In the latest move by the Central Board of Direct Taxes (CBDT), the Income Tax Return (ITR) Forms 1 and 4 for the financial year 2024-25 (assessment year 2025-26) have been notified with significant changes. These forms will now be applicable to individuals filing their income tax returns for earnings from April 1, 2024, to March 31, 2025.

Major Changes in ITR Forms 1 and 4

For the first time, ITR Form 1 now accommodates the reporting of long-term capital gains (LTCG) under section 112A. This change allows taxpayers with LTCG up to Rs 1.25 lakh, and no carry forward losses, to file their returns using ITR 1 instead of the previously required ITR 2. The primary advantage of this is the simplified filing process for individuals with capital gains from the sale of equity mutual funds or listed equity shares.

LTCG in ITR Form 4

Similarly, ITR Form 4 has also been updated to allow LTCG reporting up to Rs 1.25 lakh, with similar provisions as ITR Form 1, provided there are no carried forward losses. However, ITR Form 4 also includes provisions that cater to businesses, making it applicable to self-employed individuals and professionals.

Changes Related to Tax Regimes and Deductions

A noteworthy change for the assessment year 2025-26 includes expanded disclosure on opting out of the new tax regime using Form 10-IEA under section 115BAC(6). Individuals who have opted out of the new tax regime in the previous year (AY 2024-25) will be required to specify their decision to either continue or reverse it for AY 2025-26. Additionally, if someone is opting out of the new tax regime for the first time in AY 2025-26, they must furnish their Form 10-IEA acknowledgment details.

The inclusion of mandatory reporting of bank accounts is another significant change. All active bank accounts held by an individual in India, except dormant ones, must now be reported. This ensures more transparency and helps streamline income tax refunds. At least one active bank account must be chosen for receiving refund credits.

Digital Business Tax Provisions Under Section 44AD and 44ADA

ITR Form 4 has also made important amendments for businesses with a high volume of digital transactions. For businesses that have 95% or more of their transactions digitally, the threshold for turnover under Section 44AD has been raised to Rs 3 crore. Similarly, for professionals (covered under Section 44ADA), the limit for digital receipts has been increased to Rs 75 lakh. This change is likely to benefit businesses that rely heavily on digital payments.

Key Takeaways

1. LTCG Reporting in ITR 1: The updated ITR 1 form simplifies the reporting process for long-term capital gains up to Rs 1.25 lakh, making it easier for individuals to file returns.

2. Tax Regime Changes: The updated ITR forms introduce better disclosure requirements for taxpayers opting out of the new tax regime and the use of Form 10-IEA.

3. Digital Business Tax Reforms: Businesses with digital transactions now benefit from higher turnover thresholds under Section 44AD and Section 44ADA.

These changes reflect a growing focus on digital transactions, transparency, and ease of filing for income tax returns, making the process more efficient for both individual taxpayers and businesses alike.

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