Filing income tax returns (ITRs) for assessment year 2025-26 will be different. The Central Board of Direct Taxes (CBDT) has released all seven ITR forms. These include changes in how taxpayers report capital gains.
From July 23, 2024, new capital gains tax rules kicked in.
The long-term capital gains (LTCG) exemption on listed shares and equity mutual funds has increased from ?1 lakh to ?1.25 lakh. This change aims to help small investors.
Taxpayers with LTCG up to ?1.25 lakh and no capital loss carry forward can now file simpler ITR-1 or ITR-4 forms. Earlier, they had to file ITR-2 or ITR-3—even if no tax was payable.
The updated ITR-1 and ITR-4 forms now include specific fields to report exempt LTCG under Section 112A. This will reduce compliance burden for salaried and small business taxpayers.
ITR-2 has changed too.
Taxpayers must now report capital gains separately for transactions before and after July 23, 2024. This follows the new 12.5% LTCG tax rate and revised indexation rules. The threshold for reporting assets and liabilities has also gone up from ?50 lakh to ?1 crore.
Buybacks now require double disclosure.
From October 1, 2024, companies no longer pay tax on share buybacks. Instead, investors must report the proceeds as deemed dividend under “Other Income” and show the capital loss separately in the ITR.
ITR-5 and ITR-6 reflect similar updates. ITR-5 allows only genuine buyback losses—if the dividend has been taxed. ITR-6, used by companies, now includes fresh reporting formats for capital gains, cruise operators, and diamond profits.
Trusts and institutions using ITR-7 must also report capital gains separately based on the new tax regime.
The tax rate on LTCG for these entities has also risen to 12.5% from 10%, and short-term gains now attract 20%.
Sandeep Sehgal, Partner-Tax, AKM Global, said the return filing process now offers some relief for small taxpayers, especially those reporting LTCG up to ?1.25 lakh.
“At the same time, significant reforms to the capital gains tax regime—effective 23rd July—introduce a uniform 12.5% LTCG rate without indexation, and a 20% STCG rate. Taxpayers using ITR-2/3/6 must now clearly bifurcate gains by date of transfer. Also, the threshold for disclosing assets and liabilities under Schedule AL has been raised to ?1 crore, offering compliance relief," he said.
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