The Income Tax Department has officially notified the ITR-1 (Sahaj) and ITR-4 (Sugam) forms for Assessment Year 2025–26, introducing notable updates that simplify return filing for certain taxpayers.
Major Update: Section 112A LTCG Now Included in ITR-1 and ITR-4
In a move expected to ease tax compliance, taxpayers reporting long-term capital gains (LTCG) under Section 112A — such as gains from listed equity shares and equity-oriented mutual funds — can now file ITR-1 or ITR-4, provided their gains fall within the ₹1.25 lakh exemption threshold.
Previously, even tax-exempt gains under Section 112A required filing the more complex ITR-2. This change simplifies the process for many individual taxpayers and small business owners. According to the official notification, any LTCG over the ₹1.25 lakh limit or gains from immovable property, short-term capital assets, or other taxable capital gains must still be reported using ITR-2, ITR-3, or ITR-5, depending on taxpayer type.
As of Financial Year 2024–25, the LTCG tax rate under Section 112A stands at 12.5%. The first ₹1.25 lakh of such gains, however, remains tax-exempt.
Who Should File ITR-1 vs ITR-4?
Choosing the right form is critical to avoid processing delays or legal complications. The eligibility criteria differ for each:
- ITR-1 (Sahaj): Applicable to resident individuals with total income up to ₹50 lakh, having income from salary, one house property, other sources, and LTCG under Section 112A (within the limit). Cannot be used if the filer has brought forward losses or capital gains outside this scope.
- ITR-4 (Sugam): For resident individuals, HUFs, and firms (excluding LLPs) with total income up to ₹50 lakh, and business/profession income under presumptive taxation (Sections 44AD, 44ADA, or 44AE). LTCG under Section 112A within ₹1.25 lakh can now also be reported here.
Both forms have received UI/UX improvements — for instance, deductions under Sections 80C, 80GG, and others can now be selected through drop-down menus, streamlining data input.
Key Documents & Timelines for Filing
Before filing, ensure the following documents are ready:
- PAN and Aadhaar Card
- Form 16 from your employer (due by June 15, 2025)
- Form 26AS and AIS
- Interest certificates from banks and post offices
- Proofs for deductions if using the old tax regime (e.g., investments under 80C, health insurance under 80D)
- Details of home loans, capital gains statements, and any foreign income/assets (if applicable)
The online and offline filing options for AY 2025–26 are expected to be activated on the Income Tax India e-filing portal shortly. Although filing technically begins in May, most salaried individuals file only after receiving Form 16 from their employers.
Meanwhile, the wait continues for the government to notify remaining ITR forms, including ITR-2 and ITR-3, necessary for those with more complex financial situations or non-salaried income streams.
In summary, these early notifications for ITR-1 and ITR-4 mark a shift toward simplification — particularly for retail investors and small business owners. As tax season kicks off, understanding these distinctions can make return filing smoother and more accurate.