The Income Tax Department has updated the Income Tax Return (ITR) forms for the Financial Year 2025-26, effective from April 1, 2026. The revised ITR Form 1 introduces significant changes aimed at simplifying the filing process and enhancing transparency. Notably, taxpayers can now report long-term capital gains (LTCG) from listed equity and mutual funds up to ₹1.25 lakh without needing to switch to ITR-2. This change is particularly beneficial for salaried individuals and small investors. Additionally, the new capital gains tax rates have been standardized at 12.5% without indexation and 20% with indexation, following the Budget 2024-25 announcements. Furthermore, the eligibility criteria for using ITR-1 have been expanded to include those with income from two house properties. However, the updated Income Tax Act requires more detailed reporting, especially concerning capital gains, to avoid scrutiny from the Income Tax Department. Taxpayers must ensure accurate reporting and alignment with the Annual Information Statement (AIS) to prevent their returns from being flagged as defective. Experts recommend that individuals with income exceeding ₹50 lakh, capital gains, or specific financial situations upgrade to ITR-2 for compliance.