New ITR-1, 2 forms for FY26 expected soon; here's what taxpayers can expect

ITR-1 and ITR-2 forms

• New ITR-1 and ITR-2 forms for FY 2025-26 expected to be notified soon
• Experts expect radio buttons to skip irrelevant sections and ease compliance
• Simplified reporting, pre-filled data, and error dashboards may be introduced

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New income tax return (ITR) forms for the financial year ending March 2026 and the assessment year 2026-27 are expected to be notified soon. While the forms have been simplified in recent years, experts say there is still scope for improvement, especially to ease compliance for individual payers?

What is ITR-1 and what are changes expected?

Form ITR-1, also known as Sahaj, is meant for resident individuals with income from salary, one house property, and other sources such as interest. However, despite being the simplest return form, it continues to carry extensive disclosure requirements.

Prabhakar KS, Founder & CEO, Shree Tax Chambers, said a simple salaried employee or senior citizen is still required to navigate more than 10 pages of disclosures, even when many fields are not applicable.

He expects the new ITR-1 to introduce a “radio button” option at the beginning, allowing taxpayers to indicate whether they have dividend income or other specific income heads. If “no” is selected, irrelevant sections such as quarterly dividend disclosures showing zero values could be automatically skipped.

A similar approach is expected for disclosures related to interest on borrowed loans where no loan exists.

Mrinal Mehta, joint Secretary at BCAS, expects further ease of filing through automatic reconciliation with the Annual Information Statement (AIS) and Tax Information Statement (TIS).

He suggested pre-filling of interest income from savings accounts, fixed deposits, and dividends, noting that mismatches between AIS and ITR data leads to “defective return” notices.

He also flagged challenges in reporting interest income from joint bank accounts and expects a “split income” option, where taxpayers can enter the PAN of the joint holder and specify the ownership percentage, allowing automatic reconciliation of AIS data.

Another key expectation relates to system generated errors. Tax experts note that defective returns are often flagged with cryptic error codes and expect a plain-English error dashboard that clearly explains which row and schedule are causing mismatches with AIS data.

From a system perspective, Avinash Rawani, member of the Law and Representation Committee, expects greater stability in compliance utilities.

Once the final version of the ITR utility is released, it should remain unchanged until the filing deadlines, ensuring accuracy, seamless uploads, and in-built verification mechanisms to validate data before submission, he said.

A stable and tested system would reduce compliance stress, save time for both taxpayers and the department, and prevent unintended demands arising from technical flaws, he said.

What is ITR-2 and what are the expectations?

ITR-2 applies to individuals and Hindu Undivided Families (HUFs) who do not have income from business or profession but may have multiple income sources, including capital gains and foreign assets.

It involves significantly more detailed disclosures than ITR-1.

ITR-2 often runs into more than 40 pages when printed, largely due to mandatory disclosure fields that apply even when the taxpayer answers ‘No’, Prabhakar KS said. For instance, resident taxpayers are required to disclose the total period of stay in India and filers must fill in “zero” values for authorised representative details even when the return is filed by the taxpayer themselves. Similarly, if a taxpayer does not hold any unlisted shares, the columns still appear in the form.

Experts expect the “radio button” option in the new ITR-2 too as well, allowing taxpayers to indicate whether they have authorised a representative, hold unlisted equity shares or have other specific disclosures.

Selecting “no” would eliminate the need to view or fill irrelevant sections, both during preparation and while maintaining personal records.

Mehta highlighted challenges in foreign asset reporting. Many resident taxpayers face severe penalties under the Black Money Act for minor omissions such as small foreign ESOP holdings or foreign bank accounts. He expects either a minimum threshold or a simplified reporting interface under Schedule FA for small-value foreign assets to reduce the compliance burden.

Rawani expects a consolidated home loan reporting mechanism in ITR-2. Instead of entering lender details, loan account numbers and sanction dates across multiple schedules, he favoured a single unified “Home Loan Schedule” to streamline disclosures.

Experts expect the new ITR-2 to balance enhanced disclosures, transparency and ease of compliance.