Choose the Right ITR Form for AY 2025-26: Salaried, Self-Employed & NRIs

We recently covered the 12 Dangerous Income Tax Filing Mistakes to Avoid in 2025 and if you read that one, you already know that choosing the right ITR form (Income Tax Return) is step one to getting your tax filing right.

The Income Tax Department has already notified the ITR form types for AY 2025-26, which gives us time to pick the right ITR form this year.

In this guide, you’ll learn:

• Which ITR form fits your income setup?
• What forms NOT to touch if you’ve got capital gains, crypto, or foreign bank accounts?
• What small delay can land you a late fee?
• And why that “easy-looking” ITR-1 form might be wrong for you?

Let us clear up the confusion and help you file correctly this year (FY 2024-2025).

All ITR Forms Types: Who Should Use What?

ITR for Salaried Employees

Most salaried individuals fall under ITR-1 if:

• annual income < ₹ 50 lakh
• You earn from a salary, own one house and income from interest or dividends.
• Agricultural income is under ₹ 5,000

ITR-2 is the right ITR form if any of the following are true for you:

• Capital gains or > 1 house property
• Foreign income/assets
• You’re a director or hold unlisted shares

Pro Tip: Many salaried individuals with capital gains still try to file ITR 1 form, which is not allowed.

ITR for Self-Employed & Freelancers

If you are looking for ITR filing for freelancer, consultant or small business owner, the right ITR form will be:

• Using Presumptive Tax Scheme (Sec 44AD/44ADA/44AE): ITR-4
• Maintaining full books of accounts: ITR-3

Let us learn about the presumptive taxation limits later in this blog. Once you opt out of presumptive, you must continue regular books for 5 years. Also, include income from platforms like Upwork, Fiverr or Freelancer. There are other factors also which have to be considered if you are receiving fees from foreign from such platforms.

ITR for NRIs (Non-Resident Indians)

NRIs cannot use ITR-1 or ITR-4. Generally, there are two choices:

• Rental, capital gains, interest: Use ITR-2
• Business/professional income: Use ITR-3

Keep in mind the following points:

1. Proper international tax planning for NRI.
2. Please check your residential status.
3. Check DTAA (Double Taxation Avoidance) benefits.
4. As an NRI, you are not required to report foreign assets.

What’s Changed in the ITR Forms This Year 2025?

There are several significant updates introduced in the ITR forms for AY 2025–26:

1. Aadhaar is Now a Must-Have: Forget using just your Aadhaar Enrolment ID. From October 1, 2024, it’s mandatory to use your actual Aadhaar number for your ITR and also for others like partners or beneficiaries. So, make sure your Aadhaar ready before ITR filing.

2. More Disclosures Needed for Deductions: If you’re claiming tax deductions for disabilities or for interest paid on your home, education or electric vehicle loans, the ITR forms now require more specific information. For instance, you’ll need to provide things like the acknowledgment number for your disability certificate or details about your lender and loan account for interest deductions. It is about providing clear proof for all deductions.

3. Small Capital Gains Get Simpler, Big Ones Get Detailed: Good news for small-time equity investors! If your long-term capital gains from selling shares or equity mutual funds are under ₹ 1.25 lacs, you might still be able to use the easier ITR-1 form or ITR-4. But in ITR-2 or ITR-3, there will be separate reporting of complex capital gains for sales before and after July 23, 2024.

4. Higher Limits for Small Businesses and Professionals: If you’re a freelancer or small business owner, the presumptive tax scheme just got better. The turnover limit for businesses (Section 44AD) is now up to ₹ 3 crore and for professionals (Section 44ADA) it’s ₹ 75 lacs. Just remember, your cash transactions need to stay below 5% of your total receipts to qualify for these higher limits.

5. No More Simplified Forms for NRI/NOR: If you’re a Non-Resident Indian (NRI) or a Not Ordinarily Resident (NOR), you can clearly no longer use the simplest ITR-1 or ITR-4 forms. Even if your income is under the conditions of simplified forms, you’ll need to opt for ITR-2 or ITR-3 instead.

6. Schedule Asset & Liability Reporting Applicability Changed: The threshold for mandatory reporting of assets and liabilities has been raised. If your total income exceeds ₹ 1 crore (up from previous ₹ 50 lacs), you will now need to disclose your assets and liabilities in the Schedule AL in your ITR.

ITR Filing for Senior Citizens

If you’re a resident senior citizen (75 or older) and your income is only from a pension and interest from the same bank, you don’t have to file an ITR form. Just submit Form 12BBA to your bank and they’ll handle the tax for you and this is allowed under Section 194P.

Important Deadlines for AY 2025-26

ITR Filing Deadline: If you are an individual or have an HUF not liable for tax audit, the last day to file your ITR for AY 2025-26 is September 15, 2025 (as extended by Circular No. 06/2025 Dt 27-May-2025 from 31^st July 2025)

Generally, your employer must give you Form 16 by June 15, 2025, so you can file your return on time.

Few Tips for Smooth ITR Filing

1. Wait for Form 16: Ensure you have received Form 16 from your employer before filing your return to avoid gaps.

2. Verify Form 26AS: Cross-check the details in Form 26AS to ensure all TDS deductions are accurately reflected.

3. Verify AIS/TIS from income Tax Portal: This is to cross check that you have declared all your income pertaining to that year and also to give feedback on certain duplicate entries appearing in it.

4. Maintain Proper Documentation: First read income tax beginner’s guide. Keep records of all income sources, deductions and exemptions to support your claims.

5. File on Time: Avoid penalties and interest by filing your return before the due date as the late ITR filing fees goes up to ₹ 5,000.

6. Bank Accounts: It is mandatory to list all your active bank accounts except for inactive accounts over 2 years. Make sure the bank accounts are validated in order to receive timely refunds.

What if one accidentally files the wrong ITR form?

1. Defective Return: You’ll get a notice of defective return under section 139(9) and then file revised return within the time allowed.

2. Penalties: Incorrect filings can attract penalties of 50% to 200% of tax payable under section 270A for concealment of income or inaccurate particulars. Work with income tax return filing consultants to avoid misreporting.

3. Rejection of Claims: Tax Deductions and exemptions claimed may also be disallowed.

Hence, it is better to plan ahead with Tax Checklist.

Choosing Between Old and New Tax Regime?

Both the new or old tax regimes are still available in AY 2025-2026. You can switch using Form 10-IEA for Business/Profession (there is no need to file such form for Salaried Taxpayer)

Penalties & Late Fees for AY 2025–26

Final Thoughts: File Smart

We hope that this helps you in choosing the right ITR as it is the first financial security step. The small details can be little tricky to fully comprehend but we believe with right income tax consultancy support of Master Brains, we can sail this through together.

Need Help Choosing the Right ITR Form or to review or file your ITR? Need Capital Gain Consulting or NRI Tax Consulting?

Master Brains makes tax filing simple, fast and accurate.

Call us at +91-8595867402 or Email: masterbrains.office@gmail.com

Quick FAQs on ITR Form Filing

1. How do I know whether to use ITR-1, ITR-2, or ITR-3?

• ITR-1: Salaried individuals earning < ₹ 50 lakh, no capital gains or foreign assets.
• ITR-2: Capital gains, more than one house, or own foreign assets.
• ITR-3: Business or professional work.

2. I earn a salary – Which ITR form should I file?

• If your income is just from salary and maybe some bank interest, go with ITR-1.
• If you’ve also made capital gains or hold foreign assets, then ITR-2 is a better fit.

3. I’m self-employed. Can I still file ITR-1?

No. ITR-1 is only for salaried individuals.

If you’re self-employed, you’ll need to file ITR-3 or ITR-4, depending on your accounting choice.

4. What’s the right ITR form for NRIs?

• If you’re an NRI with income like rent or capital gains from India, go with ITR-2.
• If you have business income in India, then ITR-3 is the correct form.

5. Which ITR form should freelancers use?

• If you’re a freelancer using the presumptive taxation scheme, ITR-4 is right for you.
• If you keep proper financial books, go with ITR-3 instead.

6. I hold ESOPs in a foreign company. Does that affect my ITR form?

Yes. If you hold foreign ESOPs, even if no income is realized yet, it counts as foreign assets. You will need to file ITR-2, not ITR-1 or ITR-4. Also, make sure to correctly disclosure under Schedule FA (Foreign Assets).

7. I’m earning rent from a second property, which ITR form applies?

If you have income from more than one house property (including rental), ITR-1 is not applicable. Go for ITR-2. Even if rental income is minimal, multiple properties push you into ITR-2.

8. As an NRI, do I need to report my income abroad in the Indian ITR?

No, NRIs are taxed in India only on income earned or received in India. Foreign income doesn’t have to be reported, but if you’re unsure about taxability or DTAA provisions, choose ITR-2 or ITR-3 accordingly.

9. I only earned long-term capital gains below ₹ 1.25 lakh this year. Do I still need to report it?

Yes. Even though long-term capital gains to ₹ 1.25 lakh under Section 112A are tax-exempt for AY 2025–26, you must still report them in your ITR. If this is your only capital gain and you meet other conditions for ITR-1 or ITR-4, you can now report it there without needing ITR-2 as per the updated forms this year.