Filing your Income Tax Return (ITR) often raises the question of which form to use. For the Assessment Year 2025-26 (covering income earned in FY 2024-25), many ask, “What is ITR-2?” and more importantly, “ITR-2 is for whom?” If you are an Individual or part of a Hindu Undivided Family (HUF) in India, and your financial affairs are more detailed than what ITR-1 Sahaj handles—but you don’t earn income from a business or profession—then ITR-2 is often the required ITR form. This guide clearly explains who should file ITR-2, the specific income types it covers (such as capital gains or foreign income), details key updates, and helps you determine if this is the correct form for your ITR-2 filing this year.
What is ITR-2 Form and Its Main Purpose?
The ITR-2 form is an Income Tax Return form used by certain Individuals and Hindu Undivided Families (HUFs) in India. Its main purpose is to allow these taxpayers, who are not eligible for the simpler ITR-1 (Sahaj) form, to declare their income and pay their taxes accurately.
Essentially, ITR-2 caters to situations where income sources are more diverse or complex than what ITR-1 covers, but crucially, where the taxpayer does not have any income from carrying out a business or profession. Understanding the ITR-2 meaning as a detailed return for non-business income is key before checking if it applies to you.
Who Needs to File ITR-2 Form?
You need to file ITR-2 Form for Assessment Year 2025-26 if you meet certain conditions. At a fundamental level, ITR-2 eligibility rests on these core points:
- You are an Individual taxpayer or a Hindu Undivided Family (HUF).
- You do not have any income that falls under the category of “Profits and Gains of Business or Profession.”
- You are not eligible to file the simpler ITR-1 (Sahaj) form. This is usually because your income sources or financial circumstances include factors that ITR-1 does not cover, which we will detail in the next section.
If these three conditions apply to you, then ITR-2 is likely the correct Income Tax Return form for declaring your earnings.
Key Situations Making ITR-2 Mandatory for AY 2025-26
Beyond the basic criteria, certain types of income or financial situations automatically mean you cannot use ITR-1 and must opt for ITR-2 (assuming you don’t have business or professional income). Here are the key triggers:
- Income from Capital Gains or Losses: This is a primary reason to use ITR-2. You’ll need it if you have:
- Sold property (land or building) and have capital gains or losses.
- Gains or losses from selling shares or mutual funds, especially if these are Short-Term Capital Gains (STCG), or Long-Term Capital Gains (LTCG) from assets other than just listed equities/equity MFs, or if your LTCG from specified equities exceeds the ₹1.25 lakh limit now allowed in ITR-1, or if you have any other type of capital gains in ITR-2 to report.
- Profits or losses from selling other assets like gold, bonds, etc.
- A need to report and carry forward any capital losses.
- Income from More Than One House Property: If you own and earn rental income, or have deemed income or losses, from multiple house properties, ITR-2 is required to report this multiple house properties ITR-2 income.
- Holding Foreign Income or Foreign Assets (for Residents): If you are a Resident and Ordinarily Resident (ROR) individual in India and have:
- Any foreign income (like salary from a foreign employer, interest from foreign bank accounts, rent from property abroad).
- Any foreign assets (such as foreign bank accounts, shares in foreign companies, or property held outside India).
- Signing authority in any account located outside India.
- In such cases, detailed reporting in Schedule FA of the ITR-2 form is mandatory. This also generally applies to NRIs and RNORs for their income earned or accrued in India that needs to be reported.
- If You Are a Director in a Company: Individuals who were directors in any company (Indian or foreign) at any time during the Financial Year 2024-25 must file ITR-2, regardless of whether they received any remuneration for their role as a company director ITR-2.
- Holding Unlisted Equity Shares: If you held any unlisted equity shares at any time during the financial year, ITR-2 is the appropriate form, not ITR-1. This is a key differentiator for unlisted shares ITR-2 reporting.
- Total Income Exceeds ₹50 Lakh (and no business income): Even if your income sources are simple (like salary and interest), if your total taxable income before deductions surpasses ₹50 lakh, you cannot use ITR-1.
- Agricultural Income Over ₹5,000: If your agricultural income for the year is more than ₹5,000, you need to file ITR-2 to report it along with your other incomes.
- Specific “Income from Other Sources”: While ITR-1 allows some income from other sources, if you have winnings from lottery, racehorses, or other speculative activities taxed at special rates, these are typically reported in ITR-2.
- Deferred Tax on ESOPs: If you have Employee Stock Options (ESOPs) on which the tax payment has been deferred, this needs to be reported in ITR-2.
- Need to Carry Forward Losses: If you have losses (for example, from house property beyond what ITR-1 allows for set-off, or capital losses) that need to be carried forward to be set off against future income, ITR-2 provides the necessary schedules for this.
If any of these situations apply to your financial profile for FY 2024-25, ITR-2 will be the form you need for your AY 2025-26 tax filing.
Who Should NOT File ITR-2 for AY 2025-26?
It’s just as important to know when ITR-2 is not the appropriate form as it is to understand its eligibility. You should not file ITR-2 if:
- You have Income from Business or Profession: This is the primary exclusion. If you are an Individual or HUF and have any income that is classified under “Profits and Gains of Business or Profession,” you cannot use ITR-2. In such cases, you would typically need to file ITR-3 (if you maintain regular books of accounts) or ITR-4 (Sugam) (if you are eligible for and opt for the presumptive taxation scheme).
- You are Eligible for ITR-1 (Sahaj): If your income sources and total income fall entirely within the simpler scope of ITR-1 (Sahaj), then ITR-1 is the correct and simpler form to use. There’s no need to use the more detailed ITR-2 if ITR-1 fully covers your tax situation.
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Key ITR-2 Updates for AY 2025-26 You Can’t Miss
For the Assessment Year 2025-26, several important updates have been introduced to the ITR-2 form and its filing requirements. Staying informed about these ITR-2 changes for AY 2025-26 is crucial for accurate compliance:
- Revised Capital Gains Reporting: A significant update involves how certain capital gains are reported. For some assets, you may now need to segregate transactions based on whether they occurred up to July 23, 2024, or on/after July 23, 2024. This is particularly relevant for assets like real estate due to changes in tax rates and indexation benefits introduced by the Finance Act, 2024.
- New Treatment for Share Buybacks: Proceeds from the buyback of shares by domestic listed companies occurring from October 1, 2024, are now to be treated as deemed dividends (reported under “Income from Other Sources”). The original cost of acquiring these shares can then be claimed as a capital loss. The ITR-2 form has been updated to reflect this change.
- Increased Threshold for Schedule AL (Assets and Liabilities): In a notable relief for many taxpayers, the income threshold for mandatory disclosure of specified assets and liabilities at the year-end in Schedule AL has been increased. You are now required to fill this schedule only if your total income for the financial year exceeds ₹1 crore (previously ₹50 lakh).
- Aadhaar Number is Compulsory: For AY 2025-26, providing your 12-digit Aadhaar number is mandatory for filing your ITR. The option to use an Aadhaar Enrolment ID is no longer available. Ensure your PAN is linked with Aadhaar.
- Detailed TDS Schedule Requirements: When reporting Tax Deducted at Source (TDS), it is now mandatory to mention the specific section code of the Income Tax Act under which the tax was deducted. This applies to various incomes reported in ITR-2.
- Enhanced Disclosure for Deductions: While claiming certain deductions (especially under Chapter VI-A like Section 80C, or exemptions like HRA), the e-filing utility might require more granular details, possibly through specific drop-down selections for clauses or sub-sections to ensure precise reporting.
ITR-2 vs. ITR-1: Understanding Key Differences Quickly
While both ITR-1 (Sahaj) and ITR-2 are for Individuals and HUFs who do not have income from business or profession, ITR-2 accommodates more complex financial situations. Understanding the ITR-1 and ITR-2 difference is key to selecting the right form for AY 2025-26.
Here’s why you would typically choose ITR-2 over ITR-1:
Scope of Capital Gains:
- ITR-1: Allows only very limited Long-Term Capital Gains (LTCG) from listed equities/equity MFs (u/s 112A, up to ₹1.25 lakh for AY 2025-26) and no other capital gains or any losses.
- ITR-2: Required if you have any other type of capital gains (e.g., from property, debt funds, gold, STCG from shares) or if your LTCG from equities exceeds the ITR-1 limit, or if you have any capital losses to report/carry forward.
Income from House Property:
- ITR-1: Only allows income from one house property.
- ITR-2: Must be used if you have income from more than one house property.
Foreign Income/Assets:
- ITR-1: Cannot be used if you have any foreign income or foreign assets.
- ITR-2: Required for residents who have foreign income or assets to report (including details in Schedule FA). It’s also generally used by NRIs/RNORs for their Indian income.
Specific Status/Holdings:
- ITR-1: Cannot be used if you are a Director in a company or hold unlisted equity shares.
- ITR-2: Must be used if you are a Director or hold unlisted equity shares.
Total Income Threshold:
- ITR-1: Only for total income up to ₹50 lakh.
- ITR-2: Can be used even if total income exceeds ₹50 lakh (provided no business income).
Essentially, if your financial affairs include any of the broader scenarios listed for ITR-2 (like diverse capital gains, multiple properties, or foreign connections), ITR-1 will not be sufficient. This ITR-2 vs ITR-1 comparison should help clarify your choice.
Essential Documents Required for ITR 2 Filing (AY 2025-26)
Filing ITR-2 accurately for Assessment Year 2025-26 requires careful preparation and having all necessary documents handy. This ITR-2 checklist will help you gather the information needed for a comprehensive return:
A. General Information & KYC:
- PAN Card: Your Permanent Account Number is essential.
- Aadhaar Card: Ensure it’s linked with your PAN.
- Bank Account Details: Statements or passbooks for all operative bank accounts in India (account number, IFSC code, type of account). You’ll need to list these and select one for any potential refund.
- Form 26AS (Annual Tax Statement): Verify TDS, TCS, and advance tax details.
- Annual Information Statement (AIS) & Taxpayer Information Summary (TIS): Crucial for reconciling all reported financial transactions.
B. Income-Specific Documents:
- Salary Income (if applicable):
- Form 16 issued by all your employers for the Financial Year 2024-25.
- Salary slips.
- House Property Income (for all properties owned):
- Address of the property.
- Co-owner details (if any).
- Rent agreement if the property is let out.
- Municipal tax receipts.
- Home loan interest certificates from the bank/NBFC detailing interest and principal repayment for each property.
- Details of pre-construction interest, if any.
- Capital Gains Details (this is critical for ITR-2):
- For Property Sale: Sale and purchase deeds, stamp duty valuation, details of improvement costs, transfer expenses, and proofs for any reinvestment to claim exemptions (e.g., under Sec 54, 54EC).
- For Shares/Mutual Funds/Securities: Brokerage statements (like P&L statements from your broker), contract notes, details of purchase cost, sale value, dates of purchase and sale for calculating short-term and long-term capital gains.
- For Other Assets (Gold, Bonds etc.): Relevant purchase and sale documents, valuation reports if applicable.
- (Having accurate capital gains documents for ITR-2 is vital).
- Foreign Income or Assets Details (if applicable for Residents):
- Statements for foreign bank accounts.
- Details of foreign assets held (shares, property, other investments).
- Proof of foreign income earned and taxes paid abroad (for claiming foreign tax credit/DTAA relief).
- (Comprehensive foreign income documents for ITR-2 are needed for Schedule FA).
- Income from Other Sources:
- Bank passbook or statements for interest earned on savings accounts, fixed deposits, etc.
- Dividend warrants or statements.
- Family pension details.
- Any other documents related to income like winnings from lottery (if applicable for ITR-2).
C. Deductions & Other Information:
- Proofs for Chapter VI-A Deductions (if opting for Old Tax Regime):
- Section 80C: PPF passbook, ELSS statements, life insurance premium receipts, tuition fee receipts, home loan principal repayment.
- Section 80D: Mediclaim premium receipts.
- Section 80G: Donation receipts with PAN of the donee.
- Other relevant investment/payment proofs (e.g., 80E for education loan interest).
- Details of Unlisted Shares Held (if any).
- Information for any other reported income or claimed loss.
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