Major Changes in ITR-1, ITR-2, and ITR-4 for AY 2026-27: What Every Assessee Must Know
The Income Tax Department has rolled out a comprehensive set of revisions to ITR-1 (Sahaj), ITR-2, and ITR-4 (Sugam) for Assessment Year (AY) 2026-27, covering Financial Year (FY) 2025-26. These modifications stem primarily from the amendments tabled in Union Budget 2025 and collectively aim to streamline the return filing process, bolster data transparency, tighten compliance oversight, and accelerate adoption of the New Tax Regime. Both assessees and their tax advisors must develop a thorough working knowledge of these changes before commencing return preparation to avoid processing delays, mismatches, or departmental notices.
1. Restructured Income Tax Slabs Under the New Tax Regime
One of the headline reforms introduced via Budget 2025 is the overhauled income tax slab structure under the New Tax Regime, effective from AY 2026-27.
Key Features of the Revised Slab Structure
- Income up to Rs. 4 lakh is fully exempt from income tax
- Progressive slab rates ranging from 5% to 30% apply on income above this threshold
- The restructured slabs are designed to significantly reduce the tax outgo for middle-income assessees
- The revision is expected to make the New Tax Regime considerably more attractive compared to the Old Tax Regime
Note: These revised slabs apply exclusively to assessees who opt for the New Tax Regime. Those continuing under the Old Tax Regime remain governed by the existing slab structure.
This restructuring is aligned with the government's broader objective of simplifying direct taxation and nudging assessees toward the default New Tax Regime.
2. Enhanced Rebate Under Section 87A
Complementing the slab restructuring, the government has also made a substantial upward revision to the rebate available under Section 87A of the Income-tax Act, 1961.
What Has Changed
| Parameter | Earlier Limit | Revised Limit |
|---|---|---|
| Maximum Rebate (New Tax Regime) | Rs. 25,000 | Rs. 60,000 |
This enhancement means that eligible assessees whose total income falls within the prescribed threshold may face nil tax liability after applying the rebate. The change serves a dual purpose — it provides meaningful financial relief and simultaneously incentivizes voluntary adoption of the New Tax Regime among a broader section of the assessee population.
3. Expanded Eligibility Criteria for ITR-1 and ITR-4
A significant relaxation has been introduced in the eligibility framework governing who may file ITR-1 and ITR-4 — the two simplified return forms designed for salaried assessees and those under presumptive taxation schemes.
What Has Changed
Earlier Position: ITR-1 and ITR-4 were accessible only to assessees deriving income from one house property.
Revised Position from AY 2026-27: Assessees earning income from up to two house properties are now eligible to file ITR-1 and ITR-4, provided all other prescribed conditions are met.
This liberalization considerably widens the pool of assessees who can benefit from simplified filing procedures, particularly salaried individuals and small business owners who own more than one residential property.
4. Dedicated Field for Reporting Unrealised Rent in ITR-1, ITR-2 and ITR-4
The revised return forms have addressed a long-standing reporting gap by introducing a dedicated disclosure field for unrealised rent.
Background and Significance
Previously, there was no separate mechanism within the ITR forms to distinctly disclose rent that an assessee was unable to recover from tenants. This often led to ambiguity in the computation of annual value under the head "Income from House Property."
The newly inserted field, captioned "The amount of rent which cannot be realized," enables assessees to:
- Report irrecoverable rent amounts explicitly and separately
- Ensure accurate computation of taxable house property income
- Reduce the likelihood of discrepancies during automated return processing
This addition enhances the precision of income reporting and brings greater clarity to the treatment of unrealised rent in the hands of the assessee.
5. Mandatory Disclosure of Tenant Information in ITR-1, ITR-2 and ITR-4
To facilitate robust data matching and cross-verification of rental transactions, the Income Tax Department has made tenant-related particulars compulsorily reportable in specified situations.