Income Tax Returns — Precautions to Be Taken When Filing for AY 2025–26
Jagrit Tenani
CA Jagrit Tenani has emerged as a seasoned professional in the domains of Risk-Based Audit, SoP Formulation and Implementation, Internal Audit, Statutory Audit, and Goods and Services Tax (GST).
His experience in the Corporate Audit Department of ITC Ltd. encompassed him with a keen awareness of the critical role that stringent internal controls play in ensuring organizational excellence and compliance.
Introduction
Filing Income Tax Returns (ITRs) is an annual requirement that not only helps individuals remain tax-compliant but also promotes financial transparency and facilitates access to benefits such as loans, visas, and government programs. With the rising digitization of the Indian tax ecosystem, the Income Tax Department is now using tools such as the AIS (Annual Information Statement), Form 26AS, and TIS (Taxpayer Information Summary) to monitor transactions more carefully than before.
Comparison Table: AY 2024–25 vs AY 2025–26
Change Area | AY 2024–25 (FY 2023–24) | AY 2025–26 (FY 2024–25) |
LTCG Reporting in ITR-1/4 | Not allowed — Even Small LTCG Required ITR-2/3 | Allowed if LTCG ≤ ₹1.25 lakh (from shares, mutual funds) |
Capital Gains Date-wise Bifurcation | No date-wise disclosure needed | Gains must be split: before/after 23 July 2024; buybacks post 1 Oct 2024 under “Other Income” |
New Profession Codes Introduced | No codes for influencers or traders | New codes: Influencers (16021), F&O Traders (21010), Betting (21009) |
Asset-Liability Disclosure Threshold | Required if income > ₹50 lakh | Required only if income > ₹1 crore |
Important Disclosures:
1. Capital Gains Reporting (Detailed and Date-Split):
a. Taxpayers must report both short-term and long-term capital gains from the sale of stocks, mutual funds, real estate, or cryptocurrency assets.
b. Due to changes in tax treatment, gains for the fiscal year 2025-26 must be split and reported for transactions before and after July 23, 2024.
c. Even those utilizing ITR-1 or ITR-4 must now disclose certain capital gains (which were previously exempt in simplified forms).
2. Buyback of Shares / Nil Consideration Reporting:
a. If you received no monetary consideration for a share buyback (e.g., the corporation bought shares without payment), you must disclose this information.
b. Report capital gains with no sale value and include income (if any) under “Income from Other Sources.”
3. Foreign Assets and Income (for Residents):
a. Indian residents must report all international bank accounts, assets, and income during the fiscal year.
b. This applies even if the income is exempt in India or taxed abroad as required by Schedule FA.
ITR-1 (Sahaj) –
Who can file
1. Resident individual (not an HUF or any other entity)
2. Total income ≤ ₹50 lakh
3. Income from:
a. Salary/pension.
b. One house property (excluding cases with brought-forward losses).
c. Other sources (interest, family pension, etc., but not winnings from lottery, horse races, etc.)
4. Agricultural income ≤ ₹5,000
ITR-4 (Sugam)
Who can file
1. Resident Individual, HUF, or Firm (other than LLP)
2. Total income ≤ ₹50 lakh
3. Income from:
a. Presumptive business income under Section 44AD / 44AE.
b. Presumptive professional income under Sec 44ADA.
c. Salary/pension, one house property, other sources (interest, etc.), in addition to presumptive income.
Precautions to be taken:
a. Selecting the Correct ITR Form:
Depending on your income sources, choosing the right ITR form is the first and most important step. If you use the incorrect form, your return may be flawed or even void. For example, ITR-1 → For simple cases with only salary/one house property/other income. ITR-4 → For small businesses and professionals opting for presumptive taxation.
b. Report All Income Accurately:
It’s critical to accurately report all income, including capital gains (from stocks, mutual funds, cryptocurrency, etc.), interest from savings and fixed deposits, wages, rental income, and income from side gigs or freelancing. PPF interest, tax-free bonds, and agricultural income are examples of exempt incomes.
c. Carefully Claim Rebates and Deductions:
Ensure that all available Chapter VI-A deductions, such as those under Sections 80C, 80D, and 80G, are claimed accurately, and retain supporting documentation in case of future scrutiny.
Special attention for disclosures about assets for the taxpayers:
Category | Disclosure Required | Applicable ITR Forms |
Income > ₹50 Lakh | Schedule AL: Assets & Liabilities | ITR-2, ITR-3 |
Unlisted Company Shares | PAN, shareholding details, acquisition cost & mode | ITR-2, ITR-3 |
ESOPs (Indian or Foreign) | Perquisite value, capital gains, and unlisted shareholding | ITR-2, ITR-3 |
Foreign Assets & Income | Foreign bank accounts, securities, real estate, ESOPs | ITR-2, ITR-3 (residents only) |
Reporting of virtual digital assets:
1. Select the appropriate ITR form: ITR-3 (if VDA income is a component of business or trading activity) or ITR-2 (if you have capital gains but no business income). VDA reporting is not permitted for ITR-1 or ITR-4.
2. Complete the ITR by filling in “Schedule VDA.” A specific Schedule VDA has been introduced in the ITR forms for AY 2025–26, requiring disclosure of the following:
VDA kind and name (such as Bitcoin), Acquisition date, transfer date, purchase price, and taxable gain.
3. Disclose TDS and Gifted VDAs Separately: If TDS @ 1% was deducted, verify it in Form 26AS and AIS, and report it in the TDS schedule. For foreign VDAs, also disclose under Schedule FA (Foreign Assets) if you’re a resident.
Reporting of turnover of GST:
ITR Form | Schedule/Section | What to Report |
ITR-3 | Schedule BP (Business or Profession) | Gross receipts/sales/turnover, segregated as per GST |
ITR-4 | Part A – Gross Receipts | Gross receipts under digital and non-digital modes with GST |
All Forms | Schedule GST (optional if applicable) | Total outward supplies as per GST returns (GSTR-3B/1) |
How are AIS & TIS Useful for AY 2025–26?
Both AIS and TIS are valuable pre-filing resources that help taxpayers reconcile their actual income with the data available to the tax department. For AY 2025–26, they include details such as:
- Salary income.
- Interest on savings and fixed deposits.
- Dividend income.
- Mutual fund transactions.
- Sale of shares and other securities.
These records enable taxpayers to reconcile income from all sources, including items that might otherwise be overlooked, such as small dividend credits or residual interest income from older bank accounts.
Conclusion:
Filing ITR for AY 2025–26 requires accuracy, timely submission, and complete income disclosure. Verifying details through AIS, TIS, and Form 26AS helps avoid errors. Choosing the correct form and reporting all sources ensures compliance and prevents future scrutiny.
For any clarifications or queries, please feel free to reach out to us at admin@fintracadvisors.com
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