Key Changes in ITR Forms for AY 2026-27: What Taxpayers Must Know

What Taxpayers Should Know

The Income Tax Department has recently notified updated ITR Forms 1 and 4 for Assessment Year (AY) 2026-27, relevant to Financial Year (FY) 2025-26. The revised forms introduce several important compliance and disclosure-related changes aimed at improving transparency, widening reporting requirements, and simplifying return filing for certain categories of taxpayers.

Here is a detailed overview of the major changes introduced in the updated ITR forms:

1. Relief for Taxpayers Having Two House Properties

One of the most significant relaxations introduced this year is that taxpayers having income from up to two house properties can now file their returns using the ITR-1 and ITR-4 form.

Earlier, taxpayers having income from more than one house property were not eligible to use these simplified forms.

Impact:

• Salaried individuals and small taxpayers with two self-occupied or let-out properties can continue using simpler return forms.
• Reduces compliance burden and avoids shifting to ITR-2 merely due to ownership of an additional property.

2. Separate Disclosure for Unrealised Rent

The updated forms now contain a dedicated field for:

“Amount of rent which cannot be realised.”

This change aligns with provisions relating to unrealised rent under the Income Tax Act.

Impact:

• Taxpayers earning rental income must maintain proper documentation regarding defaulting tenants.
• Proper disclosure may help avoid future scrutiny regarding rental income mismatches.

3. Removal of Separate Capital Gains Tax Rate Fields

The earlier fields relating to:

• 15% Short Term Capital Gains (STCG), and
• 10% Long Term Capital Gains (LTCG)

on listed equity shares and equity-oriented mutual funds have now been removed from relevant ITR forms.

Likely Reason:

The department may now be computing such tax liabilities directly through backend integration based on Schedule CG disclosures and AIS data.

Impact:

• Taxpayers must carefully reconcile capital gain statements with broker reports and AIS/TIS data.
• Greater emphasis on accurate transaction-level reporting.

4. Expanded Disclosure for New Tax Regime (Form 10-IEA)

The revised ITR forms seek additional details relating to:

• opting into the new tax regime,
• opting out of the new tax regime, and
• filing of Form 10-IEA.

Impact:

• Businesses and professionals must ensure consistency between return filing and Form 10-IEA submissions.
• Incorrect disclosures may lead to denial of tax regime benefits.

5. Representative Assessee Disclosure Introduced

All ITR forms now require taxpayers to specify whether the return is being filed by a representative assessee.

Applicable Cases:

• Legal heirs
• Guardians
• Insolvency professionals
• Authorized representatives
• Executors of estates

Impact:

This change strengthens tracking and accountability in cases where returns are not filed directly by the taxpayer.

6. Section 89A Relief No Longer Available in ITR-1 & ITR-4

The claim of relief under Section 89A has been removed from ITR-1 and ITR-4.

Such relief can now be claimed only through:

• ITR-2, or
• ITR-3 form.

Impact:

Taxpayers having foreign retirement accounts eligible under Section 89A must carefully choose the correct ITR form.

7. Additional Reporting Requirements for Deductions

A. Donations under Section 80G

Taxpayers claiming deduction under Section 80G are now required to provide:

• Transaction reference number
• IFSC Code

Impact:

• Cash donations and unsupported claims may face increased verification.
• Proper banking trail and payment evidence become more important.

B. Political Donations

For deduction claims relating to political contributions, taxpayers must now disclose:

• Name of political party
• PAN of political party

Impact:

This enhances transparency and reduces scope for incorrect deduction claims.

8. Revised Return Filing Timeline Clarified

The updated framework clarifies that revised returns can be filed till:

31st March of the subsequent tax year

However, late fees may apply where returns are filed after 31st December.

Impact:

Taxpayers should avoid last-minute compliance and ensure timely revision wherever required.

9. Additional Financial Disclosure in ITR-4

Taxpayers filing ITR-4 will now need to disclose:

• Investment details
• Bank balance information

Impact:

• Presumptive taxation taxpayers may now face enhanced financial reporting requirements.
• Books and reconciliations should be maintained properly even where presumptive taxation is opted.

Conclusion

The revised ITR forms for AY 2026-27 reflect the Income Tax Department’s continued focus on:

• enhanced transparency,
• deeper data analytics,
• AIS/TIS reconciliation,
• and tighter deduction verification mechanisms.

While certain changes provide compliance relief; such as allowing two house properties in ITR-1 form and ITR-4, many amendments simultaneously increase reporting obligations and documentation requirements.

Taxpayers are advised to:

• maintain proper documentary records,
• reconcile AIS/TIS with books,
• Verify deduction claims carefully,
• and review tax regime disclosures thoroughly before filing returns.

Proper planning and accurate reporting will help avoid notices, defective returns, and future litigation.

— Team Taxcellent