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ITR 1 vs. ITR 2: Understanding the Difference


ITR 1 vs. ITR 2: Understanding the Difference

The correct form must be selected when filing income tax returns. The IT department may reject your return and maybe impose a penalty for missing the deadline if you haven't done this. Individual taxpayers typically struggle to decide between ITR 1 and ITR 2 in this regard. Although the two income tax return forms cover nearly identical income categories, they differ slightly in small ways. Thus, read this post if you intend to file your IT returns. You will obtain a comprehensive comprehension of the distinctions between ITR 1 and 2, their relevance, and further information. 

 

Table of content

 

ITR 1: Eligibility and Exceptions

When filing their taxes, residents who are salaried and whose annual income does not exceed Rs 50 lakh must use the ITR 1 form. The following standards establish their applicability: 

  • Salary or a pension should be the source of income. 

  • One property should provide all of the income. 

  • Other sources of income are possible (although not from gambling, lotteries, horse racing, and other similar endeavours). 

  • The individual must not possess any real estate outside of India. 

  • It is improper for him or her to get money from other nations. 

  • Earn interest from savings bonds, deposits, and additional sources of interest.


However, there are some exceptions when it comes to the eligibility for ITR 1. These include:

  • Taxpayers who fall into one of two categories: non-resident or resident but not regularly

  • Has more than Rs 50 lakhs in total income

  • If the person's income is derived from many properties

  • If the person makes a living through a business or vocation

  • Should the taxpayer be receiving income from other sources (i.e., winnings from lotteries, casinos, horse racing, card games, and so forth)

  • If losses under Income from Other Sources have been sustained by the individual

  • If there have been any capital gains (short- or long-term)

  • If one makes more than Rs 5,000 from agriculture

  • Possesses stock shares that are not listed


ITR 2: Eligibility and Exceptions

Within a financial year, Hindu Undivided Families (HUFs), salaried resident people, and non-resident individuals are all eligible to file an ITR 2. Candidates must select ITR 2 in the following situations: 

  • If a taxpayer receives income from a pension or salary

  • If they are not eligible to file an ITR-1

  • If they receive income from more than one residential home

  • If they receive money from other sources (betting, card games, lotteries, horse racing, etc.)

  • If they have both short- and long-term capital gains

  • If the individual receives more than Rs 5,000 in agricultural revenue in a given financial year

  • If the individual has carried forward losses from a prior financial year

  • Income subject to taxes exceeding Rs 50 lakhs 

  • If the person has assets or property overseas

  • Taxpayers who earn money outside of India or from overseas sources

  • Taxpayers want to apply for Relief under Sections 90/91 or DTAA benefits

  • Invested in stock shares that are not listed

  • Has deferred income tax on ESOP received from an employer who qualifies as an eligible start-up

  • Serves as a director in a company

An individual who falls under any of the following categories and is not qualified to file an ITR 

  • Individuals or HUF taxpayers who receive income from a business or profession are not permitted to submit an ITR

  • Trusts, businesses, and firms are not permitted to submit ITRs 1 or 2


Difference between ITR 1 and ITR 2

The following table represents the key differences between ITR 1 and ITR 2:


Difference between ITR 1 and ITR 2 - Taxbuddy


ITR 1 vs. ITR 2: Selecting the Right Income Tax Form

Selecting the appropriate form for you should not be too difficult now that you are aware of the distinctions between ITR 1 and ITR 2. It is highly advised that you speak with a tax expert if you are still unsure. It would be a waste of time and effort to file your tax returns using the incorrect form. You may also be subject to large penalties if you do not file your tax returns on time and on the correct form. 


Conclusion

Check out the form you need to file the next time you prepare to file your income tax returns. Additionally, before beginning the process of filing your taxes, think about gathering all of your evidence of income in one location. By doing this, you'll be able to finish the procedure without any problems. 


FAQ

Q1. Which ITR form should I file?

Several ITR forms are available according to sources of income. Certain persons are subject to ITR-1, HUFs to ITR-2, business income to ITR-3, business under presumptive scheme to ITR-4, firms to ITR-5, companies to ITR-6, and specified entities to ITR-7.


Q2. Can a salaried person file ITR 1 or 2?

Anyone who can file an ITR 1 is likewise qualified to file an ITR 2. Nonetheless, since ITR 1 is far more straightforward and easy to fill out, it is advised to continue filing under ITR 1.


Q3. Can I file both ITR 1 and ITR 2?

An individual can file an ITR-1 or ITR-2 form depending on their income sources. For this reason, understanding the distinction between ITR-1 and ITR-2 is crucial.


Q4. What can I expect if I file ITR 2 instead of ITR 1?

ITR 1 can be replaced with ITR 2. Considering that everyone qualified to file an ITR 1 may likewise file an ITR 2. ITR 2 filing, however, may require additional time and longer processing times.


Q5. Can I switch from ITR 2 to ITR 1?

You can file an ITR 1 if your income consists of one residential property, interest income, and a salary of less than Rs 50 lakhs.


Q6. What is the income limit for ITR 2?

Individual taxpayers who are residents and whose total income during a financial year exceeds Rs. 50 lakhs are required to file an ITR-2. Individual taxpayers who are residents and earn money from a business or profession are not permitted to file ITR-2. Individual taxpayers who are residents and own multiple properties should file an ITR-2. Non-resident Indians (NRIs) and residents who are not ordinary residents (RNORs) must file Form ITR-2. Even if these taxpayers' income for the fiscal year is less than Rs. 50 lakhs, they still need to file an ITR-2.


Q7. Is ITR 2 for capital gain?

It is required of all non-resident taxpayers to file ITR-2. Only if a resident taxpayer's total income exceeds Rs. 50 lakhs should they file an ITR-2. This covers both income from other sources and revenue from capital gains. ITR-2, however, cannot be filed if the individual taxpayer receives income from a business or profession. It is required to report both short-term and long-term capital gains under ITR-2. Scrip-specific information such as the ISIN, the purchase and sale prices, the dates of the transactions, etc., are needed for long-term capital gains on the sale of equity shares or mutual funds. 


Q8. Are there any specific income sources or transactions that require the use of ITR 2 instead of ITR 1?

Yes, certain income sources and transactions necessitate the use of ITR 2 over ITR 1. For instance, if an individual has income from capital gains, such as from the sale of stocks, property, or other assets, they must file using ITR 2.


Additionally, if an individual has foreign assets or foreign income, they are required to use ITR 2 for reporting. Similarly, individuals with income from business or profession, regardless of the amount, should opt for ITR 2.


Q9. Can individuals switch between using ITR 1 and ITR 2 forms from one financial year to another?

Yes, individuals have the flexibility to switch between using ITR 1 and ITR 2 forms from one financial year to another based on their income sources and transactions for that particular year. If their income sources change, such as starting to earn income from capital gains or foreign assets, they may need to switch from ITR 1 to ITR 2 to accurately report their income.


Q10. How do the reporting requirements vary between ITR 1 and ITR 2 regarding assets and liabilities held abroad?


ITR 1 does not have provisions for reporting assets and liabilities held abroad, whereas ITR 2 requires individuals to provide details of foreign assets and foreign income, if applicable. This includes information such as foreign bank accounts, foreign investments, foreign property ownership, and income earned from sources outside India. 

Therefore, individuals using ITR 2 need to ensure they accurately disclose all foreign assets and income to comply with reporting requirements.


Q11. Can I file ITR-2 if I have capital gains and salary income?

Yes, you must file an ITR-2 if you have both capital gains and salary income. This is because an ITR-1 cannot be filed when one has capital gains.


Q12. How do I show my salary in ITR-2?

You must submit Form 16 along with the required pay-related documentation in order to complete the salary data in ITR1 and ITR2.


Q13. Which ITR do I have to fill for two incomes ( such as salary and commissions -194H)?

Salary income and other types of income are subject to ITR 1. If the commission is an individual's business income, it should be recorded as such, and ITR-3 will be applicable.


Q14. Which ITR form should I use for a rental income from two houses?

For income from several residential properties, ITR form 2 is filled out.


Q15. What is the penalty for late filing of ITR?

For filing an ITR after July 31, 2024, there will be a penalty of Rs. 1000 if your total income is between Rs. 2.5 lakhs and Rs. 5 lakhs, and a penalty of Rs. 5000 if it exceeds Rs. 5 lakhs.




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