CBDT Notifies ITR-3 and ITR-5 for AY 2025–26: Key Changes and Strategic Implications

“Taxation is the price we pay for civilization—but timely forms are the tools we need to pay it right.”

The Central Board of Direct Taxes (CBDT), in a much-awaited move, has notified Income Tax Return (ITR) Forms 3 and 5 for Assessment Year (AY) 2025–26, corresponding to income earned in Previous Year (PY) 2024–25 (April 1, 2024 to March 31, 2025). Unlike earlier years when forms were released well in advance (as early as February), the current delay of over a month has stirred legitimate concerns among taxpayers and professionals, raising expectations of an extension in due dates—especially in light of judicial precedents urging the department to ensure adequate time for compliance.

The newly notified forms incorporate critical legislative amendments introduced by the Finance (No. 2) Act, 2024, and align with significant structural and tax policy changes. This article offers a comprehensive and analytical breakdown of the key changes in ITR-3 and ITR-5 and their strategic impact on various classes of taxpayers.

1. Aadhaar Enrolment ID No Longer Permissible

Statutory Basis: Section 139AA, amended by Finance (No. 2) Act, 2024 (effective 01.10.2024)
What Changed:

• Earlier: Taxpayers without Aadhaar could provide the Aadhaar Enrolment ID while filing returns or applying for PAN.

• Now: The ITR forms mandatorily require a valid Aadhaar Number. Enrolment IDs have been removed from the forms altogether.

Impact:
Entities like partners, members, trustees, and beneficiaries must ensure Aadhaar availability. This change may delay filings for individuals who have not yet obtained an Aadhaar number but had previously relied on enrolment receipts.

2. Enhanced Disclosure under Section 115BAC: Opting Out of New Tax Regime

Statutory Basis: Section 115BAC(6), read with Rule 21AG and Form 10-IEA
What Changed:

• Prior ITRs required only a binary declaration of opting out and reference to Form 10-IEA.

• New ITRs require:

  • Confirmation of filing history under Form 10-IEA

  • Declaration of continued opting out in the current year

Professional Insight:
This change seeks to bring consistency and tracking of regime choices, especially for business/profession income taxpayers. Tax advisors must carefully validate option continuity to avoid inadvertent defaults, which can lock taxpayers into the less beneficial regime.

3. New Reporting for Presumptive Scheme under Section 44BBC (Cruise Ship Operators)

Statutory Basis: Section 44BBC, introduced by Finance (No. 2) Act, 2024
What Changed:

• Applicable to non-resident cruise operators, with presumptive income deemed at 20% of gross receipts.

• ITR-3 and ITR-5 now include:

  • A checkbox in Part A – General for Section 44BBC applicability

  • Updated Schedule BP to declare presumptive income

Strategic Implication:
This brings India in line with international cruise taxation norms and reduces compliance burden for foreign shipping entities. While Section 44AB audit exemption is not explicit, the ITR design suggests audit may not apply—similar to Section 44B.

4. Capital Gains Tax Overhaul: Consequential ITR Changes

Statutory Trigger Date: 23rd July 2024 (Finance (No. 2) Act, 2024)
What Changed:

• Returns must now distinguish between transfers before and after 23.07.2024

• Capital Gains Schedule revised to incorporate:

  • New 20% STCG rate under Section 111A (post-23 July)

  • 12.5% flat LTCG rate under Section 112, without indexation

  • 12.5% LTCG rate under Section 112A, replacing earlier 10%

  • Grandfathering benefit for real estate held pre-23 July 2024

Advisory Note:
Taxpayers must document transfer dates meticulously, especially for equity, real estate, and listed securities. Incorrect reporting could result in wrong tax rates, triggering scrutiny or demand notices.

5. New Reporting Requirements for Unlisted Bonds & Debentures under Section 50AA

Statutory Expansion: Section 50AA (w.e.f. 23rd July 2024)
What Changed:

• Gains from unlisted debentures/bonds, if transferred post-23 July, to be taxed as STCG, regardless of holding period

• ITR now requires separate tracking of:

  • Date of acquisition and transfer

  • Security type (MLDs, SMFs, unlisted debentures)

Professional Impact:
The change aims to curb deferral-based tax arbitrage in unlisted debt securities. Wealth managers must reassess asset rebalancing plans, especially for HNIs and family offices with legacy portfolios.

6. Buy-Back Proceeds as Deemed Dividend under Section 2(22)(f)

Effective Date: 01.10.2024
Policy Shift:

• Earlier: Company paid buy-back tax under Section 115QA, and shareholders enjoyed exemption under Section 10(34A)

• Now: Shareholders pay tax under the head ‘Income from Other Sources’ as deemed dividend, while capital loss arises due to nil consideration

Reporting Change:

• ITR now requires:

  • Buy-back proceeds reported in Schedule OS

  • Nil consideration in capital gains Schedule, leading to capital loss

Strategic Advisory:
This reversal requires companies to rethink shareholder distribution strategies, and investors must factor in the dual effect: taxable dividend + capital loss. Consider pre-October buy-backs for optimization.

7. Withdrawal of Section 80-IC Deduction Schedule

What Changed:

• Section 80-IC applied to manufacturing units set up until 31.03.2012.

• Deduction period of 10 years now exhausted for all eligible units.

Result:

• The 80-IC Schedule has been removed from ITR-3 and ITR-5.

Observation:
This signifies the natural expiry of a landmark deduction. Tax advisors must ensure no residual claims are mistakenly made, especially in carry-forward schedules.

8. Reporting of Disability Certificates under Sections 80DD and 80U

What Changed:

• Earlier: Only Form 10-IA acknowledgement could be reported.

• Now: Separate fields added for:

  • Other types of disability certificates (non-10-IA)

  • Certificate authority details

Compliance Note:
Ensure accurate classification of disabilities (e.g., autism, cerebral palsy vs other categories) and maintain validity and renewal status of certificates.

9. Pass-Through Income Reporting under Section 115U

(Continuation – Refer to Full Notification for Details)
Context: Applicable for investment in Venture Capital Undertakings or AIFs (Category I and II).
Change Expected:

• Enhanced tracking of pass-through income at investor level

• Revised reporting fields in Schedule PTI

Concluding Insights

The changes notified in ITR-3 and ITR-5 for AY 2025–26 reflect a comprehensive alignment with recent legislative reforms, ensuring seamless compliance with new tax regimes, targeted anti-abuse measures, and transparency.

Summary Table of Key Changes at a Glance

Sr.	Change Area	ITR Impact	Professional Recommendation
1	Aadhaar ID Usage	Aadhaar Enrolment ID removed	Ensure Aadhaar availability before filing
2	Section 115BAC Opt-Out	Historical confirmation + current year declaration	Track and maintain Form 10-IEA records
3	Section 44BBC Presumptive Scheme	New checkbox + BP Schedule revision	Applicable to non-resident cruise operators only
4	Capital Gains Post-23 July	Separate date-wise reporting	Review STCG/LTCG tax implications carefully
5	Section 50AA – Bonds & Debentures	STCG status enforced post 23 July	Reassess investment exits
6	Buy-Back as Dividend	Schedule OS updated	Explore buy-back before Oct 1 to avoid double tax burden
7	Section 80-IC	Schedule removed	No deduction claims permitted now
8	Section 80DD/80U	More certificate options	Maintain certificate compliance
9	Section 115U – Pass Through	Enhanced PTI disclosures	VCF investors to review reporting readiness

The delay in form notifications, while concerning, has been compensated by the thoughtful and forward-aligned design of the ITRs. Taxpayers and professionals must now adopt a granular, date-sensitive, and document-backed approach to income reporting. The stakes are high—not just in terms of compliance but in strategic tax planning for FY 2024–25.

Disclaimer: This article is intended for professional guidance and general awareness. For personalized advice, consult a qualified tax advisor or chartered accountant.

Trigger-Based Impact Chart: ITR-3 & ITR-5 for AY 2025–26

🔁 Trigger Point	🧾 Section / Law Involved	🛠️ Impact in ITR-3 / ITR-5
01-Oct-2024	Sec 139AA (Aadhaar)	Aadhaar Enrolment ID removed; now only full Aadhaar is accepted.
Opt-Out from New Regime	Sec 115BAC(6), Rule 21AG	Opt-out status now required year-wise with confirmation checkbox.
Presumptive Income for Cruises	Sec 44BBC (Newly Inserted)	New checkbox under BP schedule; presumptive income applied at 7.5%.
CGT Date Split (23-Jul-2024)	Capital Gains (Post Amendment)	Gains must be split as pre/post 23-Jul-2024 in CG schedules.
Transfer of Bonds (Post 23-Jul)	Sec 50AA (Traded Debentures)	Full value taxed as short-term capital gains post cut-off date.
Buy-back via Dividends	Sec 2(22)(f)	Now taxed as dividend in OS; earlier shown under CG.
Sunset of Sec 80-IC	Sec 80-IC (No longer applicable)	Schedule 80-IC removed from deductions; claim disallowed.
Disability Benefits Expanded	Sec 80DD/80U (Revised Scope)	New certificate details enabled; more fields for disability % etc.
Pass-Through Adjustments	Sec 115U (Investment Funds/Trusts)	Enhanced PTI disclosures, better traceability of income/loss.