CBDT has implemented significant changes to the ITR-5 form for the assessment year 2025-26. New rules regarding TDS, share buyback losses, capital gains, and digital filing have been announced.
Explained: The Central Board of Direct Taxes (CBDT) released an updated ITR-5 form on May 1, 2025, for the assessment year 2025-26, incorporating several key changes. This form is specifically for firms, Limited Liability Partnerships (LLPs), and certain other entities. These changes aim to simplify, enhance transparency, and improve the accuracy of tax reporting. Let's examine the five major updates to the ITR-5 form:
1. Changes in Capital Gains Reporting
The new ITR-5 form features a significant alteration in capital gains reporting. Taxpayers must now report their earnings under two distinct timelines:
Before July 23, 2024: Capital gains from transactions before this date must be recorded separately.
After July 23, 2024: Transactions after this date should be categorized under a separate heading.
This change implements tax regulations introduced under the Finance Act 2024. Its primary purpose is to facilitate tax calculation and auditing for tax authorities, providing taxpayers with clarity on the applicable regulations for their gains.
2. New Rule for Share Buyback Losses
The method for claiming losses incurred in company share buybacks has changed. This rule, effective October 1, 2024, states:
- The amount received from the buyback must be reported as "Income from Other Sources."
- This amount will be treated as dividend and taxed accordingly.
- The cost of acquisition of the shares in the buyback will be considered a capital loss. This loss can be set off against other capital gains in the current year.
- If the entire amount cannot be set off, it can be carried forward for the next 8 years.
This rule aims to prevent tax evasion and ensure only genuine losses are claimed.
3. Mandatory TDS Section Codes
The new ITR-5 form now requires taxpayers to specify the section under which TDS was deducted. For example:
- Section 194A for TDS on interest income
- Section 194C for TDS on contract income
This information helps the Income Tax Department verify TDS claims accurately, reducing the likelihood of delays or errors in refunds. This step enhances the accuracy and transparency of the tax process.
4. Digital Filing and AI Utilization
The ITR-5 form is now designed for entirely online filing and integrated with the Income Tax Department's AI-assisted scrutiny system. This means:
- The probability of errors in the form is reduced.
- Tax authorities will have quicker access to your return, accelerating the filing process.
This digital system simplifies the process for taxpayers, but providing accurate and complete information is now more crucial than ever.
5. Other Minor Changes
Several other minor changes have been made to the ITR-5 form, further enhancing transparency and accuracy in tax reporting:
- A new section, 44BBC, has been added for income from the cruise business.
- The asset and liability limit has been increased to ₹1 crore, from ₹50 lakhs previously.
Deduction reporting has been expanded, requiring more detailed information for deductions under sections 80C, 10(13A), etc.
The aim of these changes is to increase transparency within the tax system, ensuring taxpayers provide accurate information about their income and expenses, and assisting the Income Tax Department in conducting accurate audits.
