Important Updates to ITR-1 and ITR-4 for AY 2025-26

What's New in ITR-1 and ITR-4 for AY 2025–26: More Convenience, But More Clarity Needed

In a move that could simplify tax filing for millions of small taxpayers and salaried individuals, the Central Board of Direct Taxes (CBDT) has introduced several key changes to the ITR-1 (Sahaj) and ITR-4 (Sugam) forms for Assessment Year 2025–26. The modifications, formalised via CBDT Notification No. 40/2025, aim to offer greater ease of use while tightening the screws on vague or incomplete deduction disclosures.

1. LTCG Relief for Small Investors: A Welcome Threshold

What’s changed: Until now, if you earned even a rupee of long-term capital gains (LTCG) under Section 112A (from listed equity shares or equity mutual funds), you were forced to abandon ITR-1 or ITR-4 and migrate to the more complex ITR-2.

What’s new in AY 2025–26: You can now report LTCG under Section 112A directly in ITR-1 or ITR-4—as long as:

Your total LTCG doesn’t cross ₹1.25 lakh, and
You’re not carrying forward or setting off any capital losses.

Why it matters: This is a big relief for retail equity investors—particularly salaried taxpayers—who may have booked modest gains in the last financial year. They can now avoid the hassle of navigating a more detailed form just because they sold a few mutual fund units or stocks.

However, a caveat: The moment you have carry-forward capital losses or LTCG exceeding ₹1.25 lakh, you’re back to ITR-2 or ITR-3.

2. Chapter VI-A Deductions: Vague Entries No Longer Cut It

What’s changed: Earlier, it was acceptable to club all your Section 80C deductions under one total—PPF, ELSS, life insurance, etc.—without granular breakdowns.

What’s new: From AY 2025–26, each sub-category under Chapter VI-A must be individually itemised.

Example:
- ₹50,000 in PPF
- ₹30,000 in ELSS
- ₹20,000 towards life insurance
For Section 80G, each donation and recipient must also be listed separately.

Why it matters: This change ties in with the government’s push for transparency and real-time validation. The tax department is relying increasingly on pre-filled data, and vague disclosures no longer pass unnoticed.

What you should do: Keep documentary proof for every deduction. Scrutiny is likely to tighten around mismatches between what you claim and what’s reflected in Form 26AS or AIS.

3. Filing Utilities Have Been Updated – Here’s How to Use Them

The updated Common Offline Utilities (COU) for ITR-1 and ITR-4 are now live on the Income Tax e-filing portal.

Steps to use:

Visit www.incometax.gov.in
Navigate to Downloads > Offline Utilities
Download the JSON/Excel tool for AY 2025–26
Fill in the data, validate it, and upload the generated JSON

Smart features include:

Pre-filled PAN, bank, and salary data
Auto-validation to catch errors early
A simplified user interface that still demands more accurate disclosures

4. Who Can—and Can’t—Use ITR-1 or ITR-4?

Form	Who Can File	New Rule for Capital Gains
ITR-1	Resident individuals with income up to ₹50 lakh from salary, 1 house, etc.	LTCG u/s 112A up to ₹1.25 lakh allowed; no capital loss
ITR-4	Individuals/HUFs/firms (non-LLP) under presumptive income (44AD/ADA/AE)	Same condition as ITR-1

Who is excluded from these forms?

More than one house property
Foreign assets or income
LTCG over ₹1.25 lakh
Any capital loss to carry forward

5. Key Tips Before You File

Check eligibility: Don’t assume you can use ITR-1/4—match your profile with the new limits.
Document everything: Each deduction needs proof—play safe.
Cross-verify with Form 26AS & AIS: Mismatches trigger red flags.
File early: The earlier you file, the more time you get to fix errors, if any.
When in doubt, consult a CA: Especially if your return involves capital gains, clubbing provisions, or multiple deductions.

In Summary

The revamped ITR-1 and ITR-4 strike a balance—simplifying filing for lakhs of small taxpayers while simultaneously closing loopholes that allowed under-reporting of deductions. If you’re a salaried individual or a small business using presumptive taxation, these forms are still your best bet—provided you meet the tighter conditions.