ITR 1 vs ITR 2: Key Differences, Meaning, and Applicability
Updated: Sep 27
In India, the structure of an income tax return is complex in itself, particularly when selecting between the ITR forms, ITR 1 and ITR 2. These forms cater to different types of taxpayers and are important in ensuring that people file taxes properly about their income and financial activities. In this article, we will specifically understand the difference between ITR 1 (SAHAJ) and ITR 2, discuss applicability in detail, and explain what these differences mean to taxpayers..
Table of content
Overview of ITR 1 (SAHAJ)
ITR 1, also known as SAHAJ, is a form for Indian residents whose main sources of income are from salary, one house property, other sources like interest, and agricultural income up to INR 5,000. The aim behind ITR 1 is to make the process of filing tax returns hassle-free for people with simple income structures. The ITR 1 form is designed in an easy manner and simple to understand to encourage tax compliance and timely filing of taxes.
Who can file ITR 1?
It applies to those individuals who:
Are Indian residents.
Have a total income of up to INR 50 lakhs.
Are earning income from salary or pension.
The income arises from one house property (excluding brought forward loss from previous years).
Income from other sources like interest on savings accounts, interest on fixed deposits, family pension, etc.
No income from capital gains, business or profession, or income from more than one house property.
Key components and sections of ITR 1
ITR 1 is divided into various parts that require certain information from the taxpayer. These are:
Part A: General Information such as name, PAN, Aadhar no., address, and contact information.
Schedule S: Information on income from salary/ pension
Schedule HP: Information about income from house property
Schedule OS: Information about income from other sources
Schedule 80G: Information about donations eligible for deduction under section 80G.
Schedule VI-A: Details of deductions under Chapter VI-A (e.g., sections 80C, 80D, 80G, and so on).
Schedule IT: Details of advance taxes and self-assessment tax payments.
Schedule TDS: Details of TDS from salary and other than salary.
Benefits of choosing ITR 1
Simplicity: The form is straightforward and thus easy to understand, making it less intimidating for the taxpayer.
Faster Processing: Because of its simplicity, tax processing is quicker and results in faster refunds.
Convenience: It can be filed online, which is a hassle-free process and helpful for people who have uncomplicated financial situations.
Fewer Chances of Mistakes: The simplicity of the form reduces the chances of occurrence of errors and discrepancies which are the very elements that tend to generate questions from the income tax department.
Overview of ITR 2
ITR 2 is a form used by those individuals who do not have any type of income from any business or profession. The type of form is specially designed for individuals and HUFs with incomes from other sources, more than one house property income, capital gains, income from foreign sources or assets, and agricultural income above INR 5,000. ITR 2 facilitates proper and organized filing for taxpayers earning from multiple sources of income. Therefore, reporting all financial activities in detail.
Who is eligible to file ITR 2?
The following types of taxpayers are eligible to file Form ITR 2:
Individuals and HUFs not carrying on business or profession under a proprietorship.
Any taxpayer having capital gains.
Individuals having foreign assets or foreign income.
Taxpayers with more than one property.
Persons with agricultural income of more than INR 5,000.
Residents carrying on business or professional tax under audit cases, persons claiming relief under Sec 90/90A/91 and those having income accruing or arising from more than one country.
Key elements of ITR 2
The use of various parts and schedules in ITR 2 enables the return forms to obtain the following information:
Part A: General information and schedule
Schedule S: Details of incomes from salaries
Schedule HP: Incomes from house property
Schedule CG: Incomes from capital gains
Schedule OS: Incomes from other sources
Schedule CYLA: Statement of incomes after setting off all the current year losses
Schedule BFLA: Statement of income after set off of unabsorbed loss brought forward from earlier years
Schedule CFL: Statement of losses to be carried forward to future years
Schedule VI-A: Deductions under Chapter VI-A
Schedule SPI: Income of specified persons (spouse, minor child, etc.) includable in the income of the assessee
Schedule SI: Income chargeable to tax at special rates
Schedule EI: Exempt income details
Schedule FSI: Income earned outside India and the relief
Schedule TR: Tax liability outside India
Schedule FA: Details of Foreign Assets and income from any other source outside India
Benefits of filing ITR 2
There are several advantages to filing ITR 2 for eligible taxpayers. These are as follows:
Detailed Disclosure : ITR 2 form will be able to give detailed reporting for various income sources. It is very helpful for those who have complex portfolios.
Tax Optimization: Using ITR 2 form will enable proper claim of deductions and exemptions applicable for various types of income. Thus, optimizing tax calculations.
Avoidance of Legal Consequences: Timely and accurate filing of ITR 2 will enable one to avoid legal penalties arising because of nondisclosure of incomings and assets, especially from foreign sources.
Facilitate Refunds: Filing of ITR 2 facilitates processing refunds due, if any. Moreover, excess TDS deductions can also be claimed as a refund.
Eligibility for Financial Products: Returns, including ITR 2, properly filed, would add to one's credibility and eligibility for loans and others in general financial products.
ITR 1 vs ITR 2: Key Differences
Following table outlines the key differences between ITR 1 and ITR 2:
Applicability of ITR-1
For the people with income from salaries
Income from one-house property
Other sources of income include winning from the lottery and racehorses.
Agriculture income up to INR 5,000.
Applicability of ITR-2
For people who have income from many sources
Exclude those who are eligible for ITR1
Income from salary, professional income, house property
Agriculture income that exceeds INR 5,000
Foreign assets and income
Choosing the Right Form: ITR 1 vs ITR 2
Choosing the correct form while filing your income tax returns in India is important for accurate reporting and compliance. The below scenarios lists the instances of the applicability of each form:
Scenarios where ITR 1 is more applicable
ITR 1, also known as SAHAJ, is relatively simple and would be sufficient for most individual taxpayers with relatively simple financial affairs where their income is based mostly on:
Salaried Employees: There is an income from salary or pension allowance; no other significant source of income.
Single Property Owners: The Assessee owns just one property and has no other property income or capital gains to declare.
Interest Income: Those whose additional income is only because of the interest earned from their savings accounts, fixed deposits, etc., and such total income does not exceed INR 50 lakhs.
Agricultural Income: In case the agricultural income is less than INR 5,000.
Indian Residents without Foreign Assets: Individuals who do not have any foreign assets or foreign-sourced incomes.
Scenarios where ITR 2 is more applicable
ITR 2 is for individuals and Hindu Undivided Families with diverse and more complex financial profiles:
Multiple Property Owners: Taxpayers having more than one house property, whether rented out or used on bachelors, such as investment properties.
Capital Gains: Individuals having short-term and long-term capital gains from the sale of assets, be it like stocks and shares, bonds, or property.
Income in Foreign Country or Asset: Individuals having income from sources outside India or those holding foreign assets including financial accounts outside India.
Income from Lottery or Horse Races: Any person having income by way of winning a lottery, gambling or horse races.
Income from substantial Agriculture: If the agricultural income exceeds INR 5,000.
How to decide based on income sources and financial activities
Another challenge that can make one choose ITR 1 or ITR 2 is determining how complicated one's financial profile might be.
First of all, identify sources of income by listing them. If your income is from salary, one house property, and any other simple source, then ITR 1 is the best option. In case of income from multiple sources, like capital gains or foreign income, ITR 2 is the best option.
Residential status: Nonresident Indians and resident individuals having foreign assets or income are required to file ITR 2.
Review your agricultural income; the form you need to use can also be based on the level of your agricultural income. Remember the INR 5,000 threshold.
Evaluate the need for detailed disclosure: In case you are required to make more complex disclosures, foreign assets or multiple house property, ITR 2 should be chosen.
ITR 1 vs ITR 2: Common Mistakes to Avoid
Even slight mistakes or errors in filing ITR can complicate matters, including troubles with laws or loss of financial benefits. Some common mistakes to be avoided, particularly with choosing between ITR 1 and ITR 2, are stated below.
Filing the wrong ITR form
Implications: You may be issued a defective return notice by the Income Tax Department, after which you would have to file a revised return within a stipulated time frame.
Prevention: Check the eligibility criteria for each form. If your sources of income have changed or there are other changes in financial conditions as compared to the last assessment year, reassess the appropriate form for you.
Losing out on eligible deductions
Implications: Not availing of all eligible deductions and exemptions can leave you with a high payable tax by reducing the potential refund.
Prevention: Keep a record of every investment and expense that may be eligible for deductions under Section 80C, and Section 80D premiums for medical insurance, tuition fees, and interest on home loans under Section 24.
Errors in Reporting Foreign Income (Applicable to ITR 2 filers)
Implications: Inaccurate reporting of foreign assets or income may attract heavy penalties under the Black Money Act, extending even up to 120% of the tax evaded.
Prevention: Maintaining proper accounts of all foreign income and overseas assets. If needed, engage a tax professional to ensure that all foreign incomes are properly converted into INR using the prescribed exchange rate and accurately reported.
Late Filing and Its Implications
Implications: Late filing of ITR can invite penalties that may range from INR 1,000 to as much as INR 5,000, depending on the amount of your income and the level of delay. Apart from this, some benefits like carrying forward losses to set off against future income get lost in case of filing late.
Prevention: Enter the deadline for filing your return into your calendar as a recurring entry. Perhaps set reminders a month in advance to gather all necessary documents for filing and to make preliminary filings. If you are going to use professional tax services, schedule appointments well in advance of the deadline to avoid last-minute rushes.
ITR 1 vs ITR 2: How to File Online?
Most of the process for filing your Income Tax Returns (ITR) has been kept easy and can be visited by any taxpayer. Here is a step-by-step guide with insights about ITR 1 and ITR 2.
Step-by-step guide to filing ITR 1 and ITR 2 online
Step 1:
Documents Preparation: These include individual documents of PAN card, Aadhaar card, bank statements, salary slips, Form 16/16A, details of investments for deductions, and details of the previous years' returns.
Step 2:
Register or Login to the e-Filing Portal: The assessee has to log on to the https://www.incometax.gov.in/iec/foportal/ website. A new user has to register at the said website with his PAN, which should be his user ID.
Step 3:
Download the Appropriate ITR Utility: Go to the 'Downloads' tab and select the relevant assessment year. Thereafter, download ITR preparation software Excel utility or Java utility) applicable for ITR 1 or ITR 2 depending upon your eligibility.
Step 4:
Fill in Details from Downloaded Utility: Open the utility and fill in all relevant data under the different tabs. Based on the entered information, the utility automatically calculates the tax liability or refund.
Step 5:
Generate and Save the XML: After filling in all details, the data is to be validated through the utility. Generate and save the XML.
Step 6:
Upload the XML File: Log in again to the e-filing portal. At the top menu, click on 'e-File' and select 'Income Tax Return'. Now select assessment year, ITR form number, and submission mode as 'Upload XML'. Now upload the XML that was prepared and click on 'Submit'.
Step 7:
Verification of Your Return: You can verify your return using Aadhaar OTP, EVC through your bank account, or even send a signed printout of ITR-V to CPC, Bangalore within a period of 120 days from the date of filing.
FAQ
Q1. What is ITR 1?
ITR 1, also known as SAHAJ, is an income tax return form for Indian residents whose total income includes salary/pension, one house property, other sources (interest and so on), and agricultural income is up to INR 5,000.
Q2. What is ITR 2?
ITR 2 applies to individuals and Hindu Undivided Families (HUFs) who do not have income from profits and gains of business or profession. It applies to more than one house property, capital gains, foreign income or foreign assets, and agricultural income above INR 5,000.
Q3. Who should file ITR 1?
ITR 1 is for resident individuals having income up to INR 50 lakhs. This includes: salaried/pensioned persons, income from one house property, other sources of income, such as interest, and agricultural income of up to INR 5,000.
Q4. Who can file ITR 2?
Individuals and HUFs who do not have business or professional income by way of proprietorship, especially in case of capital gains income, foreign source income and foreign assets, more than one house property, and agricultural income more than INR 5,000.
Q5. Can I file ITR 1 if I have income from capital gains?
No. If you have capital gains, you must file ITR 2 or any other applicable form, depending upon the nature of your other incomes.
Q6. Are NRIs eligible to file ITR 1?
No. NRIs cannot file ITR 1. They need to file ITR 2 or other relevant forms depending on their income types.
Q7. What are the main differences in type of incomes covered under ITR 1 and ITR 2?
ITR 1: Salary/pension, one house property, other sources, excluding lottery and race horses; agricultural income up to INR 5,000. Whereas, ITR 2 includes more complex incomes like more than one house property, capital gains, foreign income, and agricultural income above INR 5,000.
Q8. Can I switch from ITR 1 to ITR 2 during the year in case my income changes?
If your income profile changes in the course of a financial year, whereby you no longer fall within the ambit of ITR 1, you should file ITR 2 or the form applicable to your new income structure.
Q9. What happens if I file the wrong ITR form?
Filing the wrong ITR form could lead to the processing of your return incorrectly or it will be rejected, together with penalties, notices, and the need for filing a revised return within a given deadline.
Q10. Is it necessary to attach any documents in filing ITR 1 and ITR 2?
Generally, you do not need any document in filing ITR 1 and ITR 2 online. But it is important to keep all the documents ready and available for future use.
Q11. Where can I get ITR forms and file them?
Forms ITR 1 and ITR 2 are available and can be filed online on official website https://www.incometax.gov.in/iec/foportal/. You can download software utilities from the site to prepare your return offline and then upload the same.
Q12. Can a salaried individual use the ITR Form 2 instead of ITR Form 1?
Yes, a salaried individual can use the form ITR 2. If they have multiple sources of income like a house, properties etc. But if the income aligns with the ITR form 1, then it is right to use the ITR 1 form.
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