India’s new ITR rules: What taxpayers need to know about higher penalties, new forms, and extended deadlines

India is overhauling its income tax return (ITR) rules for Assessment Year 2025–26, signalling its most serious effort in years to crack down on tax evasion while promising simpler compliance for honest taxpayers. The new framework combines a mix of relief measures such as extended deadlines and simpler forms for small investors, with stricter disclosure requirements and severe penalties for those attempting to game the system.

What are the changes?

One of the most prominent changes is the extension of the filing deadline for non-auditable taxpayers, which includes most salaried employees and pensioners. The new due date is 15 September 2025, replacing the usual 31 July deadline. However, this extended window comes with an important condition: taxpayers must pay their entire tax liability, including self-assessment tax, by 31 July to avoid penal interest. As per The Economic Times, the government designed this dual timeline to offer extra time for filing without sacrificing timely revenue collection. India’s tax authorities are also stepping up enforcement. Taxpayers who underreport or misreport their income can now face penalties of up to 200 per cent of the evaded tax, along with interest charges. According to The Economic Times, the tax department plans to enforce these penalties more rigorously this year, aided by better data validation and cross-verification tools.

Looking ahead, the government is preparing an even more ambitious overhaul of the entire tax system. As per Reuters, the proposed Income-Tax Bill, 2025, will replace the Income Tax Act of 1961 from 1 April 2026. The new law is intended to simplify legal language, reduce litigation and even decriminalise certain offences such as non-filing of returns, making them non-cognisable.

New tax regime

The government is also doubling down on its push for the “new tax regime” by making it the default option for most taxpayers. Under this regime, the basic tax-free income threshold rises to ₹12 lakh, with an additional standard deduction of ₹75,000 for salaried employees, effectively exempting income up to ₹12.75 lakh from tax. This move reportedly aims to simplify the tax structure, offering lower rates in exchange for forgoing most traditional exemptions and deductions.

However, taxpayers who prefer the old, deduction-heavy system are still allowed to opt out of the new regime by submitting Form 10-IEA. The government hopes that by making the simpler system the default, more people will switch to it, reducing complexity and compliance errors over time.

Types of ITR forms and criteria

The forms themselves have also been redesigned for this year. The ITR-1 (Sahaj) and ITR-4 (Sugam) forms now make filing easier for small taxpayers, particularly those with Long Term Capital Gains (LTCG) of up to ₹1.25 lakh. These investors can now report such gains directly in ITR-1, sparing them from having to use more complex forms.

Please find below the detailed breakdown of the ITR forms and their key features.

At the same time, the government has introduced tighter disclosure requirements for those claiming deductions under the old regime. According to the Times of India, taxpayers must now provide details such as insurer names and policy numbers for Section 80C deductions, account or loan numbers for housing loan interest, landlord details for HRA exemptions, and registration details for political donations. This granular approach is intended to curb fake or inflated claims and ensure faster, more accurate refunds. For those with complex incomes, such as property sales or large equity transactions, the ITR-2 and ITR-3 forms require even more detailed reporting. Taxpayers must split LTCG earned before and after 23 July 2024, and buyback proceeds must be disclosed both as “nil consideration” in the capital gains schedule and under “Income from Other Sources.” The government has also raised the threshold for mandatory reporting of assets and liabilities from ₹50 lakh to ₹1 crore, further tightening scrutiny on high-net-worth individuals, as detailed by India Briefing.

India’s new ITR rules send a clear signal: while compliance is being made easier for honest taxpayers, evasion will become riskier and far more expensive. For millions of taxpayers, the message is simple, pay on time, choose your regime carefully, keep records ready, and disclose fully to avoid the cost of non-compliance.

(With inputs from the agencies)