New Tax Filing Update: How the Latest Change Makes It Easier To File Income Tax ITR Forms - ITR-1 & ITR-4 For Capital Gains

Income Tax ITR Forms: New update from CBDT allows taxpayers with long-term capital gains of up to Rs 1.25 lakhs to file using simple forms like ITR-1 & ITR-4.

In a bid to simplify the tax filing process for individual taxpayers, the Central Board of Direct Taxes (CBDT) recently announced changes to the Income-tax Rules, 1962.

The new rules allows individuals with long-term capital gains (LTCG) under Rs 1.25 lakh to file their tax returns using simplified forms like ITR-1 and ITR-4. This update, aimed at making tax filing easier for small investors, is set to benefit a large number of taxpayers who previously found the process complex.

What Are Long-Term Capital Gains (LTCG)?
Long-term capital gains refer to the profit earned from the sale of assets like stocks, mutual funds, or property, if that are held for more than 24 months. Profits earned from the sale securities listed in a recognized stock exchange in India or a unit of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963) or a unit of an equity oriented fund or a zero coupon bond are treated as Long-term capital gains is they are held for more than a year. 

These gains are taxed differently from short-term capital gains, which are profits from assets held for less than 24 month or an year, as the case maybe.

As per Section 112A of the Income Tax Act, LTCG from the sale of shares or mutual funds (which are subject to securities transaction tax such as shares of company listed in recognized stock exchange like NSE, BSE) are exempt from tax if the LTCG is upto Rs 1.25 lakh (until last year this threshold was INR 1 lakh). The new rule and tax return form makes it easier for taxpayers to avoid complicated filing requirements if they meet this condition.

How Does the New Rule Benefit Taxpayers?
Before this update, individuals with long-term capital gains had to file more complex forms like ITR-2, which was burdensome for many small investors. But under the revised rules, taxpayers with LTCG of up to Rs 1.25 lakh, without any carried-forward losses, can now use the simplified ITR-1 or ITR-4 forms to file their returns. This move reduces paperwork and streamlines the filing process.

Tax Filing Forms: A Closer Look
ITR-1 (Sahaj):
The ITR-1 form is used by individual taxpayers who earn income through salary, pension, or interest. Additionally, taxpayers with long-term capital gains of up to Rs 1.25 lakh can also use this form, provided they don’t have any other complex income sources.

ITR-4 (SUGAM):
The ITR-4 form is meant for individuals, Hindu Undivided Families (HUF), and firms who opt for the presumptive taxation scheme under Sections 44AD, 44ADA, or 44ae. If a taxpayer has long-term capital gains (within the Rs 1.25 lakh limit), they can file their taxes with ITR-4, even if they earn additional income from small businesses or freelancing.

‘The idea for ITR Form 1 (Sahaj) and ITR Form 4 (Sugam) was to make filing process simpler for taxpayer with income up to ₹50 lakh. Until now, ITR 1 could have been filed only by resident individuals with salary income, a house property and income from other sources like interest and agricultural income up to ₹5,000; where as ITR 4 could have been filed by specified taxpayer with income from business and profession under the presumptive scheme,' said Gaurav Makhijani, Associate Partner and Head of Tax (North India & Gujarat ) at Roedl & Partner India.

What’s Changed? Key Highlights of the Update
The recent changes in the law and subsequent forms can be summarized as under : Long-term capital gains from the specified securities/listed shares of stock market, of up to Rs 1.25 lakh are exempt from tax. 

Such LTCG above Rs 1.25 lakh will be taxed at 10% if the transfer takes place before 23 July 2024. If the transfer took place after 23 July 2024, tax rate applicable is 12.5%. The tax is levied  only on the amount over Rs 1.25 lakh.

Taxpayers with LTCG under Rs 1.25 lakh can file using ITR-1 or ITR-4, provided they do not have carried-forward losses. 
Individuals with short-term capital gains (STCG), or capital gains from other assets (like property or gold), must file ITR-2 or another appropriate form.

Read More 
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Why Is This Important?
For many taxpayers, this update significantly reduces the burden of filing taxes, as it allows them to use easier forms and avoid complex procedures. This also reflects the government's ongoing effort to make the tax filing process more transparent and accessible to a larger number of small investors and businesses.

'Any capital gain income was required to be reported by filing ITR 2. ITR 1 and ITR 4 is simple, easier to file tax return form. On the other hand, ITR 2 is lengthier with higher and more complex disclosure requirement. With this new update,  small investor can now file their tax return in ITR 1 or ITR 4 as applicable thereby making the compliance process easier for them,’ added Makhijani.
 

A Step Towards Simplifying Taxation
The introduction of these changes is a positive move for taxpayers who have long-term capital gains but do not exceed the new Rs 1.25 lakh threshold. The updated rules encourage taxpayers to file their returns using simple forms like ITR-1 or ITR-4, thus streamlining the filing process for millions of small investors and business owners.
With the tax season ahead, taxpayers should ensure they understand these updated rules to take full advantage of the simplified filing system and avoid any last-minute confusion.