If you are a salaried professional or a small investor who puts money into the stock market through SIPs or direct equity, this income tax update is directly relevant to you. The government has made a significant amendment to the ITR-1 form for FY 2025-26 (AY 2026-27) — one that eliminates a long-standing compliance headache for millions of taxpayers across India.
In short: you can now report Long-Term Capital Gains (LTCG) of up to ₹1.25 lakh directly within ITR-1 (Sahaj), without having to switch to the more complex ITR-2 form. For anyone who has ever been forced to wrestle with ITR-2 simply because of a modest stock market gain, this is genuinely good news.
Until now, even a small amount of LTCG from equity shares or equity mutual funds triggered a mandatory requirement to file ITR-2. This was a disproportionate compliance burden — imagine being a schoolteacher or a junior executive with a ₹30,000 gain from a mutual fund redemption, forced to navigate a far more complex tax form.
The government has now corrected this imbalance. The revised ITR-1 form for AY 2026-27 allows taxpayers to include LTCG up to ₹1.25 lakh from listed equity shares and equity-oriented mutual funds — without stepping outside Sahaj.
This ₹1.25 lakh threshold directly aligns with the exemption limit under Section 112A of the Income Tax Act, which exempts LTCG on equity investments up to this amount from tax. The logic is clean: if your gain is within the exempt limit anyway, why should you be required to file a complex return?
This change delivers the most direct relief to:
Salaried employees — those who receive Form 16 from their employer and invest in the stock market on the side. They no longer face the burden of shifting to ITR-2 just because of a small equity gain.
SIP investors — individuals investing in equity mutual funds through Systematic Investment Plans, where long-term redemptions can trigger LTCG that was previously unmanageable in ITR-1.
Retail investors with limited market exposure — people who hold a handful of listed stocks or a single mutual fund and have gains within the ₹1.25 lakh limit.
Pensioners and small savers who occasionally book profits from equity investments but have simple overall income profiles.
All of these taxpayers can now file ITR-1 online with ease — completing their income tax return faster, without professional help for a straightforward gain.
For the current assessment year, you can file ITR-1 (Sahaj) if all of the following conditions are satisfied:
If all five conditions are met, ITR-1 is your form. Simple, straightforward, and quick.
This amendment does not make ITR-1 a universal form. You must still file ITR-2 or file ITR-3 in the following situations:
For these situations, ITR-2 or ITR-3 remains mandatory. The new rule is specifically designed for taxpayers who are largely salaried but have modest, straightforward equity gains.
The LTCG inclusion is the headline change — but it is not the only one. Several other amendments have been made to ITR-1 that taxpayers must be aware of:
Two contact details now permitted: You can now provide two mobile numbers, two email IDs, and two addresses within a single ITR-1 form. Previously, only one of each was allowed. This is particularly useful for individuals who maintain separate personal and professional contact details.
New requirement under Section 80GGC: If you are claiming a deduction for donations made to a political party under Section 80GGC, you must now disclose the name of the political party and its PAN number in your return. This change is aimed at improving transparency in political funding declarations. No disclosure, no deduction — the rule is unambiguous.
The form may be simpler, but the pre-filing checklist remains important. Here is what every taxpayer should verify before they file income tax return for AY 2026-27:
Review your AIS and Form 26AS: The Annual Information Statement (AIS) and Form 26AS reflect all income, TDS deductions, and financial transactions reported against your PAN. Cross-check these with your actual income before filling in any figures. Discrepancies between your ITR and AIS are a common trigger for income tax notices.
Choose your tax regime carefully: The new tax regime under Section 115BAC is the default for FY 2025-26. If you wish to opt for the old regime (which allows deductions under 80C, 80D, etc.), you must explicitly declare this while filing. Many taxpayers unknowingly file under the new regime and lose eligible deductions — so this decision deserves careful thought.
Declare your savings account interest: Interest earned on savings bank accounts is taxable and must be reported under income from other sources. Under the old regime, you can claim a deduction of up to ₹10,000 under Section 80TTA. Do not leave this income undisclosed.
Link Aadhaar to your mobile number: Your mobile number must be linked to Aadhaar for the OTP-based e-verification of your ITR. An unlinked mobile number can hold up your filing at the final step.
Disclose foreign assets if applicable: If you hold any bank accounts, investments, or property outside India, these must be declared even within ITR-1 if all other conditions are met. Non-disclosure of foreign assets attracts serious penalties under the Black Money Act.
The last date to file ITR for FY 2025-26 (AY 2026-27) is 31st July 2026 for individuals not subject to audit. This applies to ITR-1, ITR-2, ITR-3, and ITR-4 filers alike.
Filing after this date means:
The smart move is always to file well before the deadline — ideally in June or early July — so that any errors can be corrected through a revised return before July 31st.
India has over 10 crore active mutual fund investors and a rapidly growing base of retail equity participants. The previous ITR-1 restriction was a genuine friction point — it discouraged small investors from the stock market and created unnecessary compliance anxiety around modest gains.
By aligning the ITR-1 LTCG threshold with the Section 112A exemption limit of ₹1.25 lakh, the government has taken a logical and taxpayer-friendly step. Tax filing should match the complexity of the taxpayer's actual financial life — and for most salaried individuals with limited market exposure, ITR-1 is now the right, complete answer.
Whether you are filing ITR-1 with LTCG, switching between tax regimes, or navigating the AIS reconciliation process, LegalDev's tax professionals ensure your return is accurate, complete, and filed on time.
Don't let a simple gain turn into a complex problem. File smart with LegalDev.
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