Income Tax News: Hurray! ITR Filing Made Easy, Taxpayers with Long-Term Capital Gain Up to ₹1.25 Lakh Can Now Use Form 1 and 4

Income Tax News: Income Tax Department is making income tax filing easier day by day for the taxpayers. While salaried persons used to file ITR-1, ITR-4 was used by individuals, Hindu Undivided Families (HUFs), if total income from a business or profession is under ₹ 50 lakh in a financial year. Both of these categories (salaried and small business persons) had to file ITR-2, if there were no long-term capital gains. If they had long-term capital gains, they would file ITR-2. But things are simpler now. There is no requirement to file ITR-2 from this year if the amount of long-term gain is tax-free.

Past Use of ITR-1 and ITR-4

In past, those individuals filed ITR-1 who had income up to ₹ 50 lakh from salary, one house property, interest and agriculture income. ITR-4 was used by individuals, Hindu HUFs, and firms (excluding LLPs) who had income from a business or profession up to ₹ 50 lakh in a financial year.  They would not require filing ITR-2 if there is no long-term capital gain. But, if they had capital gains also in any particular year, they had to file ITR-2 even if it was tax free.

What Are Changes In New ITR-1 and ITR-4?

Now, ITR-1 and ITR-4 have a small section to report long-term capital gains. If the amount of long-term capital gains from equities or equity mutual funds does not go beyond the tax-free limit of ₹1.25 Lakh, taxpayers do not need to file ITR-2. The compliance will be easier and less burdensome for salaried and small business owners now as the tax department has exempted these tax payers with non-taxable long-term capital gains from filing ITR-2.  

What Is Capital Gain?

Capital gain is the profit due to sale of a capital asset like bond, mutual fund or real estate at a price higher than its purchase price. Capital gains are mainly classified into two categories:
•    Short-Term Capital Gain (STCG): For securities, if holding period is 1 year or less, the gain is considered as short-term capital gain. For other assets like real estate, holding period is up to 2 years.
•    Long-Term Capital Gain (LTCG): For securities, if the holding period exceeds 1year, gain is long-term capital gains. For other assets, the holding period should exceed 2 years to be considered long-term.

What Are Tax Rates On Capital Gains?

•    Short-Term Capital Gain Tax: For securities, short-term capital gain tax is 20%. For other assets, short-term capital gain is added in income and is taxed as per the applicable income tax slab.
•    Long-Term Capital Gain Tax: For securities, long-term capital gain exceeding ₹1.25 Lakh is taxed at 12.5%. For other assets, long-term gain is taxed at 12. 

What Changed In The Recent Budget Regarding Long-Term Capital Gain?

In the recent budget, government increased the limit for tax-free limit of long-term capital gains from ₹1 lakh to ₹ 1.25 lakh. However, the tax rate is increased from 10% to 12.5% on long-term capital gains. 

Who Will Not Get The Benefit Of This Change In ITR-1 and ITR-4?

If a taxpayer has long-term capital gains more than the tax free limit i.e. ₹ 1.25 lakh or has any long-term capital gains other than equities or  short-term capital gains or has carried forward or brought forward capital losses, the salaried individual will have to file ITR-2.

Income tax department made tax-filing easier for the individuals, HUFs and firms whose amount of long-term capital gain is tax-free. But there is no benefit of this change to these tax payers if the amount of capital gain is taxable.