Tax Relief for High Earners: Breaking Down the New ITR-2 Form

Good news for taxpayers earning between ₹50 lakh and ₹1 crore as the Income Tax Department introduces significant changes to simplify filing

In a welcome move for thousands of Indian taxpayers, particularly those in higher income brackets, the Central Board of Direct Taxes (CBDT) has notified the Income Tax Return form-2 (ITR-2) for the financial year 2024-2025. The new form, which comes into effect retrospectively from April 1, 2025, introduces several taxpayer-friendly changes that merit attention.

Major Relief for Higher Income Bracket

Perhaps the most significant change is the revision in the threshold for reporting assets and liabilities. Previously, taxpayers with income exceeding ₹50 lakh had to provide detailed information about their assets and liabilities in Schedule AL. Under the new guidelines, this requirement has been elevated to apply only to those with income exceeding ₹1 crore.

“This will give substantial relief to those having annual income between ₹50 lakh and ₹1 crore, as they will no longer have to prepare a schedule of assets and liabilities,” explains CA Ashish Niraj, Partner at ASN & Company Chartered Accountants.

Capital Gains Reporting Gets More Nuanced

The new ITR-2 form introduces important changes to capital gains reporting, recognizing the tax policy shifts that occurred midway through the financial year. Taxpayers are now required to specify whether asset transfers resulting in capital gains or losses took place before or after July 23, 2024.

This distinction is crucial because of changes in tax treatment. For properties transferred after July 23, 2024, taxpayers can now choose between two calculation methods for long-term capital gains (LTCG):

• 20% with indexation benefit, or
• 12.5% without indexation

“This change offers flexibility in determining the most beneficial tax treatment, especially for land and building transfers,” notes Sujit Sudhakar Bangar, founder of TaxBuddy.com.

Share Buyback Treatment Modified

A significant departure from previous rules is the treatment of share buybacks. Starting from October 1, 2024, proceeds from share buybacks will be treated as deemed dividends and taxed accordingly. Moreover, taxpayers can now offset capital losses on buybacks, provided they have declared the corresponding dividend income.

This represents a complete change from the previous ITR-2, where capital loss on buy-back of shares was not allowed to be adjusted.

Additional Reporting Requirements

The new form also introduces additional reporting requirements:

• Mandatory quoting of the specific section under which TDS has been deducted for transactions
• Enhanced reporting for foreign assets through Schedule FA (Foreign Assets) and FSI (Foreign Source Income)
• Transaction-wise reporting of virtual digital assets, which are taxed at 30% under Section 115BBH
• Disclosure of Legal Entity Identifier (LEI) for specific high-value transactions

Who Should Use ITR-2?

ITR-2 is primarily intended for:

• Salaried employees and pensioners who have investments in equity shares or mutual funds
• Individuals with income from more than one house property
• Those reporting capital gains or losses from property or investment sales
• Taxpayers who own assets located outside India

Common Mistakes to Avoid

Tax experts warn against several common errors when filing ITR-2:

“Taxpayers often ignore or skip disclosing income from foreign transactions or ownership of foreign assets, including foreign bank accounts,” cautions Deepak Kumar Jain, founder and CEO of TaxManager.in. Such omissions can trigger notices from the Income Tax Department.

Another frequent mistake is failing to report interest income or income earned by minors from various sources.

Essential Documents for Filing

To successfully file ITR-2, taxpayers need to keep these documents ready:

• Form 16 for salary income
• Form 16A issued by TDS deductors
• Form 26AS to verify TDS details
• Rent receipts if claiming HRA
• Statements of capital gains transactions
• Bank passbook and FD receipts for interest income calculation
• Documents supporting claims for deductions under Sections 80C, 80D, 80G, etc.

The ITR-2 modifications reflect the government’s ongoing efforts to streamline tax reporting while ensuring comprehensive disclosure from high-net-worth individuals. For most taxpayers in the ₹50 lakh to ₹1 crore bracket, these changes represent a significant simplification of the tax filing process.

As always, verification of the submitted ITR via e-verification or through ITR-V remains mandatory for completion of the filing process.