The Central Board of Direct Taxes (CBDT) has officially notified the new ITR Form 5 for the Assessment Year (AY) 2025-26, under Notification No. 42/2025 dated May 1, 2025. The Income Tax Department made the announcement via its official handle on X (formerly Twitter), highlighting several critical updates aimed at improving tax compliance and transparency.
ITR Form 5 is primarily applicable to firms, LLPs (Limited Liability Partnerships), Association of Persons (AOPs), and Business Trusts, excluding those required to file ITR-7.
Key Changes in ITR Form 5 for AY 2025-26
1. Split Reporting in Schedule-Capital Gains
One of the most significant updates in the revised ITR Form 5 is the introduction of a split in Schedule-Capital Gains. Taxpayers are now required to report capital gains separately for transactions occurring before and after July 23, 2024. This structural change is expected to bring more clarity in reporting and help assess capital gain tax implications based on the timing of the transaction.
2. Capital Loss Reporting on Share Buybacks
The updated form now allows the reporting of capital losses arising from share buybacks, but with a condition: the related dividend income must be declared under “Income from Other Sources”. This is applicable only for share buybacks conducted on or after October 1, 2024.
3. Reference to Section 44BBC
The new form includes a specific reference to Section 44BBC of the Income Tax Act, which deals with presumptive income provisions for businesses engaged in activities like plying, hiring or leasing goods carriages. This ensures proper classification and compliance for such taxpayers.
4. TDS Section Code in Schedule-TDS
A new requirement in Schedule-TDS mandates that taxpayers must now specify the TDS section code. This change enhances traceability and clarity in tax deduction claims and can reduce the risk of mismatches during assessment.
Simplification Measures Underway
The notification comes shortly after the Income Tax Department introduced the ‘e-Pay Tax’ feature on its official portal, aimed at streamlining tax payment processes and enhancing user convenience.
In addition, the government has expressed intentions to overhaul the Income-tax Act of 1961. During the July 2024 Budget, a comprehensive review was proposed to simplify the Act and minimize tax-related disputes. The proposed Income Tax Bill 2025 is currently under review by a Select Committee, with stakeholder suggestions invited as of March 18.
Finance Minister Nirmala Sitharaman has confirmed that the new Bill will be tabled for discussion during the Monsoon Session of Parliament.
Conclusion
The changes in ITR Form 5 for AY 2025-26 reflect the government’s ongoing efforts to modernize and simplify the tax filing process. From enhanced capital gain disclosures to stricter TDS reporting, these revisions aim to reduce discrepancies and improve taxpayer accountability. All eligible taxpayers are advised to review the updated form carefully and consult tax professionals if needed.
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