Every year, while filing income tax returns, crores of Indians face a common question, Which ITR form do I use? In case you fill an incorrect form, you get a notice from the Income Tax department. Then you need to file returns again, leading to delays and unnecessary stress.
Before we go into the details,
Use ITR 1 (Sahaj) if your total income is up to ₹50 lakh from salary, pension and interest income, you own up to two house properties, and have incurred capital gains up to ₹1.25 lakh.
Use ITR 2 if your income is from multiple streams.This includes capital gains over and above the basic threshold, you own more than two house properties, or hold foreign assets. If you are an NRI or a company director, then ITR 2 can be your form.
| Income Earned In | Law Applicable | Return Filing Period |
|---|---|---|
| FY 2025–26 | Old Income-tax Act, 1961 | AY 2026–27 |
| FY 2026–27 | New Income Tax Act, 2025 | Tax Year 2026–27 / filing in 2027 |
Before you start filing, check your Form 26AS and Annual Information Statement (AIS) on the Income Tax portal. These will show all income and TDS already recorded against your PAN.
What Is ITR 1 (Sahaj)?
ITR 1, also called Sahaj, is for resident individuals who are salaried or pensioners with simple income streams. For AY 2026-27, ITR 1 underwent two important changes, due to which more individuals can file their returns through this.
Change 1) Two house properties are now allowed.
Until last year, ITR 1 could only be used by taxpayers with income from one house property. From AY 2026-27, taxpayers can report income or loss from up to two house properties directly in ITR 1 itself.
This can benefit many salaried individuals who own two residential properties. For example, someone with one self-occupied house and one rented property may now use the simpler ITR-1 form instead of shifting to ITR 2, provided all other ITR 1 eligibility conditions are met.
Change 2) Limited capital gains now allowed
Taxpayers can now report Long-Term Capital Gains (LTCG) from listed shares and equity mutual funds in ITR 1 itself. This is allowed if the gains under Section 112A do not exceed ₹1.25 lakh during the year and there are no carried forward capital losses.
Who Can File ITR 1?
You can file ITR 1 if you are a resident individual (not NRI or RNOR) and all of the following conditions are met,
- Total income is up to ₹ 50 lakh
- Income is from salary or pension
- Income from up to two house properties
- Interest income from savings accounts, FDs, or other sources
- Agricultural income up to ₹5,000
- LTCG under Section 112A up to ₹1.25 lakh with no carry-forward losses
Who Cannot File ITR 1?
You cannot use ITR 1 if any of the following apply to you:
- Total income exceeds ₹50 lakh
- You have capital gains beyond the ₹1.25 lakh LTCG limit, or any short-term capital gains (STCG) at all
- You own more than two house properties
- You have foreign assets, foreign income, or you are a signing authority in a foreign account
- You are a Director in any company
- You hold unlisted equity shares
- You are an NRI or Resident Not Ordinarily Resident (RNOR)
- You have business or professional income
- Agricultural income exceeds ₹5,000
What Is ITR 2?
ITR 2 is for individuals and HUFs who have more complex income but do not have income from business or profession. Think of it as the next step up from ITR 1. It covers everything ITR 1 covers, plus capital gains, foreign assets, multiple properties, and more.
Simply put, if you are not eligible for ITR 1 and you do not run a business, there is a high chance that ITR 2 is your form.
Who Should File ITR 2?
You must use ITR 2 if any of the following apply,
- Total income exceeds ₹50 lakh
- You have capital gains from the sale of shares, mutual funds, property or any other asset. This includes any STCG, or LTCG above ₹1.25 lakh
- You own more than two house properties
- You have foreign income or hold foreign assets such as bank accounts, property, or investments outside India
- You are an NRI or RNOR
- You are a Director in any company (this is mandatory even if you have no capital gains at all)
- You hold unlisted equity shares
- You have agricultural income above ₹5,000
- You have income from lottery or other speculative sources
- You have carry-forward or brought-forward losses under any head of income
One thing worth knowing, if you are eligible for ITR 1, you can still choose to file ITR 2 if you prefer.
What ITR 2 Does NOT Cover
ITR 2 does not apply if you have income from a business or profession. For business or professional income, you need ITR 3 for actual business income, or ITR 4 if you are opting for presumptive taxation under Section 44AD or 44ADA.
Which Form to Use
| Situation | ITR 1 | ITR 2 |
|---|---|---|
| Salary or pension income | Yes | Yes |
| Up to two house properties | Yes (new for AY 2026-27) | Yes |
| More than two house properties | No | Yes |
| Interest income (FD, savings) | Yes | Yes |
| LTCG u/s 112A up to ₹1.25 lakh (no carry-forward losses) | Yes (new for AY 2026-27) | Yes |
| LTCG above ₹1.25 lakh | No | Yes |
| Short-term capital gains (STCG) | No | Yes |
| Capital gains from property sale | No | Yes |
| Foreign assets or foreign income | No | Yes |
| NRI or RNOR | No | Yes |
| Director of a company | No | Yes |
| Unlisted equity shares | No | Yes |
| Agricultural income above ₹5,000 | No | Yes |
| Total income above ₹50 lakh | No | Yes |
| Business or professional income | No | No (use ITR 3 or ITR 4) |
Real-Life Scenarios: Which Form Do You Need?
Let us analyse some possible situations.
Scenario 1) Salaried employee, one rented flat, no investments sold.
Salary is ₹12 lakh, rental income from one flat ₹2.4 lakh, FD interest ₹60,000. Total income is under ₹50 lakh and there are no capital gains.
Verdict – File ITR 1.
Scenario 2) Salaried employee with two flats and small mutual fund gains
Salary ₹18 lakh, two house properties (one self-occupied, one rented), sold equity mutual funds with LTCG of ₹80,000. That is under ₹1.25 lakh with no carry-forward losses. All within ITR 1 limits.
Verdict – File ITR 1.
Scenario 3) Salaried employee who sold a flat
Salary ₹20 lakh, sold an apartment with LTCG of ₹18 lakh. Capital gains from property cannot be reported in ITR 1, regardless of the amount.
Verdict – File ITR 2.
Scenario 4)Salaried employee with stock trading gains
Salary ₹15 lakh, STCG from selling stocks ₹1.2 lakh. Any STCG at all disqualifies you from ITR 1.
File ITR 2.
Scenario 5) Company director with only salary income
Being a Director in any company means you must file ITR 2. No exceptions.
Scenario 6) NRI with salary and NRO FD interest
NRIs cannot file ITR 1 regardless of income level or amount. File ITR 2.
Scenario 7)Salaried person with crypto or VDA income
Virtual Digital Asset (VDA) income is reported under Schedule VDA. That schedule is only available in ITR 2 and ITR 3. File ITR 2.
Important Changes in AY 2026–27
For ITR-1
- Taxpayers can now report income from up to two house properties, instead of just one earlier.
- Long-term capital gains (LTCG) under Section 112A up to ₹1.25 lakh can now be reported directly in ITR-1.
- Aadhaar Enrolment ID is no longer accepted. You must provide your 12-digit Aadhaar number while filing.
- A new field has been added to report unrealised rent from house property income.
For ITR-2 - The old capital gains tax rates of 15% for STCG and 10% for LTCG have been removed from the schedules because the revised tax rates now apply for AY 2026–27.
- The separate reporting requirement based on the 23 July 2024 date split for capital gains has also been removed.
- A new field has been added for reporting late filing fees on revised returns.
Important Note on the New Income Tax Act, 2025
The new Income Tax Act, 2025 does not apply to AY 2026 – 27 returns. Income earned during FY 2025 – 26 will still be taxed entirely under the Income-tax Act, 1961. The new law will apply only to income earned from 1 April 2026 onwards, which means taxpayers will start dealing with it while filing returns in 2027.
Important Dates and Deadlines
| Return Type | Due Date |
|---|---|
| ITR 1 and ITR 2 | 31st July 2026 |
| ITR 3 and ITR 4 (non-audit cases) | 31st August 2026 |
| Audit cases | 31st October 2026 |
| Belated return | 31st December 2026 |
| Revised return | 31st March 2027 |
| Transfer pricing cases | 30th November 2026 |
Additional note:
Late filing fees and interest may apply if the original return is filed after the applicable due date.
Missing the 31st July deadline means a late fee of ₹1,000 if your income is up to ₹5 lakh, or ₹5,000 for higher income. You also pay interest at 1% per month on unpaid tax under Section 234A. And most important, you lose the right to carry forward losses from capital gains, stocks or property if you file late. House property losses are the only exception
What Happens If You File the Wrong ITR Form?
If you file using the wrong form, the Income Tax Department will issue a defective return notice under Section 139(9). You get a 15- day window to respond and refile using the correct form. If you do not respond in time, the return is treated as invalid. It is as if you never filed at all. That can mean late filing penalties and loss of carry-forward loss benefits.
Frequently Asked Questions
Can I file ITR 2 even if I am eligible for ITR 1?
Yes. Anyone eligible for ITR 1 can choose to file ITR 2 instead. But ITR 1 is simpler, more pre-filled, and faster to complete. Unless you have a specific reason, use the simplest form that fits.
I sold shares and made a small gain. Which form do I use?
It depends on the type and amount. If the gain is LTCG under Section 112A from listed equity or equity mutual funds, is under Rs. 1.25 lakh, and you have no carry-forward losses, use ITR 1. If you have any STCG, or LTCG above Rs. 1.25 lakh, or gains from property, use ITR 2.
I am a salaried person and also a Director in a startup. Which form?
ITR 2, no question. Being a Director in any company, even an early-stage unlisted startup, disqualifies you from ITR 1. It does not matter whether you draw a director salary or have capital gains.
I received a foreign salary for part of the year. Which form?
ITR 2. Any foreign income or foreign assets must be disclosed under Schedule FSI (Foreign Source Income) and Schedule FA (Foreign Assets), both of which are only in ITR 2.
My total income is Rs. 48 lakh from salary and FDs. Can I use ITR 1?
Yes, as long as your income is only from salary, up to two house properties, and interest, and you have no capital gains, foreign assets, or directorship. Total income up to Rs. 50 lakh qualifies for ITR 1.
Can I file ITR 2 for F&O trading losses?
No. F&O trading is treated as business income. To carry forward F&O losses, you must file ITR 3. Filing ITR 2 will not let you carry forward those losses.