ITR-1, ITR-2 & ITR-4 Changes AY 2026-27: File by July 31, 2026

Filing season for AY 2026-27 is well underway, but millions of taxpayers across India are still waiting — and a significant number of them may be about to file the wrong ITR form. The Central Board of Direct Taxes revised the ITR forms for Assessment Year 2026-27 (Financial Year 2025-26) with a landmark change: ITR-1 (Sahaj) and ITR-4 (Sugam) now cover income from up to two house properties. That single change reshapes the filing path for lakhs of salaried individuals and small business owners across the country. The July 31, 2026 deadline for ITR-1, ITR-2 and ITR-4 is exactly 20 days away — read this before your clients file the wrong form or miss the date.

The revised forms also introduce a mandatory disclosure of Form 10-IEA tax regime history, add a dedicated field for unrealised rent, and bring Section 112A long-term capital gains into ITR-1 for the first time. Each of these changes has a direct impact on how your firm handles return preparation over the next three weeks.

What Changed: Two House Properties Now Included in ITR-1 and ITR-4

Until AY 2025-26, the rule was unambiguous: if you earned income from more than one house property, you could not file ITR-1 or ITR-4. You were pushed to ITR-2 regardless of how simple everything else was. A salaried employee earning ₹20 lakh with one self-occupied flat and one rented-out property had to work through the considerably longer ITR-2 form.

From AY 2026-27, that restriction is lifted.

New ITR-1 (Sahaj) Eligibility

ITR-1 is now available to a resident individual whose total income does not exceed ₹50 lakh from all of the following sources:

• Salary or pension income
• Income from up to two house properties (up from one — the most significant change in the form in years)
• Other sources — interest, dividends, family pension
• Long-term capital gains under Section 112A up to ₹1.25 lakh — a brand-new addition; earlier, any Section 112A gains required ITR-2
• Agricultural income up to ₹5,000

Who still cannot use ITR-1: Taxpayers with business or professional income, more than two house properties, foreign assets, brought-forward losses, a directorship in any company, investment in unlisted equity shares, or Section 112A LTCG exceeding ₹1.25 lakh.

Practical example: Ramesh is a salaried manager at a Pune manufacturing firm earning ₹24 lakh annually. He owns a self-occupied flat in Pune and a rented flat in Nashik that earns ₹18,000 per month (₹2.16 lakh annually). In AY 2025-26, Ramesh had to file ITR-2. From AY 2026-27, he files ITR-1 instead — the same simple Sahaj form used by most salaried employees, with far less data entry and a faster processing time.

New ITR-4 (Sugam) Eligibility

ITR-4 — the simplified form for taxpayers declaring income under the presumptive schemes of Sections 44AD, 44ADA or 44AE — similarly now accepts income from up to two house properties.

Practical example: Preethi is a freelance architect in Chennai with gross professional receipts of ₹42 lakh declared under Section 44ADA. She owns a flat in Chennai (self-occupied) and a flat in Coimbatore inherited from her parents that earns ₹96,000 annually on rent. Until AY 2025-26, the second property forced her into ITR-3, requiring a full balance sheet and profit and loss account. From AY 2026-27, she can stay in the simpler ITR-4.

Other Important Changes in ITR Forms for AY 2026-27

New Field for Unrealised Rent

All revised ITR forms now include a dedicated schedule field titled "Amount of rent which cannot be realised." Previously, taxpayers backing out unrealised rent had to adjust within the gross rent computation informally. The new field formalises Rule 4 of the Income Tax Rules, 1962, which permits deduction of rent a landlord genuinely could not collect from the tenant.

What to do: For each let-out property where your client failed to collect rent during FY 2025-26 — a tenant in arrears, an eviction in progress, or a property dispute — document the outstanding amount, preserve demand notices sent to the tenant, and enter the figure explicitly in the new field. Show gross rent receivable first, then deduct the unrealised portion to compute the annual value.

For example, if your client had a monthly rent of ₹25,000 agreed but the tenant defaulted for the last four months of FY 2025-26 (December 2025 to March 2026), the unrealised rent is ₹1,00,000. Enter that in the dedicated field. Without this field populated, the annual value is inflated and tax is overpaid.

Mandatory Form 10-IEA Disclosure

This is the change most likely to catch professional clients off guard. ITR-2, ITR-3 and ITR-4 for AY 2026-27 now require a mandatory declaration of any Form 10-IEA ever filed in a prior assessment year.

Form 10-IEA is the declaration a taxpayer with business or professional income must file to opt out of the New Tax Regime under Section 115BAC. If your client filed Form 10-IEA in AY 2024-25 or AY 2025-26 to choose the old regime, that history must now be reported including:

• The assessment year in which Form 10-IEA was originally filed
• The acknowledgement number of that Form 10-IEA
• Whether the taxpayer has since switched back to the new regime (and the acknowledgement number of the second Form 10-IEA, if applicable)

Example: Dr Arjun Nair, a specialist physician in Mumbai earning ₹85 lakh under Section 44ADA, filed Form 10-IEA in AY 2024-25 to opt out of the new regime and avail deductions under Sections 80C and 80D. When filing ITR-4 for AY 2026-27, his CA must now disclose this Form 10-IEA history. Omitting it will trigger a defective return notice under Section 139(9).

The income tax department typically gives 15 days to cure a defective return. If the defect is not cured in time, the return is treated as never filed — exposing the taxpayer to interest under Section 234A and potential penalty under Section 271F.

Action item for CA firms: Pull Form 10-IEA acknowledgements from TRACES or your office records for every business and professional client before filing this season. Do not rely on clients to remember — many will not.

Foreign Retirement Accounts: Reduced Compliance Burden

In a welcome simplification, CBDT removed the requirement to report foreign retirement benefit accounts maintained in non-notified countries in ITR-1 and ITR-4. This primarily benefits Non-Resident Indians who have retirement savings in countries not specifically notified under Section 10(12A). Accounts in notified countries such as the US (401k, IRA) remain reportable in the Foreign Assets schedule of ITR-2 and ITR-3 as before.

ITR Deadline Calendar for AY 2026-27

Step-by-Step Checklist: Picking the Right Form

Step 1 — Total income test: Total income above ₹50 lakh? ITR-1 and ITR-4 are ruled out. Move to ITR-2 or ITR-3 depending on the nature of income.

Step 2 — Property count: Three or more house properties? ITR-2 is the minimum; ITR-1 and ITR-4 are unavailable regardless of total income.

Step 3 — Capital gains check: LTCG from listed equity shares or equity mutual funds (Section 112A) above ₹1.25 lakh? Or any STCG under Section 111A? ITR-2 is required. Pull the AIS capital gains schedule and verify the exact figure.

Step 4 — Business income check: Any income chargeable as business or professional profit — other than under Sections 44AD, 44ADA or 44AE — requires ITR-3.

Step 5 — Form 10-IEA history: For every ITR-3 and ITR-4 filer who previously opted out of the new regime, pull the Form 10-IEA acknowledgement number from TRACES now.

Step 6 — Unrealised rent data: Call or message clients with let-out properties and confirm the total rent outstanding as of 31 March 2026. Get the figure in writing.

Step 7 — AIS and Form 26AS reconciliation: Verify TDS credits, interest, dividend and capital gains data against the AIS before filing. Any mismatch between your return figures and AIS data flags the return for scrutiny.

Common Mistakes to Avoid This Season

Still filing ITR-2 for a two-property salaried taxpayer. Many CA firms will default to last year's form choice without re-evaluating. The two-house-property expansion in ITR-1 means a client who filed ITR-2 last year may no longer need to. Review your entire salaried client list.

Crossing the ₹1.25 lakh Section 112A limit. Long-term capital gains from equity mutual funds that are marginally over ₹1.25 lakh — say ₹1.30 lakh — invalidate ITR-1 eligibility. One redemption in an equity fund during FY 2025-26 can push a client over. Pull the AIS capital gains schedule for each client before confirming the form.

Skipping Form 10-IEA disclosure. This is a new mandatory field for AY 2026-27 in ITR-3 and ITR-4. Leaving it blank triggers a defective return notice under Section 139(9). The department gives 15 days to rectify — and if not rectified, the return is treated as never filed, exposing the taxpayer to penalties and interest.

Not using the unrealised rent field. Landlords who could not collect rent during FY 2025-26 are entitled to reduce their annual value by the outstanding amount. Not filling in the new field means overpaying tax — a direct, avoidable financial loss to your client.

Missing the July 31 deadline. A belated return under Section 139(4) carries a mandatory late fee of ₹5,000 under Section 234F (₹1,000 if total income is below ₹5 lakh). More critically, losses from capital gains and house property income cannot be carried forward if the original return is filed after the due date. Clients who booked capital losses in FY 2025-26 and miss July 31 lose the ability to offset those losses against future gains.

ITR-4 filed beyond Section 44ADA turnover limits. Section 44ADA applies only if gross professional receipts do not exceed ₹75 lakh. Between ₹75 lakh and ₹3 crore, professionals must maintain full books of accounts and file ITR-3. Filing ITR-4 above the limit — even unintentionally — is a material error that attracts scrutiny.

Key Takeaways

• ITR-1 and ITR-4 now cover up to two house properties — the biggest eligibility expansion in these simplified forms in years. Review every client who was pushed to ITR-2 or ITR-3 solely because of a second property.
• Section 112A LTCG up to ₹1.25 lakh is now reportable in ITR-1 — equity mutual fund investors with modest gains can use the simpler form for the first time.
• Form 10-IEA disclosure is mandatory in ITR-3 and ITR-4 — any taxpayer who ever opted out of the new tax regime must now report that history. Pull acknowledgements from TRACES before filing.
• A dedicated unrealised rent field exists in every revised ITR form — ensure clients with rent arrears use it to correctly reduce taxable annual value.
• July 31, 2026 is 20 days away — ITR-1, ITR-2 and ITR-4 filers must act immediately. Late filing means ₹5,000 in fees and permanent loss of loss carry-forward rights for FY 2025-26.

How corpus Helps

corpus integrates with the AIS and Form 26AS data feeds to auto-populate salary TDS, interest income, dividend income and capital gains data for each client profile. The platform tracks form eligibility in real time — if a client's Section 112A LTCG edges above ₹1.25 lakh or their house property count exceeds two, corpus alerts your team to verify the form selection before submission, preventing last-minute form switches.

For CA firms managing 50 or more ITR filings, corpus provides an AY 2026-27 compliance dashboard showing the filing status of every client in one view: who has pre-populated data ready, who is pending AIS review, and who is at risk of missing July 31. Log in to corpus today, pull up the compliance calendar, and make sure every eligible client files the correct form well before the deadline.