Summary: The Central Board of Direct Taxes has released revised Income Tax Return (ITR) forms for Assessment Year (AY) 2025-26, incorporating several updates compared to AY 2024-25. For ITR-3 and ITR-5, a notable change is the increased threshold for reporting assets and liabilities; this is now mandatory only for taxpayers with income exceeding ₹1 crore, up from ₹50 lakhs previously. These forms also introduce granular reporting requirements for capital gains, mandating a bifurcation of gains earned before and after July 23, 2024. Specific reporting is also required for capital losses from share buybacks occurring after October 1, 2024, provided the associated dividend income is reported elsewhere. Detailed TDS section codes must now be reported in Schedule-TDS, and ITR-3 includes a new section for cruise business details under Section 44BBC. Significantly, ITR-1 and ITR-4 can now be used by taxpayers reporting Long-Term Capital Gains (LTCG) under Section 112A, provided the gain does not exceed ₹25 lakhs and there are no carried forward or set off capital losses. Furthermore, for ITR-1 and ITR-4 filers, claiming deductions under sections like 80C, 80D, and 80U requires selecting from a drop-down menu and specifying the exact clauses or sub-sections claimed. Taxpayers must note these changes to ensure accurate and compliant filing.
Arjuna (Fictional Character): Krishna, the financial year comes to end and it’s time for filing returns has come again, and there are some changes in the ITR forms for the Assessment Year (AY) 2025-26. What should a taxpayer know about these updates compared to AY 2024-25?
Krishna (Fictional Character): Arjuna, just as the seasons change, the rules for income tax filing change as well. The Central Board of Direct Taxes (CBDT) has notified the revised ITR forms for AY 2025-26, bringing in changes that require extra attention.
Arjuna (Fictional Character): Krishna, I have heard that the ITR-3 form for AY 2025-26 comes with a major significant change, especially when it comes to reporting assets and liabilities.
Krishna (Fictional Character): In the ITR-3 form for AY 2025-26, a significant change has been introduced with regard to the reporting of assets and liabilities. Previously, taxpayers whose income exceeded ₹50 lakhs in the previous year were required to disclose their assets and liabilities in the relevant schedule. However, this threshold has now been raised to ₹1 crore. This means that, for taxpayers whose income crosses ₹1 crore in the preceding financial year, they will be obligated to provide detailed information about their assets and liabilities in the ITR-3 form.
Arjuna (Fictional Character): Krishna, what are other changes in ITR-3 and ITR-5 forms for the AY 2025-26 as a taxpayer what things need to be ensure while filing the returns?
Krishna (Fictional Character): Arjuna, it is indeed true that the ITR-3 and ITR-5 forms have changes for the AY 2025-26. As a taxpayer, there are a few key things you must ensure while filing your returns:
- Capital Gains Bifurcation: The capital gains schedule now requires taxpayers to report the bifurcation of gains before and after 23rd July 2024 separately. This bifurcation is required because gain earned prior to 23rd July 2024 have separate taxation provisions.
- Capital Loss on Share Buybacks: If a taxpayer is involved in share buybacks, they must remember that post 01st October 2024, they can claim a capital loss, but only if the corresponding dividend income is reported as ‘Income from Other Sources’ and for that separate reporting is to be made in the ITR.
- TDS Reporting: Taxpayers need to report the details of specific TDS section codes in Schedule-TDS, ensuring transparency in tax deduction at Earlier mentioning sections of the TDS was not mandatory.
- Cruise Business Details: If a taxpayer is involved in the cruise business, they must now fill in additional details under Section 44BBC. This section is newly inserted into ITR Form for AY 2025-26 earlier, no such details need to be reported separately.
Arjuna (Fictional Character): That’s great Krishna, but for taxpayers who need to file their returns in ITR-1 or ITR-4, are there any changes they need to ensure before filing their returns?
Krishna (Fictional Character): Indeed, Arjuna. These forms also have been changed, and taxpayer need ensure following changes before filing of ITR these seasons.
- Long-Term Capital Gain (LTCG): For the first time, ITR-1 can be used by taxpayers even if there is LTCG under Section 112A, provided the LTCG does not exceed ₹25 lakh and there is no capital loss carried forward or set off. Similarly, ITR-4 can also be filed by taxpayers opting for the presumptive taxation scheme, even if there is LTCG under Section 112A, with the same conditions. Earlier, if a taxpayer had income from Capital Gain, then in that case, he was not able to file ITR in form 1.
- Deductions Reporting: Deductions under sections like 80C, 80D, and 80U must now be selected from a drop-down list in the e-filing utility. Taxpayers must specify the clauses or sub-sections they are claiming for these deductions. Earlier it was not necessary for taxpayer to give details of deductions.
Arjuna (Fictional Character): Krishna, these changes seem important and certainly require taxpayers to be more specific while filing their returns. So, what can taxpayer learn from this?
Krishna (Fictional Character): From this, Arjuna, we learn the importance of being well-informed when filing tax returns. Taxpayers must stay updated with changes in tax provisions and ensure transparency in reporting income and financial details. By following these updates and filing accurately, taxpayers can avoid mistakes, ensure compliance, and avoid penalties.
Author Bio
The LTCG under section 112A, provided the gain does not exceed 1.25 lakhs, you by mistakenly write the limit as 25 lakhs