Salaried? Investor? Freelancer? Here’s The ITR Form You Should Be Filing

The Income Tax Department has introduced revised forms this year, and taxpayers must assess their income sources carefully before filing

Filing the wrong form can result in a defective return, penalties, or delayed refunds

Source : Freepik

As income tax filing season begins for Assessment Year 2025–26, selecting the correct Income Tax Return (ITR) form is a vital first step. Filing the wrong form can result in a defective return, penalties, or delayed refunds. The Income Tax Department has introduced revised forms this year, and taxpayers must assess their income sources carefully before filing.

ITR-1

The most commonly used form, ITR-1 (Sahaj), is meant for salaried resident individuals earning up to Rs 50 lakh annually. It applies if income includes salary or pension, one house property, and interest income. This year, a new provision allows the inclusion of long-term capital gains (LTCG) up to Rs 1.25 lakh from shares or mutual funds under Section 112A. However, individuals with foreign income, more than one house property, ESOPs, or crypto gains are ineligible to file ITR-1.

“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,” tax experts caution, according to The Economic Times report.

ITR-2

ITR-2 is suitable for individuals and Hindu Undivided Families (HUFs) with capital gains, multiple properties, or foreign income. Non-residents (NRIs) and resident but not ordinarily resident (RNOR) individuals, directors, and those holding unlisted shares must also use ITR-2. A new update allows filing revised returns under Section 139(8A) via the Excel utility.

Freelancers, small business owners, and professionals using presumptive taxation under Sections 44AD, 44ADA, or 44AE may use ITR-4 (Sugam), provided their total income is below Rs 50 lakh and turnover remains within prescribed limits. However, if they hold unlisted shares or report capital losses, they must switch to ITR-3.

ITR-3

ITR-3 is mandatory for individuals and HUFs with income from proprietary businesses or professions. This includes F&O trading income, which is treated as business income, even if it's a side activity. ITR-3 also accommodates those with capital gains or income from unlisted shares.

ITR-5

For entities like LLPs, AOPs, and cooperative societies, ITR-5 is the correct form, while individuals, HUFs, and companies must avoid using it. Don’t overlook tax regime selection. Those opting out of the new tax regime must file Form 10-IEA. Additionally, if you’ve recently moved back to India, you may fall under the RNOR category, a status that impacts form eligibility.

“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,” professionals warn, the report added.