What ITR forms reveal about investing choices of Gen Z, millennials

The recent data from India's tax filings, particularly highlighted by ClearTax's 2025 report, reveals a significant and fascinating shift in the economic behavior of Gen Z and millennials. This trend signifies a move beyond the traditional salary-only income model, with younger generations increasingly embracing multiple income sources, including business and trading activities. The 45.4% jump in ITR-3 returns is a crucial indicator of this evolving economic landscape.

**Background Context:** Historically, the Indian job market, especially for white-collar professionals, has largely been structured around stable, single-employer salaries. Career progression often meant climbing the corporate ladder within one or a few organizations. However, several factors have converged to challenge this paradigm. The rapid growth of the digital economy, fueled by initiatives like 'Digital India' launched in 2015, has democratized access to information, markets, and entrepreneurial opportunities. The proliferation of affordable internet and smartphones has given rise to the gig economy, enabling individuals to offer services, create content, or engage in e-commerce with unprecedented ease. Furthermore, increased financial literacy and access to user-friendly investment platforms have lowered the barriers to entry for stock market trading, mutual fund investments, and even newer asset classes like cryptocurrencies. The COVID-19 pandemic also played a catalytic role, accelerating the adoption of remote work and prompting many to explore alternative income streams out of necessity or opportunity.

**What Happened:** The core of the article's revelation lies in the surge of ITR-3 filings. To understand its significance, one must grasp the different Income Tax Return (ITR) forms. ITR-1 (Sahaj) is for individuals with income from salary, one house property, and other sources (excluding capital gains, business/profession). ITR-2 is for individuals and HUFs not having income from business or profession but with capital gains or multiple house properties. ITR-3 is specifically for individuals and Hindu Undivided Families (HUFs) having income from profits and gains of business or profession. The substantial increase in ITR-3 filings among Gen Z and millennials indicates that a growing proportion of this demographic is actively involved in entrepreneurial ventures, freelancing, stock market trading, or other forms of business activities, rather than solely relying on a fixed salary. This suggests a proactive approach to wealth creation and financial independence.

**Key Stakeholders Involved:** Several entities are directly impacted or involved in this trend. The **Government of India**, particularly the Ministry of Finance and the Income Tax Department, is a primary stakeholder. This data provides them valuable insights into economic activity, potential tax base expansion, and areas requiring policy intervention. **Gen Z and Millennials** themselves are the driving force, demonstrating changing aspirations and financial behaviors. **Fintech companies** like ClearTax are crucial facilitators, simplifying tax compliance and providing analytical reports that bring these trends to light. **Traditional employers** might see a shift in workforce expectations, with a greater demand for flexibility and opportunities for side hustles. Finally, **financial market regulators** like SEBI and RBI are impacted by increased retail participation in investments and trading.

**Why This Matters for India:** This shift holds profound significance for India. Economically, it signals a move towards a more dynamic, entrepreneurial, and diversified economy. Increased business activity, even at a small scale, contributes to job creation (self-employment), innovation, and formalization of economic activities, potentially expanding the tax base. Socially, it reflects changing aspirations, a greater emphasis on financial independence, and potentially higher financial literacy among younger demographics. This trend can also contribute to India's demographic dividend by channelizing youthful energy into productive economic activities. Politically, it might necessitate policy adjustments, such as simplifying regulations for small businesses, improving access to credit for startups, and adapting social security schemes to accommodate the gig economy and a workforce with multiple income streams.

**Historical Context:** India's economic journey, particularly post-1991 liberalization, has gradually fostered a more market-oriented economy. The 'Startup India' initiative, launched in 2016, further solidified the government's commitment to promoting entrepreneurship. This current trend can be seen as a natural evolution of these policies, coupled with rapid technological advancements and a digitally native generation. The increasing formalization of the economy, facilitated by digital transactions and GST implementation, also makes such income diversification more visible in tax data.

**Future Implications:** Looking ahead, this trend is likely to intensify. We can anticipate continued growth of the gig economy, more individuals opting for portfolio careers, and a greater emphasis on skill development beyond traditional degrees. This could lead to a more resilient economy, as individuals are less reliant on a single employer. However, it also presents challenges: the need for robust social security for non-traditional workers, ethical considerations around gig work, and ensuring adequate financial education to manage diverse income streams and investments. The government may need to refine tax policies to encourage small-scale entrepreneurship further, potentially through simplified presumptive taxation schemes (like ITR-4 Sugam for small businesses and professionals).

**Related Constitutional Articles, Acts, or Policies:** The entire framework of taxation in India is rooted in the **Constitution of India**. **Article 265** explicitly states, "No tax shall be levied or collected except by authority of law," underscoring the legal basis required for any taxation. The power to legislate on income tax (excluding agricultural income) is vested in the Parliament under **Article 246**, read with **Entry 82 of the Union List** in the Seventh Schedule. The primary law governing this is the **Income Tax Act, 1961**, which defines various income heads, allowable deductions, and the procedures for filing returns, including the different ITR forms. Government policies like 'Startup India' and 'Digital India' indirectly support this entrepreneurial shift by creating an enabling environment for business and digital transactions. The 'Pradhan Mantri Mudra Yojana' (PMMY) also aims to provide collateral-free loans to micro-enterprises, further empowering individuals to start or expand their businesses, contributing to the ITR-3 surge.