ITR1 vs ITR2: Know the Differences, Meaning & Applicability
ITR1 vs ITR2: Know the Differences, Meaning & Applicability
Navigating the complexities of filing income tax returns in India requires a clear understanding of the right form to use—ITR 1 or ITR2. The IT department oversees this process, and improper filing can result in penalties or missed deadlines. Individual taxpayers often face confusion when choosing between ITR 1 (SAHAJ) and ITR 2, as both cover similar income categories but have distinct differences. The main difference between ITR 1 and ITR 2 is that ITR 1 is used for individuals with a salary income under Rs. 50 lakhs, while ITR 2 is for those with capital gains and multiple house properties. This article gives complete information on ITR1 vs ITR2 and all the differences involved.
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ITR-1, also known as ITR 1 (SAHAJ), is a streamlined tax return form designed for Indian salaried individuals. This form is ideal for individuals earning income from salary, one house property, other sources including interest, and agricultural income up to INR 5,000. For salaried resident individuals with a maximum income of “Rs 50 lakh” within a financial year, choosing ITR-1 facilitates a hassle-free filing experience. The primary goal of ITR-1 is to simplify the filing process and promote timely tax compliance for those with uncomplicated income structures.
Who should File ITR-1?
Resident individuals can file ITR-1 if their total income during the financial year does not exceed ₹ 50 lakh and their income is primarily from the following sources:
- Salary
- One house property
- Family pension
- Agricultural income (up to ₹ 5,000)
- Other income sources include:
- Interest from Savings Accounts
- Interest from Deposits (Bank / Post Office / Cooperative Society)
- Interest from Income Tax Refund
- Interest received on Enhanced Compensation
- Any other Interest Income
- Family Pension
- Income of Spouse (other than those covered under Portuguese Civil Code) or Minor (clubbed only if the source of income is within the specified limits mentioned above)
What are the Key Sections and Components of ITR 1 Form?
ITR-1 is a relatively simple income tax return form, designed for individuals with primarily salary income and limited other sources of income. It consists of six primary sections:
Pre-filled Sections:
- Personal Information: This section collects basic details about the taxpayer, including name, PAN number, date of birth, and residential status.
- Gross Total Income: This section summarises the taxpayer’s total income from all sources, including salary, house property, capital gains, business or profession, and other income.
- Total Deductions: This section allows taxpayers claiming deductions under various sections of the Income Tax Act, such as Section 80C (investments), Section 80D (health insurance), and Section 80DD (disability).
- Tax Paid: This section details the taxes paid by the taxpayer during the financial year, including advance tax, TDS deducted by employers, and self-assessment tax.
- Total Tax Liability: This section calculates the total tax liability based on the gross total income and deductions claimed.
Summary Section:
- Tax Computation: This section summarises the tax liability, tax credits, and net tax payable or refundable.
What are the Benefits of the ITR 1 (Sahaj) Form?
Below, we have given several benefits of the ITR 1 (Sahaj) Form:
- Simplicity: ITR 1 is designed for ease of use, making it ideal for individuals with straightforward income sources, such as salary and one house property.
- Streamlined Filing: It simplifies the tax filing process, reducing the complexity associated with other forms.
- Hassle-Free Compliance: The form encourages timely tax compliance by providing a good interface and clear instructions.
- Income Cap: Suitable for taxpayers with an annual income of up to Rs 50 lakh, making it accessible for a large segment of salaried individuals.
- Coverage: Includes income from salary, house property, other sources like interest, and agricultural income up to INR 5,000, catering to common income scenarios.
ITR 2 – A Brief Overview
ITR 2 is a specialised tax return form designed for individuals and Hindu Undivided Families (HUFs) who do not derive income from any business or profession. This form is intended for those with income from diverse sources, including multiple house properties, capital gains, foreign sources or assets, and agricultural income exceeding INR 5,000. ITR 2 facilitates organised and accurate filing for taxpayers with complex financial situations, ensuring that all financial activities are reported in detail. Unlike other forms, ITR 2 is tailored for individuals and HUFs earning income beyond ‘Profits and Gains from Business or Profession,’ making it suitable for a broader range of income scenarios.
Who should File ITR 2?
ITR-2 is the income tax return form designed for individuals and Hindu Undivided Families (HUFs) who:
- Are ineligible to file ITR-1 (Sahaj): This means they do not meet the simplified criteria for ITR-1, such as having income from salary, pension, or house property.
- Do not have income from business or profession
- Do not have income from interest, salary, bonus, commission, or remuneration from a partnership firm
- Have income of another person to be clubbed: If you have income that needs to be included in your taxable income due to clubbing provisions (e.g., income of a minor child, spouse), and this income falls within the categories mentioned above, you should file ITR-2.
What are the Key Sections and Components of ITR 2 Form?
The ITR 2 form is divided into several sections and schedules to capture various types of income and deductions. Here’s a breakdown of the key components:
Part A – General Information
- Personal Information: Name, address, PAN number, date of birth, marital status, etc.
- Assessment Year: The financial year for which the return is being filed.
- Declaration: A declaration stating that the information provided is accurate and complete.
Schedules
- Schedule Salary: Details of salary or pension income, exempt allowances, and deductions under section 16.
- Schedule House Property: Information about income from house property, including rental income, expenses, and deductions.
- Schedule Capital Gains: Details of capital gains or losses from the sale of assets, including property, shares, or securities.
- Schedule 112A and Schedule-115AD(1)(iii) proviso: Specific schedules for certain types of capital gains.
- Schedule Other Sources: Information about income from other sources, such as interest, dividends, and royalties.
- Schedule CYLA: Details regarding income set-off after the current year’s losses.
- Schedule BFLA: Details regarding income set-off of brought forward losses of earlier years.
- Schedule CFL: Details of income losses carried forward to future years.
- Schedule VI-A: Details regarding the deductions to be claimed under Section 80.
- Schedule 80G and Schedule 80GGA: Details of deductions for donations to charitable institutions.
- Schedule AMT: Details of Alternative Minimum Tax (AMT) calculations.
- Schedule AMTC: Details of Alternative Minimum Tax Credit.
- Schedule SPI: Details of Income of Specified Persons.
- Schedule SI: Details of Securities Transaction Tax.
- Schedule EI: Details of Exempt income
- Schedule PTI: Details of income received from business trust or investment fund.
- Schedule FSI: Details of Foreign Source Income.
- Schedule TR: Details of Tax Relief.
- Schedule FA: Details of Foreign Assets.
- Schedule 5A: Details of Income apportionment for Portuguese Civil Code taxpayers.
- Schedule AL: Details of Asset and liability disclosure for high-income earners, with additional requirements for non-residents.
Part B – Total Income, Tax Paid, and Total Tax Liability
- Total Income (TI): The total taxable income after considering all deductions and exemptions.
- Tax Paid: Details of taxes paid, including TDS, TCS, and advance tax.
- Total Tax Liability (TTI): The total tax payable after considering any deductions or credits.
What are the Benefits of the ITR 2 Form?
The benefits of the ITR 2 form include:
- Comprehensive Reporting: Allows for the inclusion of income from various sources, such as multiple house properties, capital gains, foreign income, and agricultural income above INR 5,000.
- Detailed Financial Disclosure: Facilitates the organised and accurate reporting of complex financial activities, ensuring thorough tax compliance.
- Suitable for Non-Business Income: Ideal for individuals and Hindu Undivided Families (HUFs) who do not earn income from business or profession but have diverse sources of income.
- Tax Benefits: Enables taxpayers to claim deductions and exemptions related to their various sources of income, potentially reducing their tax liability.
- Enhanced Accuracy: Provides a structured format that helps minimise errors and omissions in the tax return, leading to accurate tax reporting.
Let’s get into all the major differences on ITR1 vs ITR2,
ITR1 vs ITR2: What are the Differences between ITR-1 and ITR 2?
In the table below, we have given the differences between ITR 1 and ITR 2 forms,
| Criteria | ITR-1 (Sahaj) | ITR-2 |
| Eligibility | Individuals being a resident (other than not ordinarily resident) with total income up to ₹50 lakh | Individuals and HUFs not having income from business/profession |
| Income Sources |
– Salary/Pension – Single House Property – Other Sources (Interest, etc.) – Agricultural income up to ₹5,000 |
– Salary/Pension – Multiple House Properties – Capital Gains – Other Sources – Agricultural income exceeding ₹5,000 |
| Income Limit | Total income up to ₹50 lakh | Taxable income exceeding ₹50 lakh |
| Resident Status | Residents and not ordinarily residents only; not for non-residents | Residents, not ordinarily residents, and non-residents |
| Capital Gains | Not applicable | Applicable |
| Foreign Income/Assets | Not applicable | Applicable |
| Director in a Company or Unlisted Shares | Not applicable | Applicable |
| Clubbing of Income | Allowed for certain sources like interest | Broader clubbing of income including salary, house property, capital gains, etc. |
| Schedule for TDS and TCS | Basic details required | Detailed schedules required |
| Tax Deductions | Limited reporting under Chapter VI-A | Detailed reporting under Chapter VI-A |
Should I file ITR 1 or ITR 2?
ITR 1 is generally suitable for individuals with simpler financial profiles, such as those with income from salary, a single property, interest, and agricultural income (below INR 5,000), provided they are Indian residents without foreign assets or income.
ITR 2 is designed for individuals with more complex financial situations, including those with multiple properties, capital gains, foreign income or assets, income from lottery or horse races, or agricultural income exceeding INR 5,000.
To determine the appropriate form, individuals should carefully evaluate their income sources and financial activities. If their income is primarily from salary, a single property, and other straightforward sources, ITR 1 is likely the best choice. However, if they have income from multiple sources, including capital gains, foreign income, or complex financial situations, ITR 2 is generally more suitable. Additionally, residential status and the level of agricultural income should be considered when making this decision.
How to File ITR 1 or ITR2 Forms Online?
Below, we have given the step-by-step process to file ITR 1 or ITR2 form:
- Login to the Income Tax e-Filing Portal: Visit the official Income Tax e-Filing portal.
- Select “File Income Tax Return”: Click on this option from the main menu.
- Choose the Assessment Year: Select the relevant assessment year for which you’re filing the return (e.g., AY 2024-25 for the financial year 2023-24).
- Select “Individual” and the ITR form: Based on your status and return type, either ITR 1 or ITR2, choose the appropriate options.
- Provide Basic Information: Enter your personal details, PAN number, and other required information.
- Fill in Income Details: Provide details of your salary, house property income, and other sources of income.
- Claim Deductions: If applicable, claim deductions such as Section 80C, Section 80D (medical insurance), etc.
- Calculate Tax Liability: The portal will calculate your tax liability automatically based on the information provided.
- Pay Tax (if applicable): If you have a tax liability, choose a payment method and complete the payment.
- E-Verify Your Return: To complete the filing process, you’ll need to e-verify your return. You can do this using Aadhaar OTP, net banking, or sending a physical verification form.
ITR1 vs ITR2: Common Mistakes to Avoid
When filing your income tax return (ITR) in India, It is important to choose the correct form and avoid common mistakes that could lead to penalties or complications. Here are five common mistakes to watch out for when deciding between ITR 1 and ITR 2:
- Incorrect Form Selection: One of the most frequent errors is selecting the wrong ITR form. ITR 1 is generally for individuals with simpler financial profiles, while ITR 2 is for those with more complex financial situations. Carefully review your income sources and economic activities to ensure you choose the correct form between ITR1 vs ITR2.
- Incomplete Information: Failing to provide complete and accurate information can result in delays or penalties. Double-check all sections of the form, especially those related to income, deductions, and exemptions.
- Incorrect Deductions: Claiming incorrect or excessive deductions can lead to scrutiny and potential penalties. Ensure that valid documents support your deductions and comply with tax regulations.
- Mismatched PAN and Aadhaar: Verifying your Permanent Account Number (PAN) and Aadhaar number are correctly linked is essential. Mismatched information can cause delays in processing your return.
- Late Filing: Filing your ITR after the due date can result in penalties. Plan and ensure you submit your return on time.
Conclusion
Understanding the differences between ITR 1 and ITR 2 is crucial for accurately filing income tax returns in India. ITR 1 is suitable for individuals with simpler financial profiles, while ITR 2 is designed for more complex financial situations. By carefully reviewing your income sources and financial activities, you can select the appropriate form (ITR1 vs ITR2) and avoid mistakes that could lead to penalties or complications.
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