ITR Filing for HNIs Above ₹50 Lakh — FY 2025-26 Guide

Individuals with gross total income above ₹50 lakh in FY 2025-26 must file ITR-2 (no business income) or ITR-3 (with business/F&O income) and are required to disclose assets and liabilities in Schedule AL. Surcharge applies from 10% to 37% depending on income slab. This guide covers every mandatory disclosure and the most common errors CAs make on high-income returns.

ITR-2 or ITR-3 — Getting the Form Right

For individuals with income above ₹50 lakh, the first determination is form eligibility. Filing the wrong form is a defective return under Section 139(9) and the Income Tax Department will issue a notice requiring rectification.

ITR-2 — Eligibility

ITR-2 is applicable to individuals and HUFs who have income from:

• Salary or pension
• House property (including multiple properties and brought-forward losses from house property)
• Capital gains (short-term and long-term, from any asset)
• Other sources (including dividend income, interest, foreign income)
• Foreign assets or foreign income
• Directorship in a company (holding listed or unlisted shares)

ITR-2 cannot be used if the individual has any income from business or profession — including F&O trading income, intraday equity trading income (speculative business income), freelancing income, or any other business activity.

ITR-3 — Eligibility

ITR-3 applies to individuals and HUFs who have income from a proprietary business or profession, in addition to the income categories covered by ITR-2. Common triggers for ITR-3:

• F&O trading (non-speculative business income under Section 43(5) proviso)
• Intraday equity trading (speculative business income)
• Freelancing, consulting, or any professional income
• Any other business income

A director of a company who also has F&O income must file ITR-3. A director with only salary and delivery-based equity capital gains should file ITR-2.

Surcharge Rates for AY 2026-27

Surcharge is an additional levy on the base income tax for high-income individuals. The rates for AY 2026-27 are as follows:

Surcharge is applied on the computed income tax (before cess). Health and education cess of 4% is then applied on (tax + surcharge).

Surcharge Cap on Capital Gains — Section 112A and Section 111A

An important restriction applies specifically to capital gains income. Under the Finance Act 2024 (applicable from AY 2025-26), the surcharge on tax payable on LTCG under Section 112A and STCG under Section 111A is capped at 15%, irrespective of total income. This means even if the taxpayer's total income exceeds ₹5 crore (which would attract a 25% surcharge on other income), the surcharge on the Section 111A/112A tax component remains at 15%.

This cap is significant for HNIs with large equity portfolios — it makes the effective tax rate on LTCG and STCG lower than it would otherwise be at the highest surcharge slabs.

Marginal Relief

Where the total income crosses a surcharge threshold by a small margin, marginal relief ensures the incremental tax (including surcharge) does not exceed the incremental income. The marginal relief provision ensures that the additional tax payable due to surcharge does not exceed the income that pushed the taxpayer into the higher surcharge slab. CAs must compute marginal relief at each surcharge threshold crossing (₹50L, ₹1Cr, ₹2Cr, ₹5Cr) and apply it if it results in a lower tax burden.

Schedule AL — Mandatory Assets and Liabilities Disclosure

When total income exceeds ₹50 lakh in FY 2025-26, individuals must complete Schedule AL (Assets and Liabilities) in ITR-2 or ITR-3. This is a mandatory disclosure requirement — omitting it renders the return defective.

What Must Be Disclosed in Schedule AL

Schedule AL requires disclosure of the following assets (and associated liabilities) as of 31 March 2026:

• Immovable property: Land and building — cost of acquisition must be disclosed. Address of each property.
• Movable assets:
  • Cash in hand
  • Jewellery, bullion, archaeological collections, drawings, paintings, sculptures (cost of acquisition)
  • Vehicles (including boats and aircraft) — cost of acquisition
  • Financial assets: bank deposits (balance as of 31 March 2026), shares and securities (cost of acquisition), insurance policies (sum assured), loans and advances given
• Liabilities: Loans outstanding against each asset category disclosed above

The disclosure is based on cost (not market value) for most categories. The Income Tax Department cross-references Schedule AL with wealth declarations in prior years and with information received from registration authorities, banks, and depositories. Unexplained assets or inconsistencies between Schedule AL and other information can lead to notices under Section 69 (unexplained investments).

Capital Gains Tax — Rates for FY 2025-26

The Finance Act 2024 (effective 23 July 2024) revised the capital gains tax rates that apply for the full FY 2025-26 (AY 2026-27):

The ₹1.25 lakh annual exemption under Section 112A is per taxpayer per financial year — not per broker account or per stock. It cannot be carried forward if unused.

Section 112A — Scrip-Level Reporting Requirement

For LTCG under Section 112A, the ITR requires detailed scrip-by-scrip reporting in Schedule 112A. Each row must contain:

• ISIN (International Securities Identification Number)
• Name of the share or unit
• Number of units sold
• Sale price per unit and total sale consideration
• Fair Market Value (FMV) per unit as on 31 January 2018 (for shares acquired before that date — grandfathering provision)
• Cost of acquisition
• Period of holding

This is operationally intensive for clients who have traded across multiple brokers. A consolidated, scrip-level trade log — reconciled across all broker P&L statements — is required before Schedule 112A can be filled accurately. Manual compilation from multiple broker CSVs is the primary source of errors and delays in ITR-2/ITR-3 filing for equity-active HNI clients.

Foreign Income and DTAA Basics

If the individual is a resident and ordinarily resident (ROR) in India for FY 2025-26, their global income is taxable in India. This includes:

• Salary received from a foreign employer for work done outside India
• Dividends from foreign companies
• Interest from foreign bank accounts
• Capital gains from sale of foreign assets (shares, property, etc.)

Double Taxation Avoidance Agreements (DTAAs) executed under Section 90 (bilateral agreements) or Section 90A (agreements by non-sovereign territories) provide relief — either by exempting the income in India or by allowing a credit for foreign tax paid. The relief method and eligible income categories differ by treaty. CAs must refer to the specific DTAA with the relevant country and obtain Form 67 from the client (certificate of tax paid in the foreign country) before claiming relief.

Foreign asset and foreign income disclosures are mandatory in Schedule FA and Schedule FSI of ITR-2/ITR-3. Failure to disclose attracts penalties under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

Directorship Disclosure Requirements