Filing income tax returns (ITR) can often feel like navigating a maze, especially when trying to determine which form applies to your specific income situation. For the Assessment Year (AY) 2025-26, which corresponds to the Financial Year (FY) 2024-25 (income earned between April 1, 2024, and March 31, 2025), many individual taxpayers find themselves pondering the differences between ITR-1 (Sahaj) and ITR-4 (Sugam). Both forms are designed for resident individuals with a total income of up to ₹50 lakh, but they cater to different income structures. Choosing the correct form is crucial to ensure accurate filing and avoid potential issues with the Income Tax Department. The due date for filing ITR for FY 2024-25 has been extended to September 15, 2025.

ITR-1 (Sahaj): A Simplified Form for Salaried Individuals

ITR-1 is the most straightforward form, designed for resident individuals (excluding those classified as "not ordinarily resident") with income up to ₹50 lakh. The income sources that can be included in ITR-1 are:

• Salary/Pension: Income received as a salaried employee or as pension.
• One House Property: Income from a single house property, excluding cases where there are brought-forward losses from previous years.
• Other Sources: This includes income from interest (savings account, fixed deposits, income tax refunds), family pension, and other interest income. Notably, it excludes winnings from lotteries and income from race horses.
• Long-Term Capital Gains (LTCG): A significant update for AY 2025-26 is the inclusion of long-term capital gains under Section 112A, up to ₹1.25 lakh. This typically includes gains from the sale of listed equity shares or equity-oriented mutual funds.
• Agricultural Income: Income up to ₹5,000 from agricultural activities.

However, certain individuals are not eligible to file ITR-1, including those who:

• Have a total income exceeding ₹50 lakh.
• Have agricultural income exceeding ₹5,000.
• Have taxable capital gains (other than LTCG under Section 112A up to ₹1.25 lakh).
• Have income from business or profession.
• Own more than one house property.
• Are a director in a company.
• Have investments in unlisted equity shares.
• Own assets (including financial interest in any entity) located outside India or have signing authority in any account located outside India.
• Are a resident not ordinarily resident (RNOR) or a non-resident.
• Have any foreign income.

ITR-4 (Sugam): Catering to Small Businesses and Professionals

ITR-4, also known as Sugam, is tailored for resident individuals, Hindu Undivided Families (HUFs), and firms (excluding Limited Liability Partnerships - LLPs) with a total income of up to ₹50 lakh. This form is primarily for those who have opted for the presumptive income scheme. The income sources that can be included in ITR-4 are:

• Presumptive Business Income: Income calculated under Section 44AD or 44AE of the Income Tax Act, which applies to small businesses.
• Presumptive Professional Income: Income calculated under Section 44ADA, applicable to certain professionals.
• Salary/Pension: Similar to ITR-1.
• One House Property: Similar to ITR-1.
• Other Sources: Similar to ITR-1, excluding income from lottery and racehorses.
• Long-term capital gains: Taxpayers can now report long-term capital gains (LTCG) under Section 112A (from listed equity shares and equity-oriented mutual funds) in ITR-4, provided the total LTCG is under Rs.1.25 lakh and there are no brought-forward or carry-forward losses under the Capital gains head.

ITR-4 is not applicable for individuals who:

• Have a total income exceeding ₹50 lakh.
• Have income from more than one house property.
• Own any foreign asset.
• Have signing authority in any account located outside India.
• Have income from any source outside India.
• Are a director in a company.
• Have had investments in unlisted equity shares at any time during the financial year.
• Are a resident not ordinarily resident (RNOR) and non-resident.
• Having foreign income or assets.
• If you are assessable in respect of the income of another person in respect of which tax is deducted in the hands of the other person.

Key Differences Summarized

The primary distinction lies in the type of income. ITR-1 is designed for individuals with income from salary, pension, one house property, and other sources, while ITR-4 is geared towards small businesses and professionals opting for the presumptive taxation scheme. If you have business or professional income and are eligible for the presumptive taxation scheme, ITR-4 is the form you should use. If your income is primarily from salary and other sources, ITR-1 is likely the appropriate choice. Both forms now allow for reporting of long-term capital gains (LTCG) under Section 112A up to Rs 1.25 lakh.

Making the Right Choice

To determine the correct ITR form, start by identifying all your income sources. Assess whether you are eligible for the presumptive taxation scheme. Check if your total income exceeds ₹50 lakh, and ensure you don't fall under any of the exclusion criteria for either form, such as owning foreign assets or being a company director.

By carefully evaluating your income sources and eligibility criteria, you can confidently select the appropriate ITR form for AY 2025-26 and ensure a smooth and compliant tax filing experience.