ITR Form 3 notified for AY 2025-26: Capital gains to be taxed without indexation benefit; know other key changes

Over the past few years, the Central Board of Direct Taxes (CBDT) has taken significant proactive steps to streamline the tax-filing process by issuing Income Tax Return (ITR) forms and related utilities well in advance of the filing season. This forward-thinking approach greatly benefits both individual taxpayers and tax professionals, as it allows ample time for preparation and accurate completion of returns.

As we look at the assessment year 2025-26, the CBDT has officially released the new ITR Form 3 on April 30, 2025. "This particular form is especially crucial for those individuals who derive income from business and profession and capital gains. In the previous assessment year, 2024-25, approximately 91.1 lakh (till July 31, 2024) tax payers utilized the ITR 3 form to file their returns, demonstrating its widespread relevance among taxpayers. Similarly, in the assessment year 2023-24, around 75.40 taxpayers relied on this specific ITR 3 form for their filings," said Deepak Kumar Jain, founder and CEO, TaxManager.in.

While advancing into the new assessment cycle, the early release of these forms allows for a smoother and more efficient filing experience along with better preparedness for any tax-related obligations.

Who should file

One should file ITR-3 if he/she is an individual or Hindu Undivided Family (HUF) with any of the following income sources:

Income from business or profession: Includes income from sole proprietorship businesses or professional services.

Income as a partner in a firm: If an individual is a partner in a firm and earns a remuneration as salary or profit or interest from a partnership firm.

Jain explains 5 major changes in ITR Form 3 for AY 2025–26:

1. Expanded disclosure requirements: In previous years, taxpayers were allowed to provide basic details pertaining to business income and expenses. But this year, taxpayers are required to provide detailed disclosures in relevant income, profit & loss, and balance sheet data.

2. Choice of new tax regime (Section 115BAC): It is mandatory for taxpayer to file Form 10-IE or IEA based on the chosen regime – old or new. Details of the filed Form 10-IE or IEA, including filing date and acknowledgement number, are required while filing of ITR 3.

3. Foreign asset and residency status reporting: In case your residential status is Resident Indian and have ownership of foreign assets or income outside India, detailed information pertaining to the same needs to be disclosed in ITR 3.

4. Reporting of specified high-value transactions: Taxpayers should report if they have:

○ Cash deposits of more than Rs 1 crore in current account

○ Have spent over ₹2 lakh or more on foreign travel in a year

○ Have paid electricity bills more than ₹1 lakh in a year

○ Have paid credit bills of more than ₹10 lakh in a year

5. Capital gains taxation on indexation benefit update: Indexation benefit will not be allowed while calculating the capital gains on the properties transferred on or after July 23, 2024. According to the Finance Act 2024, for properties purchased on or after July 23, 2024, capital gains will be taxed at a flat rate of 12.5% without the benefit of indexation. Indexation benefit is allowed until this date.

These updates are designed to align the ITR-3 form with required disclosures as per Finance Act 2024, and enhance the transparency and comprehensiveness of income reporting. Therefore, taxpayers are required to choose the right income tax return form based on their income source and carefully disclose all income and tax details with accuracy.