What are key differences between ITR-1 vs ITR-2?

Key differences between ITR-1 vs ITR-2

What is ITR-1 (Sahaj) and who can file it?

ITR-1 (Sahaj) Applicable If:

• Individual is a Resident and Ordinarily Resident (ROR).
• Total income is ≤ INR 50 lakh.
• Income sources are limited to:
  • Salary or pension.
  • One house property.
  • Other sources (excluding horse racing, gambling, lottery, etc.).
  • Family pension.
  • Interest income (SB account, FD, RD, etc.).
• in summary Income tac Return form ITR 1 is applicable if taxpayer have family pension income,  Income is from salary, one house property, agricultural income (up to INR 5000), and other sources, which include: Interest from Deposits (Bank / Post Office/Cooperative Society), Interest from Savings Accounts.

Who is not eligible to file ITR-1 (SAHAJ)?

A taxpayer cannot file Income tac Return form ITR-1 if any of the following conditions apply:

1. Residential Status:
   • Non-Resident (NRI)
   • Resident but Not Ordinarily Resident (RNOR)
2. Income-Related Restrictions:
   • Total income exceeds ₹50 lakhs
   • Income from more than one house property
   • The Income from business or profession
   • Capital Gains (short-term or long-term)
   • Agricultural income > INR 5,000
   • Income from lottery, horse racing, gambling, etc.
   • Loss under “Income from Other Sources”
3. Asset/Investment-Related:
   • Owns unlisted equity shares
   • Has foreign assets/income
   • Is a director in a company
   • Has deferred tax on ESOPs from an eligible startup

In summary, Income tax Return form ITR-1 (Sahaj) is not applicable if residential status is non-resident or resident but not ordinarily resident. Income > INR 50 lakh. If the taxpayer is a director in a company. and have invested in unlisted equity shares, along with having deferred ESOP tax from an eligible start-up. Income includes:

• • More than one house property.
  • Capital gains (short-term or long-term).
  • Income from business or profession.
  • Agricultural income > INR 5,000.
  • Foreign income or assets abroad.
  • Lottery, horse racing, gambling, or similar income.

What is ITR-2, and who should file it?

Income tax return form ITR-2: Used by individuals and Hindu Undivided Families (HUFs) not having income from business or profession. It means to say that those receiving income from sources like salary, pension, capital gains, and other sources.

Who Can File ITR-2? ITR-2 Is Applicable If:

• In case the taxpayer is an individual (resident or non-resident) or an HUF.
• Not eligible to file ITR-1.
• Individuals or HUFs having:
• Income sources include

• • Salary/pension. Means Income from Salary/Pension

• • More than one house property, i.e., income from House Property (including more than one house)
  • Capital gains. i.e Capital Gains/Losses on sale of property/investments (both STCG and LTCG)
  • Income from other sources (including lottery, horse racing, gambling, etc.).
  • Agricultural income > INR 5,000.
  • Foreign assets or income.
  • Dividend income exceeding INR 5,000 (TDS applicable).
  • Brought forward losses.
  • Deferred ESOP tax from start-ups.
  • DTAA relief claims u/s 90/91.
  • RNOR (Resident but Not Ordinarily Resident) or Non-Resident Individuals
  • Directors in companies and You’re a director or hold unlisted equity shares.
  • Individuals holding unlisted equity shares
  • There is no upper limit on total income (unlike ITR-1).

Who Cannot File ITR-2?

Income tax return form ITR-2 is not applicable if individuals or HUFs have income from business or profession.  Those eligible for ITR-1 can still file ITR-2, but ITR-1 is simpler and preferred if eligibility is met. In summary ITR-2 Not Applicable if

• The taxpayers have income from business or profession (→ File ITR-3 instead).
• Taxpayer have a firm, LLP, company, or trust (→ File ITR-5, ITR-6, etc.)

Structure of ITR-2

Part A : General information and Schedules are mention here under

• Schedule S – Income from salary
• Schedule-HP – Income from house property
• Schedule CG – Capital gains
• Schedule-112A – Capital gains (STT paid)
• Schedule 115AD – For NRIs: equity shares/funds with STT
• Schedule-VDA – Income from Virtual Digital Assets (crypto, NFTs)
• Schedule OS – Other sources
• Schedule-CYLA/BFLA/CFL – Loss set-off and carry forward
• Schedule VIA – Chapter VIA deductions
• Schedule-80G / 80GGA / 80GGC / 80DD – Donations and disability deduction
• Schedule AMT/AMTC – Alternate Minimum Tax & Credit
• Schedule-SPI – Clubbed income (minor, spouse, etc.)
• Schedule SI – Income taxed at special rates
• Schedule-EI – Exempt income
• Schedule PTI – Pass-through income
• Schedule-FSI / TR / FA – Foreign income, taxes, and assets
• Schedule 5A – Portuguese Civil Code income apportionment
• Schedule-AL – Assets and liabilities (if income > ₹50 lakh)
• Schedule  ESOP – Tax-deferred on ESOPs from start-ups under Sec. 80-IAC

Part B-TI : Total income computation

Part-B-TTI : Tax liability on total income

Checklist of documents required to file ITR-2 for AY 2025–2026:

1. For Salary Income

• Form 16—Issued by employer (mandatory)
• Rent Receipts—If claiming HRA and not submitted to employer
• Salary slips—useful for cross-verification

2. For Interest Income

• Form 16A—TDS certificate for interest income (e.g., from FDs, savings)
• Bank Passbook/FD Receipts—To compute total interest income
• Form 26AS—Consolidated annual tax statement (available on e-filing portal)

3. For Capital Gains

• Capital Gains Statement—From brokers or mutual fund houses
• Contract notes/trading account statements—for detailed stock trades
• Purchase & Sale Deeds—In case of property transactions
• Indexed Cost Documents—For computing long-term capital gains

4. For Income from House Property

• Rent Agreements & Rent Receipts—For rental income
• Municipal Tax Paid Receipts—Can be claimed as deduction
• Interest Certificate on Home Loan—For claiming interest deduction
• Ownership Documents—For property proof

5. For Other Sources of Income

• Details of Winnings—From lottery, horse races, etc.
• Gift Deed/Inheritance Proof—if applicable
• Any income not covered above

6. For Foreign Assets/Income: (If applicable under Schedule FA, TR, or FSI)

• Bank account statements—of overseas accounts
• Property ownership proof abroad
• Foreign tax paid certificates
• Income received abroad

7. For Losses to be Carried Forward or Set Off

• Proof of Loss—e.g., trading losses, house property losses
• Copy of previous year’s ITR-V – If claiming carried forward losses

8. For Deductions under Chapter VI-A (like 80C, 80D, 80G, etc.)

• • Life insurance premium receipts
  • PPF/ELSS/NSC investment proof
  • Tuition fee receipts
  • Mediclaim (Health insurance) receipts—Section 80D
  • Donation Receipts—Section 80G
  • Rent Receipts—Section 80GG (if not getting HRA)
  • Home loan principal repayment statement—Section 80C

What are the key differences between ITR-1 vs ITR-2?

Criteria	ITR-1 (Sahaj)	ITR-2
Eligible Persons	Resident Individuals only	Individuals (including NR) and HUFs
Income Limit	Up to INR 50 lakh	No limit
Capital Gains	Not allowed	Allowed
House Property	Only 1 house	More than one house allowed
Other Sources	Excludes gambling, lottery, etc.	Includes lottery, gambling, horse racing
Agricultural Income	Up to INR 5,000	More than INR 5,000 allowed
Foreign Assets/Income	Not allowed	Mandatory to disclose
Director/Unlisted Shares	ITR-1  is not allowed	ITR-2  is mandatory

Dividend Income Clarification: If the taxpayer has dividend income:

• Is less than INR 5,000, and you meet all ITR-1 conditions → ITR-1.
• Exceeds INR 5,000, or the taxpayer has received TDS certificate under Section 194 → ITR-2.
• Is from shares held as business assets → this becomes business income, and Taxpayer must file ITR-3

Choosing Between ITR-1 and ITR-2 :

When preparing to file a Taxpayer Income Tax Return, it’s critical to choose the correct form based on taxpayer income sources, residential status, and financial transactions during the year. Below is the checklist before choosing between Income Tax Return form ITR-1 and ITR-2 filing:

• Know your residential status (resident, RNOR, or NRI).
• Calculate your total income (salary, house property, capital gains, interest, other sources, etc.).
• Gather all income documents—Form 16, interest certificates, AIS/TIS, capital gains statements, etc.
• Check for disqualifying conditions if you’re considering ITR-1.

Normal Common FAQs related to Income Tax Return form  ITR-1 and ITR-2

Question	Answer
I am salaried and a director in an inactive company.	File ITR-2 (director disqualifies ITR-1).
My salary + interest income > INR 50 lakh.	Taxpayer can file ITR-2 (income exceeds ITR-1 limit).
I am a Non-Resident with only Indian bank interest.	File ITR-2 (NRI cannot file ITR-1).
Taxpayers have salary income + business income.	Taxpayers can file ITR-3 (business income disqualifies ITR-1/2).
I am eligible for ITR-1, but can I file ITR-2?	Yes, but ITR-1 is easier and preferred.
What if I file ITR-2 instead of ITR-1?	Acceptable, but ITR-2 is more detailed and takes longer.
Can I switch from ITR-2 to ITR-1 later?	Yes, if the taxpayer meets all ITR-1 eligibility conditions.
Penalty for late ITR filing (after July 31, 2024)?	INR 1,000 if income ≤ INR 5 lakh; INR 5,000 if > INR 5 lakh.
Can I file ITR-2 if I have capital gains?	Yes, the taxpayer must file ITR-2 (ITR-1 does not permit this).

In summary, we can say that if the taxpayer’s situation is straightforward (salary + one house + bank interest + income < INR 50 lakh), go with ITR-1 for a simpler process. If the taxpayer has multiple properties, higher income, foreign assets/income, capital gains, or holds a directorship, go for ITR-2.