Income Tax Department
India’s income tax system is now going to enter a new phase. The government is preparing to implement the Income Tax Act, 2025 from April 1, 2026. With this, the almost six decade old Income Tax Act, 1961 will end. To implement this big change, the government has released the draft of Income Tax Rules 2026, which includes new rules for all return forms from ITR-1 to ITR-7. Let us tell you about all the rules which have been included in the draft.
These draft rules have been placed in the public domain for the comments of the general public, taxpayers, chartered accountants and professionals. Suggestions have been sought till 22 February 2026, after which they will be finalized. In such a situation, the biggest question is that after the introduction of the new system, how much will filing of tax returns change for the common man and which ITR will be for whom.
ITR-1 is still the easiest
The name of ITR-1 i.e. Sahaj Form still lives up to its meaning. This form will be for those resident individuals whose income comes from direct sources like salary, rent from a house and bank interest. The government has a clear focus that this form should be used only for simple tax matters.
The biggest change has been made in the method of filing. Now almost all taxpayers will have to file returns digitally. Only super senior citizens aged 80 years or above will be exempted from paper filing. It will be mandatory for all other people to file returns online through EVC or digital signature.
ITR-2 now default option for complex cases
ITR-2 will be for those people whose income is not from business or profession, but their tax situation is a bit complicated. This includes people having capital gains, more than one house property, foreign income or foreign assets. According to the new rules, as soon as a taxpayer goes beyond the limit of ITR-1, he will have to directly file ITR-2. The government has tightened the monitoring of capital gains and foreign assets, so now more information will have to be given in this form than before.
Disclosures in ITR-3 will increase with business income
For those who earn from business or profession, ITR-3 will remain the main form. The draft rules state that if a taxpayer goes beyond the limits of presumptive taxation, he will have to file ITR-3. In this form, now more details related to properties, capital gains and special income categories will be asked. This means that tax disclosure for professionals, traders and high-income people will be more detailed than before.
Most strictness on ITR-4 (Sugam)
The biggest blow may be faced by those filing ITR-4 i.e. Sugam. Although this form will remain for presumptive taxation, its conditions have now been made quite strict. If a taxpayer has foreign income or assets, is a director of a company, holds unlisted shares, has annual income of more than Rs 50 lakh, owns more than two houses or has carried forward losses from previous years, then he will not be able to file ITR-4. This simply means that many small businessmen and professionals will now be forced to choose ITR-3.
More monitoring in ITR-5 and ITR-6
The basic structure of ITR-5 and ITR-6 remains the same, but digital compliance and data linking have been further strengthened. Filing with digital signature will remain necessary for companies as before. Apart from this, ITR-A for business re-organization cases and ITR-BL for block assessment have been better integrated into the system.
Strictness on trusts and institutions in ITR-7
Special emphasis has been laid on transparency in ITR-7, which is used for charitable trusts, religious institutions and political parties. Now complete information about donation, fund utilization and audit report will be directly linked to the return. The aim of the government is to keep strict vigil on even the tax exempted institutions.