Key Updates in ITR-3 & ITR 4 for AY 2025-26

• Taxation
• ||
• August 6, 2025

The Income Tax Department of India has updated the ITR forms for the assessment year 2025-26. These amendments aim to enhance transparency and improve the reporting and monitoring system for income tax in India. A significant change has been introduced in the ITR-3 and ITR-4 disclosures, and taxpayers need to stay informed about these updates to avoid unnecessary attention from the income tax authorities.

This guide will help you understand the changes introduced for disclosure in ITR-3 and ITR-4, ensuring taxpayers do not miss these key updates and can prepare their filings more efficiently. But before discussing the changes in ITR 3 and ITR 4, let’s first understand what these forms are used for.

Overview about ITR-3 & ITR-4

ITR-3 & ITR-4 are used to file for income earned from business and profession by the taxpayer; both look similar to many people, but they are different from each other in several ways.

The table below depicts the significant difference between ITR-3 & ITR-4.

* Presumptive taxation is introduced for small businesses and professionals, where the taxpayer’s income will be a fixed percentage of their turnover or gross receipts, and tax will be calculated based on that income. Taxpayers under presumptive taxation are not required to maintain detailed books of accounts.

Taxpayers must ensure they select the correct ITR form based on their eligibility. It is a crucial step in income tax compliance, as choosing the wrong form can lead to rejection of filings and notices from the authorities. If you’re unsure which form to select, you can read our detailed guide on ITR forms for a clearer understanding of the different options.

Changes in ITR 3 for AY 205-26

Significant updates have been implemented in Income Tax Return-3. Taxpayers eligible to file ITR-3 should stay informed about the new reforms.

• To reduce the compliance burden on taxpayers, the threshold limit for reporting mandatory assets and liabilities has been increased to 1 crore
• Suppose a capital asset has been transferred and resulted in capital gain. In that case, the taxpayer must specify whether it took place before or after 23rd July 2024, as this would be used to determine the rate of capital gain taxes applicable to the taxpayer
• ITR-3 provides for the reporting of TDS under the specific section in which the taxpayer has deducted the tax
• If a taxpayer wants to claim deductions under section 80C, section 80D, etc., to offset taxable income, there will be detailed disclosure requirements for this in the form
• If a taxpayer has income from virtual digital assets, they must provide a detailed disclosure of this income
• The taxpayer needs to confirm whether they filed Form 10-IEA for the previous assessment year and now want to opt for the same or not
• ITR-3 now provides for reporting dividend incomes received from the buy-back of shares after 1st October 2024, allowing for the carry forward of the corresponding cost of acquisition as a capital loss

Changes in ITR-4 for AY 2025-26

The Income Tax Department has shared important updates about changes in ITR-4. Let’s review the key updates in ITR-4.

1. Eligibility Expanded with LTCG Inclusion

Taxpayers declaring Long-Term Capital Gains (LTCG) from listed equities or mutual funds up to Rs 1.25 lakh under Section 112A can now file ITR Form 4, provided that no capital losses are carried forward and also excel- based utility now includes an LTCG schedule, enabling offline reporting and simplified filing.

2. New Tax Regime Default (Section 115 BAC)

The form now defaults to the new tax regime. First-time opt-outs must submit Form 10-IEA with acknowledgement details, and existing opt-outs must reconfirm their tax regime choice.

3. Mandatory TDS Selection Level Reporting

Tax deducted at source must now include the specific section code (e.g., 194A, 194H, 192) to facilitate correct TDS credit.

4. Aadhar-PAN Integration Mandatory

Only the 12‑digit Aadhaar number is accepted. The older Aadhaar enrollment ID is no longer valid for ITR‑4 filings.

5. Detailed Deduction Disclosures

Deductions under sections 80C to 80U must now be selected via drop-down menus and require specific details, such as policy numbers, PRAN, issuer, and loan details.

Deductions under Sections 80C through 80U now require granular details:

• Section 80C: PPF account number, insurance policy number, receipt numbers, etc
• Section 80D: Name of insurer, policy number
• Section 80DD / 80U: Disability certificate acknowledgment number and details
• 80E / 80EE / 80EEA / 80EEB (education, home loans, EV loans): Lender/bank name, loan account number, sanction date, outstanding balance as of 31 March, interest paid

Other Important Points:

• The taxpayer needs to provide more detailed information about the loans for self-occupied property, including the interest paid, the lender’s name, PAN, and the property’s address
• The capital gains rule has been updated to include indexation details for non-equity assets and to provide segregated reporting for both short-term and long-term gains
• The threshold for reporting assets and liabilities has been revised to 1 crore to simplify the reporting process for taxpayers
• The excel utilities of the form have been amended with features of real-time validation, intelligent error detection, and section-wise instructions

Taxpayers should ensure they understand the recent changes and updates to prevent notices from authorities and remain compliant. Being well-prepared with proper documentation and knowledge of the forms can make filing ITR-3 and ITR-4 straightforward.

For better handling of these updates, seeking professional guidance is a wise choice. Feel free to contact us here for more information.

Tips for Taxpayers

Let’s explore some helpful tips to make it easier for taxpayers to stay compliant with these updates.

• Always maintain proper documents of the deductions you can claim
• Make sure to check and verify the tax regime you are opting for. If opting for the old tax regime, make sure to file Form 10IEA before the deadline. If you don’t know anything about choosing the right tax regime for you, you can simply understand by reading this detailed article on old vs new tax regime: https://masllp.com/old-tax-regime-vs-new-tax-regime/
• Disclose your VDA (Crypto/NFT) income correctly under the new schedule VDA in ITR-3 and also mention acquisition date, transfer date, sale consideration, and cost
• Check and verify the accuracy of all your filed data
• Verify your return through e-verification within 30 days of filing

It is always best to file before the deadline. Don’t wait until the last minute before the due date. Filing early gives you enough time to verify details, review claims, gather documents, and avoid penalties. It’s also wise to hire a professional Chartered Accountant (CA) if your tax situation is complicated, if you’re subject to a tax audit, or if you need detailed tax planning and compliance support.

Conclusion

Filing ITR-3 and ITR-4 is well-documented, accurate, and transparent for reporting. The taxpayer needs to understand these updates to maintain the required documents properly and verify the furnished details.

If you are unsure about these changes, it is advisable not to take the risk of uncertainty. Always take a step ahead to stay on the right side of the law.

At Mercurius, our expert team guides you about the taxation updates and helps you navigate smoothly in the implementation of these changes in your tax filing. Our team of experienced tax accountants and Chartered Accountants (CAs) provides expert guidance to ensure your income tax returns are filed accurately, efficiently, and in full compliance with the latest regulations. For more details, you can Contact Us.