ITR 1 vs ITR 2: Understanding the Differences, Uses, and Eligibility

Filing an Income Tax Return (ITR) is one of the essential financial responsibilities every taxpayer in India must fulfill. However, the Income Tax Return form you need to file depends on various factors such as the nature of your income, your total earnings, and your eligibility. Among the different ITR forms available, ITR 1 and ITR 2 are the most commonly used by individual taxpayers. This article will explain the key differences between ITR 1 and ITR 2, their meaning, applicability, and when you should use each.

What is ITR 1 (Sahaj)?

ITR 1, also known as Sahaj, is a simple and straightforward tax return form for individuals whose income falls under certain categories. This form is typically used by individuals who have a single source of income such as salary or pension, and they do not have complex financial portfolios.

Who Should Use ITR 1?

ITR 1 is meant for resident individuals who meet the following criteria:

Income from Salary or Pension: You should have income solely from salary or pension.

Income from One House Property: If you earn rental income from one house property.

Other Sources: Income from other sources, like interest income from savings or fixed deposits.

Total Income Below ₹50 Lakh: Your total income should not exceed ₹50 lakh during the financial year.

No Capital Gains or Business Income: ITR 1 is not applicable if you have capital gains or business income.

This form allows for a simplified tax filing process since you are only required to provide basic information about your income and deductions. It is the easiest form and can be filed by individuals who have relatively straightforward income sources.

Eligibility for ITR 1

You can file ITR 1 if:

• Your total income during the year does not exceed ₹50 lakh.
• Your income is solely from salary, pension, one house property, and other sources (such as interest or dividend).
• You do not have capital gains, business income, or foreign assets or income.
• You do not need to report any foreign income or assets, and you do not have any complex deductions or exemptions.
• ITR 1 is ideal for salaried individuals, pensioners, and taxpayers with simple sources of income, making it the most frequently filed ITR form.

What is ITR 2?

ITR 2 is a more comprehensive form compared to ITR 1. It is meant for individuals who have more complex sources of income. It is designed for taxpayers whose income comes from multiple sources, including capital gains, foreign income, or business income.

Who Should Use ITR 2?

ITR 2 is generally used by:

Individuals with Income from Multiple Sources: This includes income from capital gains, foreign income, or multiple house properties.

Capital Gains: If you have earned capital gains from the sale of shares, property, or other investments, you must use ITR 2.

Foreign Income: If you have income from foreign sources or own foreign assets, you are required to file ITR 2.

Business or Profession Income: Even if you don't have a regular business, but you have earned income from a profession, you will need to file ITR 2.

Multiple House Properties: If you have income from multiple house properties, including rental income, ITR 2 should be used.

Eligibility for ITR 2

You are eligible to file ITR 2 if:

• Your total income exceeds ₹50 lakh.
• You have capital gains (from the sale of shares, property, etc.).
• You earn income from business or profession.
• You have foreign income or assets located outside India.
• You have more than one house property.
• You are an individual or Hindu Undivided Family (HUF).

Unlike ITR 1, ITR 2 requires you to provide more detailed information about your financial portfolio, including your capital gains, foreign income, and more. This form is also meant for those who need to declare income from multiple sources and claim specific exemptions or deductions.

Key Differences Between ITR 1 and ITR 2