Revised ITR Forms for FY25: Key Changes

“Revised ITR Forms for FY25: Key Changes”

Syllabus:

GS-2:Government Policies & Interventions

GS-3:Growth & DevelopmentPlanningGovernment BudgetingFiscal Policy

Focus:

The Indian government has introduced significant changes in the Income Tax Return (ITR) forms for the Assessment Year 2025-26 to simplify tax filing processes and improve transparency. The updates focus on capital gains, tax-saving investments, allowances, and TDS disclosures, impacting individual taxpayers across various income categories.

Key Changes in FY25 Tax Returns:

• Introduction to ITR Form Changes

  • Taxpayers must adapt to several significant changes in the Income Tax Return (ITR) forms for the Assessment Year (AY) 2025-26.
  • The forms are aimed at easing compliance while expanding disclosure requirements on various aspects like tax-saving investments, House Rent Allowance (HRA), and non-salary TDS.
• Forms Affected
  • Forms such as Sahaj (ITR-1), ITR-2, and ITR-3 have undergone substantial revisions.
  • The changes aim to simplify tax filing for individuals with simpler income sources while ensuring transparency in more complex cases.
• New Disclosure Requirements
  • Taxpayers will be required to disclose more details about tax-saving investments, loans, and TDS (Tax Deducted at Source) on non-salary income.
  • At the same time, reporting on assets and liabilities has been relaxed.
• Simplified Forms for Lower Capital Gains
  • Taxpayers with Long-Term Capital Gains (LTCG) up to ₹1.25 lakh from listed stocks and equity funds can opt for the simplified ITR-1 or ITR-4
  • This reduces the burden on individuals with minimal capital gains, as previously, LTCG had to be reported in more complex forms (ITR-2 or ITR-3).

Capital Gains Reporting: Simplification and Disclosures

• LTCG Reporting for Stocks and Equity Funds
  • ITR-1 and ITR-4 are now available for taxpayers with LTCG of up to ₹1.25 lakh from equity mutual funds and stocks, under Section 112A.
  • Taxpayers can report only the total sales consideration, acquisition cost, and net LTCG without needing to disclose detailed information.
• Threshold for Simplified Filing
  • The ₹1.25 lakh threshold applies after setting off any capital losses incurred in the same assessment year.
  • If an individual’s total LTCG exceeds ₹1.25 lakh, they must file either ITR-2 or ITR-3, as this requires more detailed disclosures.
• Exclusion of Other Assets and Losses
  • The ₹1.25 lakh limit applies specifically to capital gains from listed stocks and equity mutual funds under Section 112A.
  • If a taxpayer has LTCG from other assets or a combination of short-term gains, losses, or total LTCG exceeding ₹1.25 lakh, they must opt for the more detailed ITR forms (ITR-2 or ITR-3).
• Specific Guidelines for Taxpayers
  • Sonu Iyer, Partner at EY India, explains that only losses set off under Section 112A will be considered for net gain calculations.

Detailed Disclosures on Tax-Saving Investments, HRA, and Loans:

• Expanded Disclosures for Tax-Saving Investments
  • New sections have been added to ITR forms, requiring taxpayers to disclose deductions under Chapter VI-A (Sections 80C, 80D, 80CCD, 80E, etc.).
  • These deductions include investments in PPF, life insurance, fixed deposits, and mutual funds.
• HRA and Other Allowances
  • Taxpayers claiming exemptions under HRA (House Rent Allowance), LTA (Leave Travel Allowance), and other allowances will need to provide more detailed information.
  • This includes furnishing the rent paid, the landlord’s details, and the amount exempted under Section 10(13A).
• Loan Details for Taxpayers
  • Those claiming deductions for housing or education loans will need to submit more detailed information, including the loan amount, interest paid, and the lender’s information.
• Easing the Compliance Process
  • While the disclosure requirements have expanded, the system has introduced drop-down menus to make it easier for taxpayers to select and report the relevant details.
  • This system is designed to reduce errors and improve accuracy in filings.

New Rules for Capital Gains and Tax Rate Changes:

• Capital Gains Tax Rate Changes (Finance Act 2024)
  • Changes in the tax rates for capital gains have come into effect, with a uniform rate of 12.5% now applicable across all asset classes, as opposed to the previous 10% rate for equities and 20% for other assets.
  • Taxpayers now need to separately report capital gains made before and after July 23, 2024, which is critical due to varying tax rates and indexation benefits.
• Real Estate and Other Asset Disclosures
  • For real estate properties acquired before July 23, 2024, taxpayers will have the option to choose between two tax regimes: 5% without indexation or 20% with indexation.
  • These changes are particularly relevant for those using the Capital Gains Account Scheme (CGAS), where gains from sales intended for reinvestment in real estate are kept.
• Separate Reporting for Pre- and Post-Change Capital Gains
  • ITR forms now require taxpayers to report gains separately for transactions that occurred before and after July 23, 2024.
  • This differentiation is crucial to calculate accurate tax liability, especially for taxpayers involved in both real estate and other capital assets.

Enhanced TDS Reporting and Asset Disclosures:

• TDS on Non-Salary Income
  • The new ITR forms require detailed reporting of TDS (Tax Deducted at Source) on non-salary income, including income from dividends, interest, and other sources.
  • Taxpayers must reconcile the TDS information with Form 26AS and AIS (Annual Information Statement) to ensure that the deductions reported match the actual amounts deducted at source.
• Asset and Liability Reporting for High-Income Taxpayers
  • A significant change is the increase in the threshold for reporting assets and liabilities under Schedule AL, from ₹50 lakh to ₹1 crore.
  • Taxpayers with income exceeding ₹1 crore must disclose details about immovable properties, financial assets, vehicles, jewelry, insurance policies, and other significant assets and liabilities.
• Impact on HUFs (Hindu Undivided Families)
  • Hindu Undivided Families (HUFs) are no longer eligible to file ITR-1. They will need to file ITR-2, ITR-3, or ITR-4, depending on their sources of income.

Conclusion: Preparing for the New ITR Forms

• Final Filing Deadline and Recommendations
  • The deadline for filing ITR for AY2025-26 is set for July 31, 2025. However, taxpayers are encouraged to file their returns early to avoid errors due to the new complexities in the forms.
  • Taxpayers should also maintain thorough documentation and cross-check their forms with TDS certificates, Form 26AS, and AIS to ensure accuracy in their filings.
• Ensuring Accuracy in Reporting
  • With the new additions and disclosures in the ITR forms, it’s crucial for taxpayers to carefully review and reconcile all income, deductions, and tax paid at source.
  • Proper documentation and timely filing will be key to avoiding errors and ensuring compliance with the updated tax rules.

Conclusion:

The changes in the ITR forms are aimed at simplifying tax filing for individual taxpayers, especially with a focus on capital gains, tax-saving deductions, and disclosures of assets and liabilities. By improving accuracy and transparency, these reforms are expected to foster better tax compliance while easing the filing process.

Source: Mint

Mains Practice Question:

“Discuss the key reforms in the Income Tax Return (ITR) forms for Assessment Year 2025-26. How will these changes impact taxpayers, particularly with regard to capital gains, TDS reporting, and disclosure requirements? Analyze their potential effects on tax compliance and ease of filing in India.”