Govt Notifies ITR Forms: Big Relief for Investors with Gains up to ₹1.25 Lakh

The government has announced the release of itr forms, providing significant relief to investors who have made gains up to ₹1.25 lakh. 

The income tax department has released the most recent income tax return (itr) forms for the assessment year 2025–26, which brings significant convenience for small investors and salaried individuals. One of the notable changes is the relaxation that enables individuals with long-term capital gains (LTCG) exceeding ₹1.25 lakh to utilize simpler return forms such as itr-1 and itr-4. This alteration is anticipated to simplify the filing process for a significant number of taxpayers nationwide.  A move towards making things easier. 

In the past, people who disclosed any level of LTCG were prohibited from utilizing the itr-1 or itr-4 forms. They had to transition to more intricate and time-consuming forms, such as itr-2, even if their total capital gains were relatively modest. This placed an undue strain on small investors and individuals with limited involvement in the stock market. 

By increasing the threshold and allowing individuals with LTCG up to ₹1.25 lakh under section 112a to continue filing simpler itrs, the government has recognized the importance of simplifying compliance for regular investors. This decision has been embraced by taxpayers and financial advisors, as it simplifies the tax filing process and reduces the burden on individuals. 

 Who can profit from the new provision? 

The primary advantage of this change is that it benefits individuals who earn income from their salary, own a house, and have additional sources of income like interest, along with capital gains from investments in stocks or mutual funds that do not exceed ₹1.25 lakh. These individuals can now continue using itr-1 (sahaj) or itr-4 (sugam), as long as their total income does not exceed ₹50 lakh and they fulfill all other eligibility requirements.

Furthermore, these simplified forms are not accessible to individuals who: 

Own unlisted shares, 

Have more than one house property. 

Have agricultural income over ₹5,000. 

Or have any brought forward or carried forward capital losses. 

The revised rule strikes a balance by providing relief to small investors who genuinely need it, while still ensuring that complex cases are reported accurately. 

A Detailed Examination of itr-1 and itr-4.

Itr-1 (sahaj) is specifically designed for individuals who reside in India and have an income up to ₹50 lakh, which includes: 

Income from salary or pension. 

The total income from one house property (excluding cases with losses),. 

Other sources of income such as interest from banks and dividends. 

Agricultural income up to ₹5,000. 

Itr-4 (sugam) is applicable to individuals, hufs, and firms (except llps) with: 

Total earnings up to ₹50 lakh. 

Income earned from a business or profession is calculated using presumptive taxation schemes, such as sections 44ad, 44ada, or 44ae. 

The updated forms now enable investors who have earned ltcg from listed equities or mutual funds up to ₹1.25 lakh to report their gains in simplified formats, which was previously absent.

Consequences for Individual Investors

For a significant portion of India’s expanding population of equity investors, particularly those who began investing directly in equities during the pandemic, this shift provides substantial benefits. It eliminates the necessity for professional tax help in numerous situations and decreases the time and money spent on preparing tax returns. 

Additionally, the rise of digital trading and investment platforms has motivated numerous novice investors to venture into the market for the first time. As these investors accumulate modest profits from the stock market, the option to continue utilizing itr-1 or itr-4 offers a convenient and straightforward solution. 

Promoting voluntary adherence

The alteration signifies the government’s broader objective of reducing compliance burdens and promoting voluntary tax filing. By customizing return forms to align with the typical characteristics of small investors, authorities aim to minimize mistakes, enhance the accuracy of reporting, and ultimately increase revenue collections through greater participation. 

Incorporating LTCG reporting in simplified forms aligns with the goal of integrating tax filing with other digital services. It complements initiatives like pre-filled return forms and faceless assessments, which are designed to make the tax system more taxpayer-friendly.

Significant Limitations. 

While the relaxation is a pleasant change, it’s crucial for taxpayers to ensure they meet all the necessary requirements. Incorrect use of the simplified forms or inaccurate reporting of income can result in penalties, audits, or a reassessment of your tax liability. Investors who have capital gains exceeding the ₹1.25 lakh limit, or who have multiple sources of income, must still utilize itr-2 or itr-3 as necessary. 

Furthermore, individuals who have capital gains from various tax sections or investments such as unlisted shares, real estate, or foreign investments must adhere to the standard procedure and utilize the corresponding itr forms. 

What taxpayers should do next 

As the tax season draws near, it is advisable for individuals to gather their necessary documents, including form 16, capital gains statements from brokers, interest certificates, and proof of investments. If you meet the criteria for itr-1 or itr-4 under the updated provision, the process will be more efficient and expedited this year. 

By submitting your tax return early, you can prevent any potential problems and guarantee that your refund is processed promptly. Taxpayers should take advantage of income tax utility portals, mobile apps, or seek guidance from tax professionals when they encounter any doubts or uncertainties. 

Thoughts on Our Outcome

The government’s choice to increase the LTCG threshold for utilizing simplified tax return forms is a positive move. It fosters a more inclusive and taxpayer-friendly investment environment, particularly benefiting middle-class investors and individuals with modest gains from stocks. 

With the increasing digitization and inclusivity of the financial landscape, the tax framework is adapting to cater to the requirements of a younger, tech-savvy population. Simplifying measures such as these play a significant role in building trust in the system and making compliance less overwhelming.