Choosing the right ITR form is the first and most crucial step, as a wrong form can lead to defective returns, penalties, or refund delays. The Income Tax Department has notified the updated forms for Assessment Year 2025-26. Here’s a quick guide to help you identify the correct form based on your income type and tax situation.
ITR 1 (Sahaj)
For salaried individuals with simple income
YOU CAN USE THIS IF
You are a resident individual (not HUF or NRI/RNOR).
Your total income is less than or equal to Rs.50 lakh.
Your income includes:
Salary or pension.
- One house property (no carry-forward loss).
- Interest or other sources (excluding lottery/racehorses).
- Agricultural income up to Rs.5,000.
- Capital gains up to Rs.1.25 lakh from shares/mutual funds (Section 112A, new from FY 2024-25). No carry-forward loss allowed.
You cannot use this if:
- You’re a director in a company.
- Hold ESOP/unlisted shares.
- Profit from virtual digital assets (crypto).
- Have foreign assets or income.
- Own more than one house.
- Have business or professional income.
- Have capital losses to carry forward.
New for this year
You can now declare up to Rs.1.25 lakh in LTCG from shares or equity mutual funds in ITR 1 without needing ITR 2 or ITR 3.
ITR 2
For investors, NRIs, and those with capital gains or multiple properties
YOU CAN USE THIS IF
You are an individual or HUF.
Your income includes:
- Salary/pension.
- Income from multiple house properties.
- Capital gains (any amount).
- Foreign income or assets.
- Agricultural income > Rs.5,000.
- You’re an RNOR/NRI.
- You’re a director or hold unlisted shares.
- You have clubbing of income (spouse’s income).
You cannot use this if:
- You have income from business or profession.
New feature:
The Excel utility now supports filing revised returns under Section 139(8A).
ITR 3
For business owners, freelancers, and partners in firms
YOU MUST USE THIS IF
You are an individual or HUF with:
- Income from business or profession (proprietorship).
- You are a partner in a firm (not an LLP).
- Income includes capital gains (any amount or with carry-forward loss).
- You hold unlisted equity shares.
- Income/loss from futures & options.
- You also earn salary, rent, or other income along with business income.
Use this if you cannot file ITR 1, ITR 2, or ITR 4 due to your income mix.
If you’re opting out of the new tax regime, Form 10-IEA confirmation is required
ITR 4 (Sugam)
For small businesses and professionals under presumptive tax
YOU CAN USE THIS IF
You are a resident individual, HUF, or partnership firm (not LLP).
Your total income is less than or equal to Rs.50 lakh.
You earn from:
- Presumptives (Section 44AD or 44AE).
- Presumptiven (Section 44ADA).
- One house property.
- Salary/pension.
- Other sources (excluding lottery/racehorses).
- LTCG under Section 112A: Rs.1.25 lakh (no carry-forward loss).
You cannot use this if:
- Income is > Rs.50 lakh.
- You have foreign assets or income.
- You are an RNOR or NRI.
- You’re a company director or hold unlisted equity.
- Your business turnover is > Rs.2 crore.
- You have capital losses to carry forward.
Freelancer tip
Use ITR 4 only if you’re under presumptive taxation (44ADA). Otherwise, file using ITR 3.
ITR 5
For LLPs, AOPs, co-operative societies, and others
You can use this if you are:
- A partnership firm (excluding proprietorships).
- An LLP.
- Association of Persons (AOP).
- Body of Individuals (BOI).
- Estate of a deceased or insolvent person.
- Business trust or investment fund.
- Certain cooperative societies or trusts (not filing ITR 7).
You cannot use this if:
- You are an individual, HUF, or company.
- You are a trust required to file ITR 7.
Note
If you opt out of the new tax regime, submit Form 10-IEA
Don’t forget…
- If you’ve received ESOPs or hold startup shares not listed on stock exchanges, you own unlisted equity even if you haven’t sold it. This disqualifies you from using ITR 1 or ITR 4.
- Even if your salary is under Rs.50 lakh, having capital gains above Rs. 1.25 lakh or owning more than one property requires ITR 2. Using ITR 1 here can lead to a defective return notice.
- Only ITR 2 or ITR 3 lets you carry forward capital losses to offset future gains. If you use ITR 1/4, these losses lapse, potentially costing you thousands in future tax savings.
- If you’ve returned to India recently after living abroad, you may be an RNOR, not a regular resident. You are an RNOR if you were an NRI in nine out of the last 10 years or stayed in India for 729 days or less in the last seven years.
- If you’re a freelancer, small business owner, or professional with modest income, you can opt for presumptive taxation to simplify filing. Under this, you declare a fixed percentage of your total receipts as income. There’s no need to maintain detailed books or get audited. Use this only if your turnover is within limits (Rs.2 crore for business, Rs.50 lakh for profession).
- If you’re salaried and traded in F&O, you must file ITR 3. F&O income is treated as business income, not capital gains, even if it’s just a side activity.
