ITR-3

ITR-3 is now available for e-filing: What do businessmen and investors need to know?

The Income Tax Department announced on Wednesday that taxpayers can now submit Form ITR-3 through their official e-filing portal. This update is convenient for individuals with business income, those trading in stocks—futures and options, and investors in unlisted shares.

The income tax return form ITR-3 is designated for individuals and Hindu Undivided Families (HUFs) who are engaged in business or professional activities. It also applies to those who are acting as directors in companies or who have invested in unlisted shares at any time during the financial year. Additionally, individuals who earn income from various sources, such as salary, house properties, partner compensation, or pension, can use this form.

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Those taxpayers who earn capital gains, income from foreign assets, or income from any business or professional activity that do not fall under simple forms like ITR-1 (Sahaj), ITR-2, or ITR-4 (Sugam) are also required to use ITR-3.

Mandatory declarations and the status of the new tax regime

The latest version of the form includes a section that requires confirmation of whether Form 10-IEA has been filed for the financial year 2024-25. Taxpayers must also declare their intention to either continue with the new tax arrangement for the current financial year or to exit.

Extension of eligibility for filing ITR-1 and ITR-4

From the financial year 2024-25 (assessment year 2025-2026), the Income Tax Department has expanded the eligibility criteria, allowing more taxpayers to file ITR-1 and ITR-4. This new rule now also permits those taxpayers whose listed shares and long-term capital gains from equity mutual funds fall under Section 112A to file a tax return using ITR-1 and ITR-4, provided that the capital gains do not exceed ₹1,25,000 and there are no carry forward or brought forward losses.

 

The registration number is no longer valid for filing income tax returns.   

The Budget 2024 has removed the acceptance of Aadhaar Enrollment ID for PAN applications and ITR filing. From AY 2025-26, PAN applications and ITRs will no longer be filed using the Aadhaar Enrollment ID instead of the actual Aadhaar number. It should be noted that the ITR forms for AY 2025-26 (FY 2024-25) do not include a column for Aadhaar Enrollment ID this year. If taxpayers do not have an Aadhaar number, they will not be able to file ITR this year.

Small traders escaping the new tax regime

AY 2025-26 (FY 2024-25) has introduced more detailed disclosure requirements for small business owners to file ITR-4; this form now requires confirmation of the pre-filing of Form 10-IEA and asks whether taxpayers wish to continue to opt-out of the new tax regime for the current year.

Mention the TDS section in the ITR form.

The TDS section under TDS deducted from the income earned during the financial year 2024-25 should be mentioned, which is for the financial year 2025-26 (financial year 2024-25).

New capital gains rules

For the assessment year 2025-26 (financial year 2024-25), for reporting capital gains arising from the sale of listed or unlisted shares, equity mutual funds, houses, land, or any other capital asset, the date of sale is crucial for calculating the correct capital gains amount and appropriate tax liability. ITR forms require separate reporting for transfers made on or after July 23, 2024, and the proper application of revised tax rates and indexation rules is necessary.

Report the income from share buybacks as deemed dividends. This new rule was announced in the Budget 2024. From October 1, 2024, the amount received on buybacks of shares by domestic listed companies will be considered as official income in the hands of shareholders.

The ITR-2, ITR-3, and ITR-5 have been revised to report income from buybacks as dividend income under 'income from other sources'. All shareholder taxpayers are required to report zero as sale income so that a capital loss arises from the cost of purchasing shares. This capital loss can be carried forward against other long-term capital gains for the next eight assessment years.

Providing disability certificate for deduction under Section 80DD and 80U:

For the financial year 2024-25 (financial year 2025-26), to claim deductions under section 80DD and 80U for expenses incurred for the treatment of persons with disabilities. Now, the confirmation number of disability certificates should be provided along with Form 10-IA.

If the total income is more than 1 crore rupees, then asset reporting is applicable.

For the financial year 2024-25, the requirement for reporting assets and liabilities for taxpayers with an income of more than 50 lakh rupees has been changed to income over 1 crore rupees. From this year, taxpayers will have to report their assets and liabilities in Schedule AL, which is mandatory only when the total income exceeds 1 crore rupees.

Extended disclosure for HRA (Article 10(13A)

Taxpayers who claim HRA exemption must now disclose the following details:

Workplace. • Actual HRA received. • Actual rent filled. • Basic salary and dearness allowance. • 50% or 40% of basic salary based on whether the city is metro or non-metro. • The above disclosure ensures the accurate calculation of HRA exemption under section 10(13A).

Enhanced disclosure for home loan (Section 24(b), 80EE and 80EEA)

• Lender's name, • Loan account number, • Loan approval date, • Total loan amount, • Remaining balance at the end of the financial year • Interest amount for the year.

From the financial year 2025-26, all taxpayers are required to disclose the above details when claiming a deduction for interest on home loans under 'Income from house property' section 24(b), and also under sections 80EE and 80EEA.

Section 80C deduction: Additional documents required

Section 80C allows a maximum deduction of Rs. 1,50,000 to claim tax benefits for various investments. However, it was previously easier to claim by simply entering the amount of investment, but from the financial year 2025-26, the following details need to be disclosed:-

 Document or receipt number

PPF account number

Insurance policy number

Section 80D: Deduction for health insurance premium

The following disclosures are required; • Name of the insurance company • Policy or document number

Section 80DDB deduction for the treatment of specified diseases.

Taxpayers claiming this are required to disclose the following details;

Name of the specified disease

Section 80EEB - Deduction of interest on loans for electric vehicles            

For the financial year 2025-26, the following details will need to be disclosed in order to claim a deduction under section 80EEB for the interest paid on the loan taken for the purchase of electric vehicles:

 Lender's name • Bank's name • Loan account number • Loan approval date • Total loan amount • Outstanding loan as of March 31

Final word

The important changes and updates brought by the Income Tax Department in the ITR form for the financial year 2024-25 (assessment year 2025-26) have been discussed above. Such changes enhance disclosures for deductions and capital gains, include the selection of the new tax regime, and reporting of assets, affecting almost every category of taxpayer. 

It is essential for every taxpayer to compare which regime is beneficial for them before filing and to understand what impact these updates will have on their tax liabilities.

Revenue Benefit Reporting Amendment

As a result of revenue changes, significant updates have been made to the capital gains tax rates in Schedule CG and related sections. Taxpayers will now need to clarify that they must report the details of profits received before and after July 23, 2024.

 The long-term capital gains (LTCG) tax has been revised to up to 12.5 percent for all assets, which was previously 10 percent applicable to shares. Meanwhile, the short-term capital gains (STCG) tax on certain assets, including shares, has increased from 15 percent to 20 percent. Financial assets held for more than 12 months will now be considered long-term investments.

As the tax season for the financial year 2024-25 (assessment year 2025-26) approaches, understanding how to accurately report capital gains from investments in stocks, mutual funds, and real estate has become more important than ever.

The federal budget of 2024 has introduced significant changes in capital gains taxation, particularly effective from July 23, 2024, which taxpayers in Patiala and across India need to know in order to ensure compliant and effective filing.

This guide will explain the latest regulations, help understand the nuances of capital gains, clarify their taxation, and guide you on how to accurately report them in your income tax return (ITR).

What are the revenue benefits?

In clear terms, capital gain is the profit you earn when you sell a 'capital asset' for more than its purchase price. Capital assets include various types of investments, among which:

 Financial assets: Stocks, mutual fund units, bonds, debentures, gold ETFs.Non-financial assets: Real estate (land and buildings), physical gold, jewelry, art, and other valuable items.

Non-economic assets: Real estate (land and buildings), physical gold, jewelry, art, and other valuable items.

• Short-term capital gains (STCG): They arise from assets that were held for a very short period of time. • Long-term capital gains (LTCG): They arise from assets that were held for a long period of time. These often receive special tax exemptions and in certain specific cases (such as properties purchased before July 23, 2024), they can also benefit from indexation.

Federal Budget 2024: Major changes for the year 2024-25 (financial year 2025-26)

The Budget 2024 has brought a more streamlined and equitable approach to capital gains taxation, which primarily affects the holding period and tax rates. These changes will be effective for transactions made on or after July 23, 2024.

1.Logical holding period: a) Listed securities (such as listed equity shares, equity-oriented mutual funds, units of business trusts): If held for more than 12 months, they are termed long-term. b) 

All other assets (such as unlisted shares, real estate, gold, jewelry, debt mutual funds purchased before April 1, 2023): If held for more than 24 months, they now qualify as long-term. The previous 36-month holding period for certain assets (such as debt mutual funds) has been abolished, resulting in a more consistent criterion.

 Revised rates (effective from July 23, 2024): o Short-term capital gains (STCG):  For listed equity shares, equity-oriented mutual funds, units of business trusts (where STT has been paid): The STCG tax rate has increased from 15% to 20%.  For other financial and non-financial assets (such as, unlisted shares, real estate held for less than 24 months, debt mutual funds purchased after April 1, 2023): It will be taxed at your applicable income tax slab rates.

 

Long-term capital gains (LTCG): A significant change is that for sales on or after July 23, 2024, a uniform LTCG tax rate of 12.5% has been introduced for all asset categories (financial and non-financial assets). This applies to gains beyond the exemption limit and, notably, there is no indexing benefit for these newly taxable LTCGs.

pecific to immovable property (land and buildings):  For sales after July 23, 2024, if the property is acquired after July 23, 2024, the tax rate is a straightforward 12.5% without indexing.  However, if the immovable property was acquired before July 23, 2024, the taxpayers selling it after July 23, 2024 have an option: they can choose between 12.5% without indexing or 20% with indexing. This allows for the option to choose based on lower tax liability calculations. 

 Increased exemption limit under Section 112A: For LTCG on listed shares and equity-based mutual funds, the annual exemption limit has been raised from ₹1 lakh to ₹1.25 lakh for the entire financial year 2024-25. A tax of 12.5% is levied on profits exceeding this limit (increased from the previous 10%).

 Removal of Indexation Benefit (mostly for LTCG): For sales on or after July 23, 2024, the indexation benefit for long-term capital gains has been largely removed. This means that the purchase cost of most assets will not be adjusted for inflation for the purpose of calculating LTCG if you opt for the 12.5% tax rate. The Cost Inflation Index (CII) for the financial year 2024-25 is 363. This will be relevant for taxpayers who still have the option to apply indexation for their assets (acquired before July 23, 2024) and who choose the 20% tax rate.

Calculate the revenue profit

 Short-term capital gain (STCG) = Total value of consideration - (Cost of acquisition + Cost of improvement + Expenses on transfer) Long-term capital gain (LTCG) = Total value of consideration - (Indexed cost of acquisition / Actual cost of acquisition + Cost of improvement + Expenses on transfer) • Important note on the grandfathering rule (Article 112A): 

For listed shares and equity-oriented mutual funds acquired before January 31, 2018, the cost of acquisition for LTCG calculation under Article 112A is considered to be the highest of: • * Actual cost of acquisition. • * Fair market value (FMV) as of January 31, 2018.

Reporting of capital gains in your ITR (AY 2025-26) The Income Tax Department has released the updated ITR forms and utilities for AY 2025-26, which include these new capital gains rules. Importantly, the deadline for filing ITR for AY 2025-26 has been extended to September 15, 2025.

 • ITR-1 (Sahaj) and ITR-4 (Sugam): A welcome simplification! If your LTCG under section 112A (from listed shares or equity-based mutual funds) is up to ₹1.25 lakh and you have no outstanding or carried forward capital losses, you can now report it directly in ITR-1 or ITR-4.

 This significantly reduces the filing burden for many salaried individuals and small investors. • ITR-2 and ITR-3: These forms are for individuals and HUFs with more complex income structures, including significant capital gains, multiple house properties, foreign assets, or business/professional income. They have been updated very carefully to ensure that:

 

Capital Gains Separation: You will need to report separate capital gains for transactions executed before and after July 23, 2024, so that the correct tax rates and rules can be applied properly. o Schedule 112A: 

This continues to require script-wise reporting for listed shares and equity-based mutual funds where the grandparent provisions are applicable. Be prepared with details such as ISIN code, script name, number of shares/units sold, sale price, cost of purchase, and FMV as of January 31, 2018. o Schedule CG: This schedule is used for reporting other capital gains, including real estate, unlisted shares, gold, and other assets.

• Exemption from Capital Gains Tax The Income Tax Act provides exemptions on capital gains when reinvesting in specified assets. Some popular exemptions for the financial year 2025-26 include: • Section 54 (Sale of Residential House Property): Exemption on LTCG from the sale of a residential house if the profits are invested in purchasing another residential house one year before or within two years after the sale, or if a house is constructed within three years. 

The new residential house must be located in India. Beyond the financial year 2024-25, the maximum exemption under Section 54 (and 54F) is limited to ₹10 crore. • Section 54EC (Investment in Specified Bonds): Exemption on LTCG from the sale of land or building (held for more than 24 months) if the profits are invested in specific bonds (such as NHAI, REC, PFC, IRFC bonds) within six months of transfer. The maximum investment in these bonds in a financial year is ₹50 lakh, and they have a lock-in period of 5 years. The interest on these bonds is taxable.

 

Section 54F (Sale of any long-term capital asset other than a residential house): If the net sale proceeds are invested in the purchase/construction of a new residential house in India, there is an exemption from LTCG on the sale of any long-term capital asset (excluding residential houses). 

Conditions regarding ownership of other residential properties and the period of investment apply. If the entire net proceeds are not invested, the exemption is proportional and is also limited to ₹10 crores.

• Capital Gains Account Scheme (CGAS) • If you sell a capital asset and intend to reinvest the capital gains to claim the exemption but are unable to do so before the due date for filing the ITR (September 15, 2025), you can deposit the unused capital gains in the Capital Gains Account Scheme with a public sector bank. 

This action ensures that the capital gains remain eligible for exemption. The deposited amount must be used for the specified purpose within the stipulated time frame from the date of transfer of the original asset (2 years for purchase, 3 years for construction). Any unused amount in CGAS after the period expires will be taxable in the year in which the period expires.

Documents required for capital gains reporting

• To ensure a satisfactory filing experience, keep the following documents ready: • Sales promise/contract for asset sale • Purchase promise/contract for asset purchase • Brokerage details (for stocks and mutual funds) • Consolidated capital gains statement from RTA (such as CAMS/Kfintech) for mutual funds • Tax P&L statement from your broker for equity shares • Information on expenses incurred on transfer (brokerage, registration fees, etc.) • Evidence of investment in new assets (to claim a deduction) • Bank statement reflecting sale proceeds and investment • Form 16B for asset sale (if TDS was deducted by the buyer)

• Important considerations for taxpayers in Patiala and surrounding areas: • TDS on property sale: For the sale of real estate exceeding ₹50 lakhs, the buyer must deduct 1% TDS under Section 194-IA. 

Always ensure that you receive Form 16B for this. • Set-off and carry forward of losses: Capital losses can help reduce your tax liability. Short-term capital losses can be set off against both STCG and LTCG. Long-term capital losses can only be set off against LTCG. Any unutilized capital loss can be carried forward for a maximum of 8 assessment years, provided you file your ITR on time.

Additional disclosure and sequencing details

To claim indexed benefits, residents are required to separately declare the acquisition and improvement costs of land or buildings transferred before July 23, 2024. Additionally, individuals with an annual income exceeding 1 crore rupees - which has been raised from the previous criterion of 50 lakh rupees - will need to report their assets and liabilities at the end of the financial year, unless already disclosed under Part A - Balance Sheet.

 A new capital loss reporting line has been introduced.

An additional line has been included in Schedule CG for taxpayers to report capital losses arising from share buybacks under Section 68 of the Companies Act, 2013. The aim is to improve clarity and compliance for shareholders affected by company buyback transactions.