1. Introduction
The Income Tax Department notifies Income Tax Return (ITR) forms every year for the relevant Assessment Year. For AY 2026-27 (corresponding to Financial Year 2025-26), seven ITR forms have been notified, each applicable to a specific category of taxpayer. Selecting the correct form is critical — filing an incorrect ITR form renders the return defective under Section 139(9), which, if not rectified, is treated as if no return was filed.
This article provides a comprehensive guide to ITR form selection for AY 2026-27, key changes introduced this year, the most important schedules to complete accurately, and the consequences of incorrect filing.
2. Overview of ITR Forms — AY 2026-27
| Form | Who Must Use It | Who Cannot Use It |
| ITR-1 (Sahaj) | Resident individuals with: salary/pension income; one house property income; other sources (interest, dividends). Total income ≤ ₹50 lakh. | Non-residents; individuals with business/profession income; agricultural income > ₹5,000; foreign assets/income; directors; unlisted equity shareholders; carry-forward losses. |
| ITR-2 | Individuals and HUFs NOT having income from business or profession. Includes capital gains, multiple house properties, foreign assets, NRIs. | Those with business/profession income — use ITR-3 or ITR-4. |
| ITR-3 | Individuals and HUFs with income from proprietary business or profession. Includes partners of firms. | Firms, companies, AOPs. |
| ITR-4 (Sugam) | Individuals, HUFs, and firms (other than LLP) opting for presumptive taxation under Section 44AD, 44ADA, or 44AE. Total income ≤ ₹50 lakh. | Those with foreign assets; director in a company; agricultural income > ₹5,000; income taxable at special rates. |
| ITR-5 | Firms, LLPs, AOPs, BOIs, artificial juridical persons. Not individuals/HUFs/companies. | Companies; individuals (even partners file ITR-3, not ITR-5). |
| ITR-6 | Companies other than those claiming exemption under Section 11 (charitable/religious institutions). | Section 11-claiming companies — use ITR-7. |
| ITR-7 | Trusts, political parties, scientific research institutions, universities — entities filing under Section 139(4A)/(4B)/(4C)/(4D). | Ordinary companies and individuals. |
3. Key Changes in ITR Forms for AY 2026-27
3.1 New Tax Regime as Default
Effective AY 2024-25, the New Tax Regime under Section 115BAC is the default regime. For AY 2026-27, taxpayers wishing to opt for the Old Tax Regime must explicitly exercise the option:
- Individuals/HUFs without business income: option must be exercised in the ITR itself (before due date of filing)
- Individuals/HUFs with business income: option must be exercised by filing Form 10-IEA on or before the due date of filing the return
- Once the Old Regime is opted for by business-income taxpayers, it remains applicable for subsequent years (subject to opting out in the same manner)
| Important
If you have deductions like HRA (Section 10(13A)), LTA (Section 10(5)), Chapter VI-A deductions (80C, 80D, etc.), or home loan interest (Section 24(b)), the Old Tax Regime will typically be more beneficial. Model both regimes before filing. |
3.2 Reporting of Buyback Income
Finance (No. 2) Act 2024 amended the buyback taxation provisions significantly from 1 October 2024. Buyback income is now taxable in the hands of shareholders as deemed dividend under Section 2(22)(f), taxable under ‘Income from Other Sources.’ The company no longer pays the 20% buyback tax under Section 115QA. Shareholders receiving buyback proceeds must report this in Schedule OS (Other Sources) and can claim credit for TDS deducted by the company.
3.3 Expanded Disclosure of Capital Gains
Schedule CG in ITR-2 and ITR-3 now separately captures:
- LTCG on listed equity shares/equity mutual funds — exempt up to ₹1,25,000 (increased from ₹1,00,000 from AY 2025-26), taxable at 12.5% above threshold
- STCG on listed equity/equity MF — now at 20% (increased from 15%, effective 23 July 2024)
- LTCG on other assets — 12.5% without indexation (changed from 20% with indexation for property sold after 23 July 2024)
- Option to choose lower rate for pre-23 July 2024 property transactions (20% with indexation vs 12.5% without)
3.4 Angel Tax Abolition
The ‘angel tax’ under Section 56(2)(viib) has been abolished from AY 2025-26. ITR forms for AY 2026-27 no longer require start-ups or companies to report premium received on share issuance as income from other sources under this provision. Schedule OS has been updated accordingly.
3.5 Reporting of Foreign Assets and Schedule FA
Schedule FA (Foreign Assets) and Schedule FSI (Foreign Source Income) have been expanded. NRIs are not required to disclose foreign assets in their Indian ITR; however, ROR (Resident and Ordinarily Resident) individuals and RNOR individuals with foreign assets must disclose:
- Bank accounts held outside India
- Financial interests in foreign entities
- Immovable property outside India
- Any other capital asset outside India
- Trusts created outside India in which the taxpayer is a beneficiary/trustee
4. Applicability Decision Tree — Finding the Right ITR Form
Use the following decision flow to determine the correct form:
| Question | If Yes → | If No → |
| Are you a company? | ITR-6 or ITR-7 | Next question |
| Are you a firm, LLP, AOP, BOI? | ITR-5 | Next question |
| Are you an individual or HUF with business/profession income? | ITR-3 (or ITR-4 if opting presumptive scheme) | Next question |
| Is your total income ≤ ₹50 lakh with only salary, 1 house property, other sources? | ITR-1 (if ROR and no foreign assets) | Next question |
| None of the above — individual/HUF with capital gains, foreign income, multiple properties, NRI? | ITR-2 | — |
5. Important Schedules in ITR — Common Errors
| Schedule | What to Disclose | Common Error |
| Schedule HP | Income from house property — annual value, municipal taxes paid, 30% deduction, home loan interest | Claiming 30% deduction on self-occupied property (not allowed) |
| Schedule CG | Capital gains — categorised by asset type, holding period, and rate | Reporting full sale consideration instead of net gain after indexation/cost |
| Schedule OS | Dividends, interest, winnings, gifts, buyback income | Not reporting dividends from mutual funds and foreign companies |
| Schedule 80G | Donations — name of trust, PAN, address, mode of payment | Claiming 80G without payment through banking channel (cash > ₹2,000 not allowed) |
| Schedule FA / FSI | Foreign assets, foreign income, foreign tax credit | ROR individuals not disclosing NRE bank accounts or overseas property |
| Schedule AL | Assets and liabilities (for income > ₹50 lakh) | Not disclosing gold jewellery, art, vehicles; estimating rather than actual values |
6. Due Dates for Filing ITR — AY 2026-27
| Category | Due Date | Applicable For |
| Non-audit cases — individuals, HUFs, firms | 31 July 2026/ 31st August 2026 | Most salaried and non-business taxpayers |
| Tax audit cases — Section 44AB | 31 October 2026 | Businesses/professions with turnover above audit threshold |
| Transfer pricing audit cases — Section 92E | 30 November 2026 | International transactions with AEs |
| Revised return (u/s 139(5)) | 31 December 2026 | Available to all who filed original return by due date |
| Belated return (u/s 139(4)) | 31 December 2026 | Available with late fee under Section 234F |
| Updated return (u/s 139(8A)) | Within 24 months from end of AY | i.e., 31 March 2029 for AY 2026-27 |
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| Late Filing Penalty — Section 234F
Filing after the due date but before 31 December 2026 attracts a late fee of ₹5,000 (₹1,000 if total income ≤ ₹5 lakh). Interest under Section 234A @ 1% per month on unpaid tax accrues from the due date. |
7. Verification of Return
Every ITR must be verified within 30 days of online submission. Failure to verify renders the return invalid (as if not filed). Methods of verification:
- Aadhaar OTP — instant, most preferred
- Net banking — EVC through registered bank account
- Bank ATM — EVC through ATM of specified banks
- Demat account — EVC if SEBI-registered
- Physical signature — ITR-V sent by post to CPC Bengaluru (only if above not possible; takes 30-60 days)
8. Conclusion
Selecting the correct ITR form and filing accurately within the due date are the two most fundamental compliance obligations for every taxpayer. The AY 2026-27 forms reflect significant changes — particularly in capital gains taxation (post-23 July 2024 rates), buyback income treatment, and the continuation of the New Tax Regime as default. Taxpayers are advised to reconcile Form 26AS, AIS, and Form 16/16A before filing, and to disclose all foreign assets if applicable.
A defective or incorrect return, if not rectified within the time granted under Section 139(9), is treated as an invalid return — with significant consequences including interest and penalties.
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