When it comes to filing income tax returns in India, many taxpayers get confused between ITR 1 vs ITR 2 difference. Choosing the correct form is crucial to ensure compliance with tax laws. In this blog, we will explain the difference between ITR 1 and ITR 2 forms, their applicability, and who should use them.
What is ITR-1?
ITR-1, also known as Sahaj, is a simplified tax return form for individuals earning income from basic sources. This form is easy to fill and is ideal for salaried individuals with straightforward income sources. It is designed for those with limited income sources, ensuring a smooth filing process.
ITR-1 Applicability
You can file ITR-1 if:
- You are a resident individual (Not applicable for HUFs and non-residents).
- Your total income is up to Rs. 50 lakh.
- Your income is from salary, one house property, and other sources (like interest, dividends, etc.).
- Agricultural income does not exceed Rs. 5,000.
- You do not have any capital gains from stocks or property sales.
Who Cannot File ITR-1?
You cannot file ITR-1 if:
- You are a Non-Resident Indian (NRI).
- You have capital gains income.
- You earn from more than one house property.
- Your total income exceeds Rs. 50 lakh.
- You have business or professional income.
- You are a director in a company.
- You hold unlisted equity shares.
What is ITR-2?
ITR-2 is for individuals and Hindu Undivided Families (HUFs) who have income from various sources other than business or profession. It covers multiple income categories, making it suitable for taxpayers with complex earnings.
ITR-2 Applicability
You should file ITR-2 if:
- You are an individual or HUF but not eligible for ITR-1.
- Your total income is above Rs. 50 lakh.
- You have income from more than one house property.
- You have capital gains from selling shares, property, etc.
- You have foreign income or assets.
- You are a director in a company.
- You hold unlisted equity shares.
- You receive income from lottery winnings or betting.
Who Cannot File ITR-2?
You cannot file ITR-2 if you have business or professional income. In that case, you must use ITR-3 or another applicable form.
ITR 1 vs ITR 2 Difference: A Detailed Comparison
ITR-1 is for individuals with a total income of up to Rs. 50 lakh from salary, one house property, and other sources like interest income. It does not apply to those with capital gains, multiple house properties, foreign assets, or business income. It is best suited for salaried employees with limited investments.
ITR-2, on the other hand, is applicable to individuals and HUFs whose income is above Rs. 50 lakh or includes multiple house properties, capital gains, or foreign assets. It also applies to directors in a company and those holding unlisted equity shares. It is ideal for individuals with diverse income sources, including investments in foreign assets.
Can I File ITR 1 and ITR 2 Both?
No, you cannot file both ITR-1 and ITR-2. You must choose one based on your income sources and eligibility. If you qualify for ITR-1, you should not use ITR-2. However, if you have multiple income sources, including capital gains or foreign income, you must file ITR-2 instead of ITR-1. Using the wrong form may lead to rejection or legal complications.
If you’re filing a belated return, it’s important to understand the deadlines and penalties involved. Learn more in our article on Belated Return Under Section 139(4)
How to Choose the Right ITR Form?
- If your income is simple (salary, interest, or one house property), file ITR-1.
- If you have capital gains, multiple house properties, or foreign income, file ITR-2.
- If you earn from business or profession, ITR-3 or higher forms are applicable.
- If you are unsure, consult a tax professional to avoid errors in tax filing.
Common Mistakes to Avoid While Filing ITR
- Choosing the wrong form can lead to rejections or notices from the Income Tax Department.
- Not reporting all sources of income, including interest from savings accounts.
- Claiming deductions that are not applicable to your category.
- Forgetting to verify your ITR after filing.
- Delaying filing until the last moment, which increases the chances of errors.
Conclusion
Filing the correct income tax return is essential to avoid penalties and ensure compliance. Understanding the ITR 1 vs ITR 2 difference helps in selecting the right form based on income sources. If you are still confused, it’s always best to consult a tax expert.
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By understanding the nuances of ITR 1 and ITR 2 difference, taxpayers can ensure smooth and compliant tax filing, making the process easier and stress-free.
