Filing ITR? Four key points salaried taxpayers should keep in mind

The income tax department notified ITR forms for FY 2024-25 (assessment year 2025-26) in May. The new forms reflect the changes announced in Budget 2024. For example, until last year, ordinary resident Indian tax-payers could use ITR-1 (Sahaj) only when their income sources were limited to salary/pension, one house property, interest from savings/fixed deposits, dividends, and agricultural income of less than Rs 5,000.

This year, even taxpayers with long-term capital gains (LTCG) on the sale of listed equity shares or equity mutual fund units (taxed at 12.5 percent) can use this form, provided the gains do not exceed Rs 1.25 lakh during FY25.

Make the right choice between ITR-1 and ITR-2

ITR-1 Sahaj is a simple form with pre-filled details that salaried individuals with less complex financial dealings and investments can opt for. It is applicable for ordinarily resident individuals with a total annual income of less than Rs 50 lakh and one house property. This income can include salary, pension, interest, dividend, and agricultural income of up to Rs 5,000.

However, you cannot use ITR-1 under certain conditions:

• Your total income exceeds Rs 50 lakh

• Your capital gains under section 112A exceed Rs 1.25 lakh

• You are a director in a company

• You own unlisted equity shares

• Have drawn foreign income during the financial year

• Own any foreign accounts or assets (including financial interest in any entity)

• If payment or deduction of tax has been deferred on ESOP

• If you have brought forward loss or loss to be carried forward under any head of income

In such cases, you have to use ITR-2. This form is for individuals who do not have any income under the head ‘profits and gains from business or profession’. That is, salaried individuals who are not eligible to use ITR-1 have to use ITR-2.

Also read: Income tax filing 2024-25: Here's how salaried employees can choose between ITR-1 and 2

Dabbled in stock trading? Choose ITR-3

Even if you are a salaried individual, do not assume that you can pick between ITR-1 and ITR-2. If you have intra-day, F&O trading income or losses during the year, you will have to use ITR-3, as this will be treated as business income. You can deduct expenses incurred while carrying out this activity. Individuals and Hindu Undivided Families (HUF) with income under the head ‘profits and gains of business or profession’ have to file their returns using ITR-3.

If you opt for the presumptive taxation scheme and meet all the conditions, you must use ITR-4 (Sugam). For instance, taxpayers who are directors in companies, hold unlisted equity shares, have foreign income and so on cannot use ITR-4.

Also read: ITR filing: How to report F&O trading income in your income tax returns

Do not claim fake deductions 

In the last three years, many salaried taxpayers have received notices from the income tax department over suspicious deductions claimed under section 80C, 80D and so on. Likewise, taxpayers who 'donated' to political parties have also come under the scanner. Since there is no need to attach documentary evidence while submitting I-T returns, some taxpayers have, in recent years, misused this leeway.
That is, they do not furnish proof while filing investment declarations to their employers but claim deductions at the time of filing returns to secure tax refunds. However, with the I-T department using Annual Information Statement (AIS) and AI tools to track and analyse financial data, such fraudulent claims have been identified and many have already received notices asking them to provide proof or explain discrepancies. Therefore, it is best to be honest while claiming deductions — avail of these tax breaks only if you can provide proof later, should you receive a notice.