Income tax filing: What is the difference between ITR 1 and ITR 2?

When filing your income tax returns, make sure you fill up and submit the correct form, such as ITR-1, ITR-2A, and ITR-2. This is based on what kind of income, exemptions from income, etc. One of the most common mistakes when filing an ITR is using the wrong ITR form, which leads to a defective filing that will eventually be rejected by the Income Tax Department. 

The choice of the appropriate ITR form primarily depends on your sources of income. If you are a salaried individual, you can file returns using ITR Form 1. However, if you have both salaried income and capital gains from investments, you should use ITR Form 2. 

Here are the differences between the two and the eligibility criteria for each:

 

ITR 1 (Sahaj):

Eligibility: This is be filed by Resident Individual who has income from salary, one house property, family pension income, agricultural income up to Rs 5000, and income from other sources and their total income does not exceed Rs 50 lakh in a financial year

"Individuals being a resident, having income from salary, one house property, and income from other sources (excluding lottery winnings and income from race horses) will file ITR one", said Swati Jain, CA & Strategic Business Advisor, Arihant Capital Markets.

It is a simplified form for salaried individuals with straightforward income sources.

It is not for individuals with income from business/profession or capital gains.
 

It is not for HUF.
 

You should not have any signing authority in accounts outside of India.

Also Read: What is NIL ITR? Who is eligible, what are the benefits?

You do not need to fill the ITR-1 form if:

You are anything but an Individual for taxation purposes.

You earn an income from more than one Property.

You earn an income from Other Sources through horse races, lotteries, gambling, etc.

You earn an income through short or long-term Capital Gains that are non-tax-exempted.

You earn an Exempt Income over Rs.5,000.

You earn an income through Business or Profession.

You have reported losses under Income from Other Sources.

How to File: You can file ITR 1 online by visiting the Income Tax Department's e-filing website or through authorized intermediaries.

Also Read: Tax returns explained: Documents needed for ITR 1, eligibility, changes

ITR 2:

Eligibility: Individuals and Hindu Undivided Families (HUFs) having income from any source other than business or profession.
 

ITR 2 is applicable to individuals and HUFs with total income exceeding Rs 50 lakh or having income from capital gains, multiple house properties, or foreign assets.

According to CA Twinkle Jain, ITR-2 is for Individiuals /HUF who have:

-Income from sources mentioned in ITR-1 of more than Rs 50 lakh

-Income from Capital gains

-No income from any business /profession income

-Income from More than one house property

-Foreign Income/Foreign Asset

You need to fill the ITR-2 form if:

You are an Individual or a HUF.

You have an income from Salary / Pension.

You earn income from more than one Property.

You have any brought forward losses.

You earn an income from Other Sources (including income from lotteries, racehorses, gambling, etc.)

You’ve earned an income through Capital Gains.

If the individual makes more than Rs.5,000 in a tax-free source of income, such as agriculture

If the person has assets or property in another nation

If the person is not receiving revenue from other nations

If a person makes money through taxable capital gains
 

You do not need to fill the ITR-2 form if:

You have earned an income through business or profession.

If the person is a HUF or an entrepreneur with income from a job or a business 

If the person qualifies under ITR-1 Form 

How to File: Similar to ITR 1, you can file ITR 2 online via the Income Tax Department's e-filing website or through authorized intermediaries.

Major changes in ITR-2 in FY 2022-23 (AY 2023-24)

A separate schedule has been added for reporting income from crypto and other Virtual Digital Assets (VDA). 

How do I file my ITR?

Step 1: Visit https://www.incometax.gov.in/iec/foportal/.

Step 2: Create or log in to your account.

Step 3: Select "File" and choose "File Income Tax Return."

Step 4: Select the relevant assessment year and go to the "Personal" section.

Step 5: Choose the correct ITR form based on your income sources.

Step 6: Verify and submit your ITR, ensuring accurate bank account details.

Step 7: E-verify your return using your bank account or other options.

Step 8: Keep the generated acknowledgement number for reference.

Step 9: Check the status online using the acknowledgement number.