The Central Board of Direct Taxes (CBDT) has finally notified ITR-1 (Sahaj) and ITR-4 (Sugam) forms for the Assessment Year (AY) 2025-26, corresponding to the Financial Year (FY) 2024-25. These forms are critical for taxpayers, especially those reporting long-term capital gains (LTCG) from equity shares and equity-oriented mutual funds up to ₹1.25 lakh. This article explores the eligibility criteria, key updates, and what taxpayers need to know to file their Income Tax Returns (ITR) seamlessly.
Key Update: LTCG Reporting in ITR-1 and ITR-4
For AY 2025-26, a significant change allows taxpayers with LTCG up to ₹1.25 lakh from listed equity shares or equity-oriented mutual funds to use ITR-1 and ITR-4. Previously, such capital gains were reported using ITR-2, making this a welcome simplification for eligible taxpayers. This change aligns with the government’s efforts to streamline tax filing for individuals and small businesses, particularly in the context of rising equity market participation.
ITR-1 (Sahaj) Eligibility for AY 2025-26
ITR-1 is designed for resident individuals (other than not ordinarily resident) with a total income up to ₹50 lakh. The form can be used by those with:
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Income from salaries
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One house property
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Other sources (e.g., interest)
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Long-term capital gains under section 112A up to ₹1.25 lakh
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Agricultural income up to ₹5,000
However, ITR-1 is not applicable for individuals who:
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Are directors in a company
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Have invested in unlisted equity shares
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Have assets or financial interests outside India
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Have income tax deferred on ESOP
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Have TDS deducted under Section 194N
This makes ITR-1 ideal for salaried individuals and small investors with straightforward income sources and limited capital gains.
ITR-4 (Sugam) Eligibility for AY 2025-26
ITR-4 caters to resident individuals, Hindu Undivided Families (HUFs), and firms (other than LLPs) with a total income up to ₹50 lakh. It is suitable for those with income from:
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Business or profession computed under sections 44AD, 44ADA, or 44AE
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Long-term capital gains under section 112A up to ₹1.25 lakh
Similar to ITR-1, ITR-4 cannot be used by individuals who:
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Are directors in a company
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Have invested in unlisted equity shares
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Have assets or financial interests outside India
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Have income tax deferred on ESOP
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Have agricultural income exceeding ₹5,000
ITR-4 is particularly beneficial for small business owners and professionals opting for presumptive taxation while also reporting moderate equity gains.
No Extension for ITR Filing Deadline
The delayed notification of ITR-1 and ITR-4 sparked rumors of a potential extension for the ITR filing due date for AY 2025-26. However, the CBDT is unlikely to extend the deadline, which remains July 31, 2025, for non-audit cases. Salaried taxpayers, who typically file after receiving Form 16 by June 15, should plan accordingly to avoid penalties.
What’s Next for Other ITR Forms?
With ITR-1 and ITR-4 notified, taxpayers now await the release of other ITR forms (e.g., ITR-2, ITR-3) by the CBDT. These forms will cater to more complex income structures, such as capital gains exceeding ₹1.25 lakh or income from multiple sources. The timely notification of these forms will be crucial for taxpayers with diverse financial portfolios.
Why This Matters for Taxpayers
The inclusion of LTCG up to ₹1.25 lakh in ITR-1 and ITR-4 simplifies tax filing for millions of retail investors in India’s booming equity markets. By allowing these gains to be reported in simpler forms, the CBDT has reduced the compliance burden for small taxpayers. However, taxpayers must carefully verify their eligibility to avoid errors, as using the wrong form can lead to scrutiny from the tax department.
Conclusion
The notification of ITR-1 and ITR-4 for AY 2025-26 is a significant step toward simplifying tax compliance for salaried individuals, small businesses, and equity investors. With the ability to report LTCG up to ₹1.25 lakh, these forms cater to India’s growing investor base. Taxpayers should review their income sources, ensure eligibility, and file by July 31, 2025, to stay compliant. Keep an eye out for the notification of other ITR forms to plan your tax filing effectively.
