The Central Board of Direct Taxes (CBDT) has officially notified Income Tax Return (ITR) Forms 1 and 4 for the Financial Year (FY) 2024–25, corresponding to Assessment Year (AY) 2025–26. A significant update in this notification is the inclusion of long-term capital gains (LTCG) reporting under Section 112A in ITR Form 1, marking a notable shift in the tax filing process for many individual taxpayers.

Major Update: ITR-1 Now Accommodates Long-Term Capital Gains

Previously, taxpayers with any capital gains were required to file ITR-2, as ITR-1 did not permit the reporting of such income. With the latest changes, individuals can now use ITR-1 to report LTCG up to ₹1.25 lakh arising from the sale of listed equity shares and equity-oriented mutual funds under Section 112A. This amendment simplifies the filing process for salaried individuals and pensioners with modest capital gains.

Eligibility Criteria for ITR-1 (Sahaj)

ITR-1 is applicable to resident individuals (excluding not ordinarily residents) with a total income up to ₹50 lakh, comprising:

• Income from salaries
• Income from one house property
• Income from other sources (such as interest)
• LTCG under Section 112A up to ₹1.25 lakh
• Agricultural income up to ₹5,000

Exclusions: Taxpayers cannot use ITR-1 if they: Have short-term capital gains or LTCG exceeding ₹1.25 lakh

• Are directors in a company
• Hold investments in unlisted equity shares
• Have deferred tax on Employee Stock Ownership Plans (ESOPs)
• Possess assets or financial interests outside India
• Have had Tax Deducted at Source (TDS) under Section 194N

Eligibility Criteria for ITR-4 (Sugam)

ITR-4 is designed for resident individuals, Hindu Undivided Families (HUFs), and firms (excluding Limited Liability Partnerships) with total income up to ₹50 lakh, who: Have income from business or profession computed under Sections 44AD, 44ADA, or 44AE

• Have LTCG under Section 112A up to ₹1.25 lakh
• Exclusions: ITR-4 cannot be used by taxpayers who:

• Are directors in a company
• Hold investments in unlisted equity shares
• Have deferred tax on ESOPs
• Have agricultural income exceeding ₹5,000
• Possess assets or financial interests outside India

Implications for Taxpayers

The inclusion of LTCG reporting in ITR-1 and ITR-4 is a significant step towards simplifying the tax filing process for individuals with straightforward financial portfolios. By allowing the reporting of modest capital gains in these forms, the CBDT aims to make compliance more accessible and reduce the burden on taxpayers who previously had to navigate more complex forms.

As the government has notified ITR-1 and ITR-4, it is anticipated that the remaining ITR forms will be released soon, along with the necessary utilities to facilitate the filing process. Taxpayers are encouraged to review their financial activities for the year and choose the appropriate ITR form to ensure accurate and timely filing.

For more detailed information, refer to the official notification by the CBDT attached !

Notification 40-2025 of Income tax