ITR 1 vs ITR 2 Applicability: Key Differences & Filing Guide

Introduction to ITR 1 and ITR 2

Filing the correct Income Tax Return (ITR) form is essential for ensuring accuracy, compliance and timely processing of refunds. Among the various ITR forms notified by the Income Tax Department, ITR 1 (Sahaj) and ITR 2 are the most common for individual taxpayers. While both forms serve individuals with different income types, their applicability varies based on residential status, sources of income and disclosure requirements. Understanding these differences helps taxpayers avoid defective returns, penalties and delays in refund processing.

What is ITR 1?

ITR 1, also known as Sahaj, is a simplified return form for resident individuals with straightforward income sources. It is applicable if total income does not exceed ₹50 lakh and includes the following categories:

• Income from salary or pension
• Income from one house property (losses brought forward under house property or other sources are not allowed.)
• Income from other sources such as interest (excluding winnings from lottery or horse races)
• Agricultural income up to ₹5,000
• From AY 2025-26, residents with long-term capital gains up to ₹1.25 lakh under Section 112A may also use ITR 1 only if no other disqualifying conditions exist

Individuals with foreign income, multiple house properties, business income or agricultural income exceeding ₹5,000 cannot use this form.

Also Read: How to File ITR 1 Form Online (AY 2025-26)

What is ITR 2?

ITR 2 is designed for individuals and Hindu Undivided Families (HUFs) who are not eligible to file ITR 1. It caters to taxpayers with more complex income structures and higher disclosure requirements:

• Income from salary or pension where total income exceeds ₹50 lakh, or where other disqualifying conditions apply
• Income from more than one house property
• All capital gains, including long-term and short-term
• Agricultural income exceeding ₹5,000
• Income from foreign sources or ownership of foreign assets
• Income of Non-Resident Indians (NRIs)
• If total income exceeds ₹50 lakh, ITR-2 is applicable (unless business or professional income exists, in which case ITR-3 applies).
• Income from other sources including winnings from lottery or race horses

Also Read: How to File ITR 2 Form Online for AY 2025-26

Detailed Differences Between ITR 1 and ITR 2

The following table outlines the primary differences between ITR 1 and ITR 2:

This comparison shows that ITR 1 is suitable for simple income structures, while ITR 2 is necessary for taxpayers with capital gains, foreign income, or more than one house property.

How to Determine Which ITR Form to File?

To decide whether to file ITR 1 or ITR 2, taxpayers must consider the nature and level of their income. Common scenarios include:

• Salaried individuals with total income up to ₹50 lakh, income from one house property, and no foreign income, unlisted shares, or other disqualifying conditions can file ITR 1
• Taxpayers with capital gains or multiple properties must use ITR 2
• Residents with foreign income or foreign assets must file ITR 2, and NRIs generally use ITR 2 unless they have business or professional income (which requires ITR 3)
• Agricultural income above ₹5,000 requires ITR 2
• Taxpayers holding unlisted equity shares or who are directors in a company must use ITR 2 (if no business income)

For example, a salaried employee with interest income and total earnings of ₹35 lakh can file ITR 1, but if the same individual also sold shares and realised a capital gain of ₹2 lakh, ITR 2 becomes mandatory.

Common Mistakes When Filing ITR 1 vs ITR 2

Filing the wrong ITR form is one of the most common errors. Mistakes include:

• Using ITR 1 despite having capital gains
• Ignoring agricultural income above ₹5,000
• Not reporting foreign income or assets in ITR 2
• Filing as resident when non-resident
• Missing disclosure of high-value financial transactions

Such errors may result in defective returns under Section 139(9), delayed refunds, and possible penalties.

Step-by-Step Guide to Filing ITR 1 and ITR 2 Online

The filing process for both forms is similar on the Income Tax e-filing portal. Steps include:

1. Collect necessary documents such as PAN, Aadhaar, bank statements, Form 16, Form 26AS, AIS, and interest certificates
2. Log in to the income tax e-filing portal (www.incometax.gov.in)
3. Select the appropriate assessment year and filing type
4. Choose the correct ITR form based on eligibility
5. Fill in personal, income, and tax details accurately
6. Validate and preview the return before submission
7. Submit the return and complete e-verification via Aadhaar OTP, net banking, or other methods

Taxpayers must ensure accurate disclosure and timely filing to avoid defective returns.

Latest Updates for FY 2024-25/AY 2025-26 on ITR Forms

The recent updates for AY 2025-26 include an increase in the threshold for reporting long-term capital gains under Section 112A in ITR-1 to ₹1.25 lakh, provided there are no capital losses to carry forward. In addition, taxpayers must continue to make full disclosure of foreign assets and income under Schedule FA and ensure accurate reporting of capital gains. Taxpayers are advised to review the latest CBDT notifications before filing.

Final Thoughts

Selecting the correct ITR form is crucial for tax compliance, faster refunds, and avoiding scrutiny. ITR 1 is designed for individuals with simple incomes, while ITR 2 is meant for those with multiple income sources, foreign assets, or capital gains. When in doubt, taxpayers should consult a tax professional to ensure compliance.

FAQs

Q.1. Can NRIs file ITR 1 or must they use ITR 2?

A. NRIs are not eligible to file ITR 1 and must use ITR 2 or other applicable forms.

Q.2. What types of capital gains qualify for filing ITR 1?

A. From AY 2025-26, resident individuals can report long-term capital gains up to ₹1.25 lakh under Section 112A in ITR 1.

Q.3. What happens if I file the wrong ITR form by mistake?

A. Filing the wrong form can lead to the return being marked as defective under Section 139(9). This may delay refunds and attract compliance issues.

Q.4. Can an individual switch between ITR 1 and ITR 2 year to year?

A. Yes, individuals may switch forms depending on income sources in that financial year.

Q.5. Are foreign assets or income mandatory to report in ITR 2?

A. Yes, all foreign assets and income must be disclosed in ITR 2 as per Schedule FA.

Q.6. Do I need to attach documents while filing ITR 1 or ITR 2 online?

A. No documents are required to be attached with the return. However, taxpayers should retain supporting documents for verification if required by authorities.

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