Income Tax Return Forms for AY 2025-26: Which Form Should You File?

Filing your Income Tax Return (ITR) for Assessment Year (AY) 2025-26 (Financial Year 2024-25) requires selecting the correct ITR form based on your income sources, residential status, and specific financial activities. Choosing the wrong form can lead to rejection, penalties (up to ₹5,000 for late filing by July 31, 2025), or delayed refunds (7–20 days). For Indian taxpayers, ITR-1, ITR-2, ITR-3, and ITR-4 are the most relevant forms for individuals and Hindu Undivided Families (HUFs). This blog by TaxSwift breaks down each form, detailing every factor that mandates its use, including updates from Budget 2025. Let’s ensure you file accurately and maximize your benefits!

Why the Right ITR Form Matters

The Income Tax Department has designed ITR forms to cater to different taxpayer profiles. Each form has specific eligibility criteria, and certain income types or financial activities mandate the use of a particular form. For AY 2025-26, new rules—such as increased TDS thresholds and simplified reporting for Long-Term Capital Gains (LTCG)—further influence form selection. Filing with the correct form ensures:

• Compliance: Avoid notices or penalties (e.g., ₹5,000 for defective filing under Section 139(8A)).

• Accurate Refunds: Claim TDS credits and deductions correctly, with refunds processed in 7–20 days.

• Regime Choice: Optimize between the new tax regime (standard deduction ₹75,000) and old regime (e.g., 80C, 80D) based on your income structure.

At TaxSwift, we simplify this process. Let’s explore each form and the factors mandating their use for AY 2025-26.

ITR-1 (Sahaj): For Simple Income Sources

Eligibility

ITR-1, also known as Sahaj, is the simplest form for resident individuals (ordinary or not ordinarily resident) with straightforward income sources. You can use ITR-1 if:

• Total Income: Up to ₹50 lakh.

• Income Sources:

• Salary or pension (TDS under Section 192).

• Income from one house property (excluding brought-forward losses or losses to carry forward).

• Other sources: Interest (e.g., bank FDs, TDS under Section 194A), dividends, family pension (deduction up to ₹15,000 under Section 57(iia)).

• Agricultural income up to ₹5,000.

• New for AY 2025-26: ITR-1 now allows reporting of Long-Term Capital Gains (LTCG) up to ₹1.25 lakh under Section 112A (e.g., equity shares, mutual funds), provided there are no carried-forward losses.

Mandating Factors for ITR-1

You must use ITR-1 if you meet the eligibility criteria above, but cannot use it if any of the following apply:

• Total income exceeds ₹50 lakh.

• Income from business or profession (including presumptive taxation under Section 44AD/44ADA).

• Capital gains (short-term or long-term), except LTCG ≤₹1.25 lakh under Section 112A.

• Foreign assets (e.g., overseas bank accounts, property) or foreign income (e.g., dividends from foreign shares).

• Director in a company or holding unlisted equity shares.

• Brought-forward losses or losses to carry forward (except house property losses adjusted in the current year).

• Liable for audit under Section 44AB (e.g., turnover >₹1 crore without 95% digital transactions).

• Income from more than one house property.

• Taxable income of a minor child, spouse, or others clubbed under Section 64, if it includes capital gains or business income.

Example: A salaried employee earning ₹40 lakh with TDS on salary, ₹2 lakh interest from FDs, and ₹1 lakh LTCG (Section 112A) can use ITR-1, as total income is ≤₹50 lakh and LTCG is within the limit.

ITR-2: For Complex Income Without Business

Eligibility

ITR-2 is for individuals and HUFs who do not have income from business or profession. It covers a broader range of income sources compared to ITR-1, including:

• Salary or pension (any amount, no ₹50 lakh limit).

• Income from multiple house properties (including brought-forward losses).

• Capital gains (short-term or long-term, e.g., sale of shares, property, mutual funds).

• Other sources (e.g., interest, dividends, lottery winnings, horse race income).

• Foreign assets or foreign income.

• Agricultural income >₹5,000.

New for AY 2025-26

• Capital Gains Reporting: ITR-2 now requires separate reporting of capital gains before and after July 23, 2024, due to revised tax rates (LTCG: 12.5%, STCG: 20% for specified financial assets like shares, bonds).

• Share Buybacks: From October 1, 2024, capital loss on share buybacks can be claimed if taxed as dividends under “Income from Other Sources” (TDS at 10% or 20%).

Mandating Factors for ITR-2

You must use ITR-2 if any of the following apply:

• Capital gains income (e.g., STCG from shares, LTCG from property, except LTCG ≤₹1.25 lakh in ITR-1/ITR-4).

• Foreign assets (e.g., overseas property, bank accounts) or foreign income (e.g., salary, dividends from abroad).

• Total income exceeds ₹50 lakh (even without business income).

• Director in a company or holding unlisted equity shares (e.g., shares in a startup not listed on NSE/BSE).

• Income from more than one house property or brought-forward house property losses.

• Agricultural income exceeds ₹5,000.

• Clubbed income (e.g., spouse, minor child) includes capital gains or foreign income.

• Not eligible for ITR-1 due to the above factors, but no business/professional income (otherwise, use ITR-3).

Example: A retiree with ₹60 lakh income (pension, interest, LTCG from mutual funds), two house properties, and foreign dividends must use ITR-2 due to capital gains, multiple properties, and foreign income.

ITR-3: For Business or Professional Income (Non-Presumptive)

Eligibility

ITR-3 is for individuals and HUFs with income from a business or profession, excluding those eligible for presumptive taxation (covered by ITR-4). It also includes all income sources covered by ITR-2, such as:

• Business or professional income (e.g., retail shop, consultancy, audited business).

• Salary, house property, capital gains, other sources, foreign assets/income.

New for AY 2025-26

• Partner Payments (Section 194T): Firms must deduct TDS at 10% on payments to partners (e.g., salary, commission) exceeding ₹20,000 annually, reported in ITR-3.

• Capital Gains: Same reporting requirements as ITR-2 (before/after July 23, 2024).

Mandating Factors for ITR-3

You must use ITR-3 if any of the following apply:

• Income from a business or profession not under presumptive taxation (e.g., turnover >₹2 crore, requiring audit under Section 44AB, or not opting for Section 44AD/44ADA).

• Partner in a firm with TDS on partner payments under Section 194T (e.g., commission >₹20,000).

• Any ITR-2 mandating factors (e.g., capital gains, foreign assets) combined with business/professional income.

• Liable for audit under Section 44AB (e.g., turnover >₹1 crore without 95% digital transactions, or profits <6%/8% under Section 44AD).

• Not eligible for ITR-1, ITR-2, or ITR-4 due to non-presumptive business income.

Example: A freelance consultant with ₹80 lakh receipts (not opting for Section 44ADA), ₹10 lakh STCG from shares, and foreign assets must use ITR-3 due to non-presumptive professional income, capital gains, and foreign assets.

ITR-4 (Sugam): For Presumptive Business Income

Eligibility

ITR-4, also known as Sugam, is for resident individuals and HUFs (ordinary or not ordinarily resident) with income up to ₹50 lakh, opting for presumptive taxation. Eligible income sources include:

• Business income under Section 44AD: Turnover ≤₹2 crore (≤₹3 crore if 95% receipts are digital), deemed profit at 6% (digital) or 8% (non-digital).

• Professional income under Section 44ADA: Gross receipts ≤₹50 lakh (≤₹75 lakh if 95% digital), deemed profit at 50%.

• Salary/pension, one house property, other sources (interest, dividends), agricultural income ≤₹5,000.

New for AY 2025-26

• LTCG Inclusion: ITR-4 now allows LTCG up to ₹1.25 lakh under Section 112A, similar to ITR-1.

• Thresholds: No changes to presumptive limits (still ₹2 crore for business, ₹50 lakh for professionals, unless 95% digital transactions).

Mandating Factors for ITR-4

You must use ITR-4 if you meet the eligibility criteria, but cannot use it if:

• Total income exceeds ₹50 lakh.

• Capital gains (except LTCG ≤₹1.25 lakh under Section 112A).

• Income from business or profession not under presumptive taxation (use ITR-3).

• Foreign assets or foreign income.

• Director in a company or holding unlisted equity shares.

• Liable for audit under Section 44AB.

• Income from more than one house property or brought-forward house property losses.

• Not a resident (ordinary or not ordinarily resident).

Example: A small retailer with ₹1.5 crore turnover (6% profit under Section 44AD), ₹20 lakh salary, and ₹1 lakh LTCG can use ITR-4, as total income is ≤₹50 lakh and business income is presumptive.

Practical Tips for Choosing the Right Form

• Verify Income Sources: Check your AIS/Form 26AS on incometax.gov.in for all income sources (salary, interest, capital gains, business).

• Assess Residential Status: ITR-1 and ITR-4 are only for residents (ordinary or not). Non-residents with business income use ITR-3.

• Compare Tax Regimes: Use TaxSwift’s free tax calculator to decide between the new regime (standard deduction ₹75,000) and old regime (e.g., 80C up to ₹1.5 lakh).

• Gather Documents: Collect Form 16, Form 16A, investment proofs, and property details to report accurately.

• File Early: Start filing from April 1, 2025, to secure refunds faster and avoid the Sept 15, 2025, deadline rush (penalty ₹5,000 for late filing).

Conclusion

Choosing the right ITR form for AY 2025-26 is crucial for compliance and maximizing tax benefits. Whether you’re a salaried employee (ITR-1), an investor with capital gains (ITR-2), a business owner (ITR-3), or a small professional under presumptive taxation (ITR-4), understanding the mandating factors ensures a smooth filing process. Don’t risk penalties or delayed refunds—prebook your ITR filing with TaxSwift at taxswift.in/prebook to save 10% and file with confidence. For personalized support, email us at support@taxswift.in. Let’s make tax filing simple and rewarding for AY 2025-26!