Which ITR Form Should You Use? A Clear Guide for 2025-26

adietyakchopra
Jul 7
3 min read

All you need to know about ITR Forms For AY 25-26

When it comes to filing your income tax return (ITR), the first and most crucial step is selecting the right form. Choosing the wrong form could lead to penalties, delays, or defective returns. The Income Tax Department has introduced updated ITR forms for the Assessment Year 2025-26. To make the process easier for you, here's a straightforward guide to help you choose the correct form based on your income and tax situation.

1. ITR-1 (Sahaj): For Salaried Individuals with Simple Income

ITR-1 is the simplest form for salaried individuals who have income from only one source. This form is suitable if you:

Are a resident individual (not an HUF or NRI)
Have a total income of Rs. 50 lakh or less
Earn income from salary, pension, or family pension
Own one house property
Have interest income or other sources of income (excluding lottery/racehorses)
Have agricultural income of up to Rs. 5,000
Have capital gains of up to Rs. 1.25 lakh from shares/mutual funds

You cannot use ITR-1 if:

You’re a company director
You hold ESOPs or unlisted shares
You have income from virtual digital assets like crypto
You own more than one property
You have business or professional income
You have capital losses to carry forward

2. ITR-2: For Investors, NRIs, and Those with Multiple Properties or Capital Gains

ITR-2 is meant for individuals or HUFs who have:

Income from salary, pension, or family pension
Income from more than one house property
Capital gains (no limit on the amount)
Foreign income or assets
Agricultural income exceeding Rs. 5,000

You cannot use ITR-2 if:

You have business or professional income

3. ITR-3: For Business Owners, Freelancers, and Partners in Firms

ITR-3 is designed for business owners, freelancers, and individuals who are partners in a firm. You should use ITR-3 if you:

Have income from a business or profession (including freelancing or partnerships)
Earn capital gains (whether with carry-forward losses or not)
Receive income from salary, rent, or other sources
Are a partner in a firm (not an LLP)
Trade in futures and options

Important: If your business turnover exceeds Rs. 2 crore or if you have income from futures and options, you must use ITR-3.

4. ITR-4 (Sugam): For Small Businesses Under Presumptive Taxation

ITR-4 is designed for small businesses and professionals opting for presumptive taxation under sections 44AD or 44AE. Use this form if:

Your total income is Rs. 50 lakh or less
You earn from presumptive businesses or professions
You own one house property
You have income from salary or other sources
You’ve earned capital gains of up to Rs. 1.25 lakh

You cannot use ITR-4 if:

Your business turnover exceeds Rs. 2 crore
You have foreign income or assets
You’re an RNOR or NRI
You’re a company director or hold unlisted shares

Freelancer Tip: If you’re a freelancer, use ITR-4 only if you’re under presumptive taxation (Section 44ADA). Otherwise, file ITR-3.

5. ITR-5: For LLPs, AOPs, and Other Business Entities

ITR-5 is for entities such as:

Limited Liability Partnerships (LLPs)
Partnership firms (except sole proprietorships)
Associations of Persons (AOPs) or Bodies of Individuals (BOIs)
Certain trusts, estates, and business entities

This form is not for individuals, HUFs, or companies.

Key Takeaways:

ESOPs and Startup Shares: Even if you haven’t sold them, owning ESOPs or unlisted shares disqualifies you from filing ITR-1 or ITR-4.
Capital Gains: If you have capital gains exceeding Rs. 1.25 lakh, ITR-2 is necessary. Filing ITR-1 will lead to an incorrect return notice.
Loss Carry-Forward: Only ITR-2 or ITR-3 allows you to carry forward capital losses. Using ITR-1 or ITR-4 will result in those losses lapsing, potentially costing you in future tax savings.
RNOR Status: If you’ve recently returned to India after living abroad, you may qualify as an RNOR, which affects your filing requirements.

Freelancers and Small Businesses: If you qualify for presumptive taxation, use ITR-4. Otherwise, file ITR-3 for businesses and freelancing.

Conclusion:

Selecting the correct ITR form is vital for ensuring your tax filing is accurate and efficient. By choosing the appropriate form, you can avoid unnecessary penalties, delays, and complications. Always stay updated with the latest guidelines from the Income Tax Department and consider consulting a tax expert if you’re unsure which form applies to your situation.

Disclaimer:

This blog is for informational purposes only and should not be construed as tax advice. Please consult a certified tax consultant for personalized guidance.