Introduction

On April 29, 2025, the Central Board of Direct Taxes (CBDT) issued Notification No. 40/2025, introducing the Income-tax (Twelfth Amendment) Rules, 2025. These amendments, effective from April 1, 2025, bring changes to the Income-tax Rules, 1962, particularly concerning the filing of income tax returns for Assessment Year (AY) 2025-26.

The key highlights include the release of updated ITR-1 and ITR-4 forms, revised income-reporting formats, new disclosure norms under specific clauses, and mandatory filing rules for high-value transactions.

1. Updated ITR-1 (Sahaj) and ITR-4 (Sugam) Forms Released

The CBDT has notified revised ITR-1 and ITR-4 forms for AY 2025-26, applicable for incomes earned during FY 2024-25.

Who can file ITR-1 (Sahaj)?

• Resident individuals (excluding “not ordinarily resident”)
• Total income up to ₹50 lakh
• Income sources allowed:
  • Salary or pension
  • One house property
  • Income from other sources (like interest, family pension)
  • Long-term capital gains up to ₹1.25 lakh under Section 112A

This inclusion of capital gains up to ₹1.25 lakh is a major change, allowing simplified return filing even in presence of such gains.

Who can file ITR-4 (Sugam)?

• Resident individuals, HUFs, and Firms (excluding LLPs)
• Total income up to ₹50 lakh
• Income under presumptive taxation:
  • Section 44AD (business)
  • Section 44ADA (profession)
  • Section 44AE (transport vehicles)

2. Capital Gains Reporting Made Clear

A notable enhancement in both forms is the explicit provision for reporting long-term capital gains under Section 112A, capped at ₹1.25 lakh.

Section 112A covers gains from:

• Equity shares
• Equity-oriented mutual funds
• Units of business trusts

This clarification removes earlier ambiguities and ensures individuals can file ITR-1 despite small capital gains.

3. Changes in Rule 12 and Reporting Formats

Rule 12: Amended

• Updated criteria for non-residents
• Revised applicability of return forms based on income sources
• Outdated assessment years removed and updated to AY 2025-26

These updates ensure consistency and alignment with the current assessment cycle.

4. Enhanced Disclosure Requirements Under Section 115BAC(6)

For taxpayers opting for the old tax regime in AY 2025-26:

• Form 10-IEA must be submitted
• Due date: On or before the due date under Section 139(1)

Additionally, standardized formats have been introduced for disclosing:

• Advance tax paid
• TDS/TCS details
• Specified financial transactions

5. Mandatory Return Filing Under Clause (7) of Section 139(1)

You must file a return even if your income is below the taxable limit, if you meet any of these conditions:

• Foreign travel expenses exceeding ₹2 lakh
• Electricity bills exceeding ₹1 lakh
• High-value financial transactions as specified under Rule 12AB

The new forms include specific fields to disclose such transactions, expanding the tax base and improving traceability.

6. Seamless E-Filing and Pre-Validation of Bank Accounts

To ensure faster refunds and fewer errors, the new ITR forms include:

• Improved e-verification options
• Mandatory pre-validation of bank accounts
• Focus on:
  • Correct IFSC codes
  • Valid account numbers
  • Selection of refund account

Implications for Taxpayers

These amendments reflect the CBDT’s focus on simplifying compliance and ensuring transparency.

Key Takeaways:

• Choose the correct ITR form based on your income type and residency status
• Report long-term capital gains up to ₹1.25 lakh under Section 112A carefully
• Submit Form 10-IEA on time if you’re continuing under the old tax regime
• Disclose high-value transactions, even if income is below taxable limit
• Pre-validate your bank account for smooth refund credit

Where to File the Updated ITR Forms

The updated ITR-1 and ITR-4 forms for AY 2025-26 are available on the Income Tax e-Filing Portal.

Taxpayers are advised to:

• Read instructions for the selected ITR form carefully
• Avoid data entry mistakes
• Seek professional help in case of complex income or regime switches

Final Thoughts

The new notification aims to improve accuracy, enable easier filing, and bring more transparency into the tax compliance process.

Whether you’re a salaried employee, small business owner, or professional, staying updated with the latest changes is crucial for a smooth and compliant filing experience.

If you’re unsure about the right form or need help interpreting the rules, consult a tax expert for proper guidance.