ITR 1 vs ITR 2: Key Differences and Which Form to File

Filing your Income Tax Return (ITR) accurately is crucial for every taxpayer in India, and choosing the correct ITR form is the first step in the process. Among the various forms, ITR 1 (Sahaj) and ITR 2 are commonly used by individual taxpayers, but they serve different purposes. Understanding the differences between these two forms will help you determine which one you should file based on your income sources and eligibility criteria.

This blog aims to provide a detailed comparison between ITR 1 and ITR 2, highlighting their key differences, eligibility criteria, and how to file them.

What is ITR 1?

ITR 1, also known as Sahaj, is the simplest income tax return form designed for individuals with basic income sources like salary, one house property, and other income. It is best suited for salaried individuals who do not have complex income structures such as capital gains or business income.

Eligibility Criteria for ITR 1:

Individual Status: Only resident individuals can file ITR 1.
Income Sources:
- Salary or pension income
- Income from one house property (excluding losses)
- Income from other sources (such as interest)
- Agricultural income (up to ₹5,000)
Total Income: The total income should not exceed ₹50 lakh.

Not Eligible for ITR 1:

If you have income from more than one house property.
If you have capital gains.
If you own foreign assets or have foreign income.
If your income exceeds ₹50 lakh.

What is ITR 2?

ITR 2 is designed for individuals and Hindu Undivided Families (HUFs) who have more complex income sources that are not eligible for ITR 1. This form is suitable for taxpayers with income from multiple house properties, capital gains, or foreign assets.

Eligibility Criteria for ITR 2:

Individual and HUF Status: ITR 2 can be filed by both individuals and HUFs.
Income Sources:
- Income from salary or pension
- Income from more than one house property
- Capital gains from the sale of property, shares, or other assets
- Income from foreign assets or foreign sources
- Agricultural income exceeding ₹5,000
Total Income: There is no upper limit on the total income for filing ITR 2.

Not Eligible for ITR 2:

If you have income from a business or profession.

Key Differences Between ITR 1 and ITR 2

Criteria	ITR 1 (Sahaj)	ITR 2
Applicable to	Resident individuals	Individuals and HUFs
Total Income	Up to ₹50 lakh	No income limit
Income from Salary/Pension	Yes	Yes
Income from House Property	Income from one house property	Income from more than one house property
Capital Gains	Not allowed	Allowed
Foreign Assets/Income	Not allowed	Allowed
Income from Business/Profession	Not allowed	Not allowed
Agricultural Income	Up to ₹5,000	Above ₹5,000
Filing Method	Online/e-filing	Online/e-filing

When Should You File ITR 1?

ITR 1 is suitable for you if you meet the following conditions:

You are a resident individual (not applicable for HUFs or non-residents).
Your total income does not exceed ₹50 lakh.
Your income comes from salary, pension, one house property, and other sources like interest income.
You have no capital gains.
You do not have foreign assets or foreign income.

For instance, if you are a salaried employee earning ₹10 lakh annually, have interest income of ₹50,000, and own one house property, you can file ITR 1.

When Should You File ITR 2?

You should file ITR 2 if you fall into any of the following categories:

You are an individual or HUF with income from multiple sources.
Your income exceeds ₹50 lakh.
You have capital gains from the sale of property, shares, or other assets.
You earn foreign income or own foreign assets.
You have more than one house property.
You earn agricultural income exceeding ₹5,000.

For example, if you sold property during the financial year and earned a capital gain of ₹20 lakh, or if you have income from more than one house property, you need to file ITR 2.

Filing Process: ITR 1 vs ITR 2

Filing ITR 1:

Step 1: Log in to the Income Tax e-filing portal.
Step 2: Select ITR 1 from the options.
Step 3: Provide personal details, income details, and deductions.
Step 4: Review and submit your return.

Filing ITR 2:

Step 1: Log in to the Income Tax e-filing portal.
Step 2: Select ITR 2 based on your income sources.
Step 3: Provide details related to salary, capital gains, house properties, and other income sources.
Step 4: Submit the return after reviewing all entries.

Both ITR 1 and ITR 2 can be filed online, and you will receive an acknowledgment once your return is successfully submitted.

Historical Data: Filing Trends for ITR 1 and ITR 2

Financial Year	ITR 1 Filers (in millions)	ITR 2 Filers (in millions)
2022-23	45.6	12.4
2021-22	42.3	11.2
2020-21	39.8	10.5
2019-20	37.6	9.7

ITR 1 remains the most popular form among taxpayers due to its simplicity and applicability for individuals with straightforward income sources. However, the number of ITR 2 filings has been increasing with more taxpayers reporting capital gains and foreign income.

Important Considerations

Choose the Right Form: Filing the incorrect ITR form can lead to delays, notices from the Income Tax Department, or the rejection of your return. Ensure that you select the appropriate form based on your income sources.
Accuracy in Filing: While filing, ensure that you provide accurate details of your income, deductions, and tax payments. Misinformation or discrepancies can lead to penalties.
Due Date for Filing: The due date for filing both ITR 1 and ITR 2 is typically 31st July of the assessment year. Filing your return after the due date can attract penalties and interest.

Conclusion

Choosing between ITR 1 and ITR 2 depends on your income sources, total income, and other factors such as capital gains and foreign assets. For salaried individuals with simple income structures, ITR 1 is the best option. On the other hand, if you have complex income sources like capital gains or foreign assets, you must opt for ITR 2.

Filing the correct ITR form ensures smooth processing of your return and minimizes the risk of errors or delays. By understanding the differences between ITR 1 and ITR 2, you can make an informed decision and file your return accurately.