As the deadline for filing income tax returns (ITR) is September 15, 2025, taxpayers must avoid some common mistakes that can lead to notices under Section 143(1). Taxpayers must pay attention to the changes in the ITR utilities which have undergone significant updates for Assessment Year (AY) 2025-26.
Choose the right ITR
A key error is choosing the wrong ITR form. Taxpayers must opt for ITR-1 and ITR-4 to report exempt long-term capital gains (LTCG) up to Rs 1.25 lakh under Section 112A. However, those with short-term capital gains (STCG) or LTCG exceeding this threshold will have to opt for ITR-2 or ITR-3.
Another oversight can be incorrect reporting of capital gains in Schedule CG. Taxpayers must now bifurcate gains based on the date of transfer before and on/ after July 23, 2024 due to revised tax rates. Failing to disclose the exact transfer date or misclassifying gains can result in incorrect tax computation.
Sandeep Sehgal, partner, Tax, AKM Global, a tax and consulting firm, says neglecting to maintain proper documentation of asset sales or inconsistencies between Form 26AS/AIS and the return can trigger compliance issues. “Careful selection of the ITR form, accurate reporting of gains, and a thorough review of all schedules are essential to avoid such pitfalls,” he says.
The new ITR forms have provided a dropdown-based disclosure interface for reporting exempt receipts under Section 10(13A) (House Rent Allowance) and deductions under Sections 80C to 80U.
ITR-1, ITR-2 & ITR-3
ITR-1 is the simplest return form meant for resident individuals (other than not ordinarily resident) having total income up to Rs 50 lakh from salary or pension, one house property, and other sources such as interest or dividend income (excluding winnings from lottery and racehorses) and agricultural income up to Rs 5,000. However, this form cannot be used by individuals who are directors in a company or those who hold unlisted equity shares.
ITR-2 is applicable to individuals and Hindu Undivided Families (HUFs) who are not engaged in any business or professional activity. It is suitable for those who have income from salary, multiple house properties, capital gains, and income from other sources. However, it cannot be used by individuals or HUFs whose total income includes profits and gains from business or profession. Further, individuals receiving income in the nature of interest, salary, bonus, commission, or remuneration from a partnership firm are not eligible to use ITR-2.
ITR-3 is designed for individuals and HUFs who have income from profits and gains of business or profession. This includes those running proprietorships, practising professions such as medicine or law, or those receiving income such as salary, interest, or commission from a partnership firm.
However, ITR-3 is not applicable to any entity other than individuals or HUFs. Moreover, individuals or HUFs who do not have any business or professional income are not eligible to file ITR-3. “Taxpayers are advised to exercise due diligence in classification and disclosure to ensure compliance and mitigate the risk of litigation,” says Sonam Chandwani, managing partner, KS Legal & Associates.
Changes in reporting requirements
Taxpayers must note that the reporting requirements have undergone changes in the new income tax return forms for AY 2025-26. A new schedule has also been introduced for reporting home loan interest deductions under Section 24(b), mandating disclosure of lender details and loan particulars for those claiming this benefit.
The threshold for reporting assets and liabilities in Schedule AL under ITR-2 and ITR-3 has been raised from `50 lakh to `1 crore. Earlier, taxpayers with total income exceeding Rs 50 lakh were required to fill this schedule.
“Taxpayers are now required to specify the section number under which TDS has been deducted while filing their ITR. This requirement applies to receipts other than salary income,” says Neeraj Agarwala, partner, Nangia & Co LLP.
Taxpayers choosing the old tax regime will now face enhanced disclosure requirements for claiming deductions. In the case of House Rent Allowance (HRA), individuals must now specify whether their place of work is in a metro or non-metro city, as this directly affects the calculation of eligible exemption.
Additional schedules for deductions under Sections 80C, 80E, 80EE, 80EEA and 80EEB have been introduced for declaration of respective details. A new row is inserted in ITR-2 and ITR-3 for reporting capital loss on buyback of share and respective deemed dividend income.
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