified. Earlier, taxpayers were required to furnish the representative assessee’s name, capacity, PAN, and other particulars. From AY 2026-27 onwards, only the name, contact number, and email address of the representative assessee are required. This change reduces compliance burden and simplifies the return filing process.
Extended Time Limit for Filing Revised Returns in ITR-1, 2&4.
Budget 2025 has extended the deadline for filing revised returns from 31 December to 31 March of the relevant assessment year. This additional three-month period provides taxpayers with greater flexibility to rectify mistakes or omissions in their originally filed returns.
However, a new fee under Section 234I has been introduced for revised returns filed during the extended period between 1 January and 31 March. The fee is Rs.1,000 where total income does not exceed Rs.5 lakh and Rs.5,000 where total income exceeds Rs.5 lakh.
Rationalisation of Capital Gains Reporting in ITR-2.
The reporting mechanism for capital gains has also been streamlined. During AY 2025-26, separate reporting fields existed for transactions taxable under old tax rates and revised rates applicable after 23 July 2024.
These transitional disclosures were incorporated in Schedule CG, Schedule 112A, and related schedules. From AY 2026-27 onwards, references to the old tax rates have been removed, and only the rates prescribed under the amended capital gains provisions continue to be reported. This simplifies return filing and eliminates transitional reporting complexities.
Separate Reporting of Interest Income Taxable at Concessional Rate of 9% in ITR-2.
A significant change has been introduced in the new Income Tax Return (ITR) forms with respect to the reporting of certain interest incomes taxable at a concessional rate. Under Section 194LC of the Income-tax Act, an Indian company or a business trust is required to deduct tax at source (TDS) on interest payments made to non-residents in respect of specified foreign currency borrowings, long-term infrastructure bonds, or rupee-denominated bonds.
Further, a concessional tax rate of 9% is applicable on interest income arising from long-term bonds or rupee-denominated bonds issued on or after 1 July 2023 and listed on a recognised stock exchange located in an International Financial Services Centre (IFSC), subject to the applicable surcharge and health and education cess.
To ensure accurate disclosure and facilitate seamless matching of TDS credits, the new ITR forms have introduced a separate field in Schedule OS (Income from Other Sources) for reporting such interest income. This amendment is expected to enhance transparency, improve compliance, and reduce discrepancies during return processing.
Additional Disclosure Requirements under Schedule 80GGC in ITR-1,2&4.
The new Income Tax Return (ITR) forms have strengthened the disclosure requirements for taxpayers claiming deductions under Section 80GGC, which allows a deduction for contributions made to political parties or electoral trusts.
Earlier, Schedule 80GGC required taxpayers to furnish details such as the date of contribution, amount contributed, mode of payment, transaction reference number, and the IFSC code of the bank through which the payment was made.
To enhance transparency and improve verification of deduction claims, the revised ITR forms now mandate the disclosure of two additional particulars-namely, the name of the political party or electoral trust receiving the contribution and its Permanent Account Number (PAN).
This additional reporting requirement is expected to facilitate better tracking of donations, ensure the authenticity of deduction claims, and strengthen compliance with the provisions of the Income-tax Act.
Enhanced Reporting Requirements under Schedule 80G in ITR-1,2&4.
Schedule 80G of the Income Tax Return (ITR) forms is used to claim deductions in respect of donations made to specified funds, charitable institutions, and relief organisations eligible under Section 80G of the Income-tax Act.
Taxpayers are required to furnish details of each donation, including the nature of the donation, applicable deduction percentage, donation amount, and particulars of the donee such as name, PAN, address, city, state code, and PIN code.
To further strengthen the verification process and ensure greater transparency in deduction claims, the new ITR forms have introduced additional disclosure requirements. Taxpayers are now required to provide the transaction reference number relating to payments made through UPI, cheque, IMPS, NEFT, RTGS, or other banking channels, along with the Indian Financial System Code (IFSC) of the bank through which the donation was made.
These additional reporting requirements are intended to improve traceability of donations, facilitate verification by the tax authorities, and reduce the possibility of incorrect or unverifiable deduction claims.
Reporting of Interest Income from Companies, NBFCs and HFCs in Schedule OS in ITR-2.
The new Income Tax Return (ITR) forms have provided greater clarity regarding the reporting of interest income under Schedule OS (Income from Other Sources). Schedule OS is used to disclose various sources of income that are not chargeable under any other head, including interest income, dividends, winnings from lotteries, and other miscellaneous receipts.
As per the revised reporting requirements, interest earned from Companies, Non-Banking Financial Companies (NBFCs), and Housing Finance Companies (HFCs) is required to be reported under the “Other” category in Schedule OS. Consequently, interest income arising from fixed deposits, debentures, bonds, and similar financial instruments issued by such entities must be disclosed under this head, provided the taxpayer is not engaged in the business of money lending. This clarification aims to ensure uniform reporting of interest income and facilitate accurate assessment and verification by the tax authorities.
Conclusion
The revised ITR forms for Assessment Year 2026-27 reflect the Income Tax Department’s continued efforts towards simplifying return filing while simultaneously strengthening transparency, data validation, and compliance monitoring. The changes introduced through Budget 2025 not only provide tax relief through revised tax slabs and enhanced rebate under Section 87A but also expand the scope of simplified return filing by relaxing eligibility conditions for ITR-1 and ITR-4. At the same time, the Department has significantly increased reporting requirements in areas such as rental income, donations, political contributions, interest income, and tax regime disclosures to facilitate better information matching and reduce the possibility of incorrect claims.
Several amendments, including separate reporting of concessional-rate interest income, mandatory disclosure of transaction reference numbers for donations, enhanced details under Schedule 80GGC, and clarification regarding reporting of interest from Companies, NBFCs, and HFCs, demonstrate the Department’s growing reliance on technology-driven verification and data analytics. While these changes may require taxpayers and professionals to exercise greater care during return preparation, they are expected to improve the accuracy of return processing and minimize future disputes.
Taxpayers should therefore familiarize themselves with the revised disclosure requirements well in advance and ensure that all supporting records, bank details, donation receipts, and income-related documents are properly maintained. A thorough understanding of these changes will help taxpayers achieve smooth and accurate compliance while avoiding notices, mismatches, and delays in processing of their income tax returns.
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