ITR-1 vs ITR-2: Which Form Is Right for Salaried Individuals with Capital Gains?

Filing your Income Tax Return (ITR) can be a complex process, especially when choosing the correct form for your specific financial situation. For salaried individuals, the most common forms for filing ITR are ITR-1 and ITR-2. These forms cater to different types of taxpayers, and selecting the right one ensures compliance with tax regulations while making the process smoother. Let us understand the key differences between ITR-1 and ITR-2, explain which form is best suited for salaried individuals with capital gains, and highlight the key points you need to consider while filing your return. Additionally, we’ll cover the latest updates for FY 2024-25 (Assessment Year 2025-26) that you should be aware of while filing your taxes.

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Table of Contents:

• Overview of ITR-1 and ITR-2

• Which Form is Right for Salaried Individuals with Capital Gains?

• Key Points to Consider

• Recent Updates for FY 2024-25 (AY 2025-26)

• Conclusion

• FAQs

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Overview of ITR-1 and ITR-2

ITR-1, also known as the Sahaj form, is designed for salaried individuals and pensioners who earn income primarily through salary, pensions, or from other sources like interest. This form is the simplest and is intended for those who do not have any complex financial transactions or investments that need to be reported. It is suitable for individuals who:

• Have income from salary/pension

• Have income from a single house property (without claiming depreciation)

• Have income from other sources (such as interest)

On the other hand, ITR-2 is a more comprehensive form, intended for individuals who have more complex income sources. It is used by individuals who:

• Have income from salary/pension

• Have income from more than one house property

• Have capital gains income

• Are involved in foreign income or assets, and

• Have income from business/profession (in some cases)
  

While ITR-1 is easier to fill out, ITR-2 is necessary for those with more diverse income sources, such as capital gains, which cannot be reported in ITR-1.

Which Form is Right for Salaried Individuals with Capital Gains?

For salaried individuals who also earn capital gains, ITR-2 is the correct form to file. Capital gains income, whether from the sale of stocks, bonds, mutual funds, or property, requires more detailed reporting than what ITR-1 allows. If you are a salaried individual and have earned capital gains during the financial year, you will need to use ITR-2 to report:

• Short-term capital gains (STCG)

• Long-term capital gains (LTCG)

• Income from the sale of mutual funds, shares, or property

In addition to the capital gains section, ITR-2 will also allow you to report other income sources like salary, rental income, and income from other sources, providing a comprehensive view of your finances.

Key Points to Consider

When it comes to filing your Income Tax Return (ITR), selecting the right form is crucial for ensuring compliance with tax laws. The Income Tax Return forms are divided into different types based on the income sources and complexity of the taxpayer’s financial situation. ITR-1 and ITR-2 are among the most commonly used forms, but understanding when to use each one is key to filing accurately. Let’s take a deep dive into the factors that should guide your choice between ITR-1 and ITR-2.

Income Sources: ITR-1 vs ITR-2

• ITR-1 (Sahaj): This form is designed for individuals who have simple income sources. If your income comes from salary, pension, one house property, and other sources (like interest or dividends), and you do not have any capital gains or foreign income, ITR-1 is the appropriate form. It is the simplest form and requires minimal details.
  

• ITR-2: This form is meant for individuals who have more complex income sources. If you earn income from multiple house properties, capital gains, foreign income, or any other income that needs additional disclosure, you should opt for ITR-2. It is also the appropriate form for individuals or Hindu Undivided Families (HUFs) who are not eligible to file ITR-1.

Capital Gains Reporting: ITR-1 vs ITR-2

One of the primary differences between ITR-1 and ITR-2 lies in their ability to report capital gains:

• ITR-1: This form does not allow you to report capital gains. If you have sold any assets such as stocks, mutual funds, or property, you cannot use ITR-1 to report the gains (whether short-term capital gains (STCG) or long-term capital gains (LTCG)). If your only source of income is salary or pension, and you haven’t made any capital transactions, then ITR-1 is sufficient for your filing.
  

• ITR-2: This form is specifically designed for individuals who need to report capital gains. If you have sold stocks, mutual funds, real estate, or any other assets during the year, ITR-2 is the correct form to use. It allows you to accurately report STCG or LTCG along with the appropriate tax calculations and exemptions. Additionally, if you’re claiming deductions under Section 54 or any other related provisions, ITR-2 allows for such disclosures.

Other Sources: Business Income, Foreign Assets, and Additional Disclosures

• ITR-1: While ITR-1 is relatively simple and designed for taxpayers with straightforward income, it has its limitations. This form cannot be used if you have income from sources such as business or profession, foreign assets, or foreign income. It does not provide a field for additional disclosures related to complex tax matters or assets located outside India.
  

• ITR-2: If you receive income from business profits, foreign assets, foreign income, or income that requires further disclosures, you need to use ITR-2. The form accommodates a wider range of income sources, including income from multiple properties, foreign assets, income from partnerships, and income related to directorships in companies. It also allows for detailed reporting of business-related expenses, deductions, and foreign income.

Key Examples of When to Use ITR-2:

• If you receive income from multiple house properties (e.g., rental income from two or more properties).

• If you have made any capital gains (whether from stocks, mutual funds, or property sales).

• If you have foreign income or foreign assets to report.

• If you need to disclose complex income sources such as income from business profits.

Additional Considerations When Filing ITR-1 vs ITR-2

• Eligibility: Only individuals earning simple income from salary, pension, one house property, and other minor sources (such as interest income or dividends) can use ITR-1. If you earn from any other source, including capital gains or business income, you must file ITR-2.
  

• Deductions: Both ITR-1 and ITR-2 allow you to claim deductions under Section 80C (such as for PPF, ELSS), Section 80D (health insurance), and other relevant sections. However, ITR-2 provides more flexibility for additional claims related to business income, losses, and foreign income.
  

• Taxpayers with Foreign Assets: If you hold foreign assets (such as property or income in foreign banks), you must file ITR-2. ITR-1 does not provide fields for reporting such assets.

Recent Updates for FY 2024-25 (AY 2025-26)

For FY 2024-25 (Assessment Year 2025-26), the ITR forms have undergone several updates, particularly in response to new tax regulations, changes in income tax slabs, and updates to the reporting process. Some of the important updates include:

• New Tax Regime Options: The new tax regime continues to offer lower tax slabs but without deductions. If you opt for the new tax regime, you must explicitly select it in the form. The forms now make it easier to switch between the old and new tax regimes, depending on which offers the best benefit.
  

• Disclosure of Foreign Assets: For individuals with foreign assets or income, the disclosure process has been further streamlined in ITR-2. The new form includes more detailed fields for reporting foreign income, assets, and bank accounts, in line with the government's increased focus on international tax compliance.
  

• Capital Gains Updates: The reporting of capital gains has become more detailed, especially concerning the sale of listed securities and mutual funds. Taxpayers now need to disclose whether they have claimed exemptions, such as the long-term capital gains exemption on equity shares and equity mutual funds.

Conclusion

Choosing the right form for your Income Tax Return is crucial for accurate and efficient filing. Salaried individuals with simple income sources can file ITR-1, while those with capital gains or more complex financial situations should opt for ITR-2. It is essential to stay updated with the latest ITR form changes to ensure that all income is reported correctly and any deductions or exemptions are maximized. For salaried individuals with capital gains, ITR-2 is the necessary form, as it allows for detailed reporting of capital gains along with other income. Be sure to check for any updates for FY 2024-25 to ensure you file accurately and avoid penalties. For anyone looking for assistance in tax filing, it is highly recommended to download theTaxBuddy mobile app for a simplified, secure, and hassle-free experience.

FAQs

Q1: How do I know which ITR form to use?

The type of ITR form you need to use depends on the nature of your income and whether you meet specific criteria outlined by the Income Tax Department. For salaried individuals with income from salaries, one house property, and other sources like interest, ITR-1 (Sahaj) is appropriate. If your income includes capital gains, income from foreign assets, or you are a director in a company, you’ll need to use ITR-2. For business owners and professionals, ITR-3 or ITR-4 may be required depending on whether you have income from a business or profession. Understanding your income sources is key to selecting the right form.

Q2: Can I use TaxBuddy to file my ITR?

Yes, TaxBuddy offers an intuitive platform that makes filing your ITR easier. Whether you choose self-filing or expert-assisted services, TaxBuddy helps you navigate the entire process, ensuring you file accurately and on time. The platform also simplifies the process for complex tax filings, such as capital gains, business income, and TDS credits.

Q3: What is the deadline for filing ITR for FY 2024-25?

For FY 2024-25 (Assessment Year 2025-26), the ITR filing deadline for individuals and non-audit assessees is September 15, 2025. Businesses requiring audits must file by October 31, 2025, and businesses with transfer pricing requirements have until November 30, 2025. For those who miss the deadline, belated returns can be filed by December 31, 2025, with penalties.

Q4: Do I need to file ITR if I have no income?

Even if you have no income for a financial year, there may still be situations where you are required to file an ITR. For example, if you want to carry forward losses from previous years, or if you have high-value transactions (such as deposits or foreign remittances) that may raise queries with the tax authorities. Additionally, filing an ITR helps in maintaining a record of your financial standing.

Q5: How do I file ITR using JSON files?

Filing ITR using JSON files allows you to submit your returns offline. First, you need to download the appropriate ITR utility from the Income Tax Department’s portal, fill it in with your data, and save the form as a JSON file. Once completed, you can upload this JSON file on the e-filing portal for submission. This method ensures that the data is correctly mapped to the appropriate fields on the tax form, making it a reliable option for those who prefer offline filing.

Q6: What are the new changes for FY 2024-25 ITR forms?

The ITR forms for FY 2024-25 include several updates, mainly related to the reporting of capital gains, TDS, and exemptions. Specific changes include the enhanced reporting for capital gains, updates to the TDS section to capture credits more accurately, and new fields to report income from foreign assets. It’s crucial to be familiar with these changes, as they affect how income, deductions, and credits are reported, ensuring you are compliant with the updated regulations.

Q7: How long does it take to process an ITR filed through TaxBuddy?

The processing time for an ITR filed through TaxBuddy depends on the complexity of your return. Simple returns are processed relatively quickly, and you’ll typically receive confirmation of filing within a few hours. However, for more complex returns, such as those requiring expert assistance or those involving TDS adjustments or business income, processing may take a bit longer. TaxBuddy provides updates and notifications to keep you informed throughout the process.

Q8: What if I miss the ITR filing deadline?

If you miss the deadline, you can still file a belated return, but you will be subject to penalties and interest on unpaid taxes. The penalty for filing late can be up to ₹5,000, and interest will be charged under sections 234A, 234B, and 234C. It’s important to file as soon as possible after the deadline to minimize penalties and avoid further complications, such as delays in processing refunds or tax audits.

Q9: Can I track my refund status on TaxBuddy?

Yes, TaxBuddy allows you to track the status of your refund directly on the platform. After filing your ITR, you can check the progress of your refund to ensure that it is processed timely. TaxBuddy makes it easy to stay updated on your refund status and notifies you if any further action is required.

Q10: How does TaxBuddy help with error-free ITR filing?

TaxBuddy uses advanced AI-driven tools to help ensure your ITR is filed without errors. The platform automatically checks for discrepancies, ensuring that your data is consistent and accurate. This includes verifying income entries, ensuring correct TDS credits are applied, and catching any potential errors in the tax calculation. This helps reduce the risk of filing mistakes that could trigger penalties or delays in processing.

Q11: Do I need to file ITR if I have TDS?

Yes, if TDS (Tax Deducted at Source) has been deducted from your income, you are required to file an ITR to claim the credit for the tax that has already been paid on your behalf. Filing an ITR allows you to reconcile the TDS credit with your actual tax liability and ensure that any excess TDS paid is refunded to you.

Q12: How can I get expert help with filing my ITR?

TaxBuddy offers expert-assisted plans where qualified tax professionals guide you through the entire ITR filing process. These experts help ensure that your return is filed accurately, that you comply with all tax laws, and that you take full advantage of any available deductions or exemptions. Whether you’re a first-time filer or have complex tax needs, TaxBuddy’s experts provide the support you need for a seamless tax filing experience.