When it comes to filing income tax returns, choosing the right form is essential. If you have not done so, the IT department can reject your return and even charge a penalty for missing the deadline. In this regard, individual taxpayers usually have confusion when it comes to choosing between ITR 1 and ITR 2.
Both income tax return forms cover almost the same income categories but have subtle differences which set them apart. So, if you are planning to file your IT returns, give this article a read. You will gain a clear understanding of the difference between ITR 1 and 2, their applicability, and more.
Salaried resident individuals and Non-Resident Individuals (NRIs) having a maximum income of Rs 50 lakh within a financial year need to choose ITR 1 form while filing their returns. Here are the criteria which determine their applicability:
Applicants do not need to file ITR 1 in case of the following:
ITR 2 is applicable for salaried resident individuals, Hindu Undivided Families (HUFs) and NRIs earning more than Rs 50 lakh within a financial year. Applicants have to choose ITR 2 in case of the following:
An individual does not have to file ITR 2 under the following circumstances:
Here are the key differences between ITR 1 and ITR 2:
|Particulars||ITR 1||ITR 2|
|Applicant type||Individual (resident or non-resident)||Individual (resident or non-resident) and HUFs|
|Income from salary/pension within a financial year||Up to Rs 50 lakh||More than Rs 50 lakh|
|Income from Other Sources||Excluding activities like horse racing, gambling, lotteries, etc.||Including activities like lotteries, gambling, horse racing, card games, etc.|
|Exempt Income||Up to Rs 5,000||More than Rs 5,000|
|Income from Property||Up to 1 house||More than 1 house|
If an individual's yearly dividend income exceeds Rs 5,000, the Tax Deducted at Source (TDS) of 10% is applicable. If the dividend income is from shares held for business purposes, it must be filed under the head Income from Business or Profession. If the shares were held for investment, the returns would be taxable under the head Income from Other Sources.
Based on this, and other criteria mentioned above, investors can decide to file either ITR 1 or 2, as applicable.
So, the next time you get ready to file your income tax returns, check out which form you must submit. Additionally, consider collecting all your income proofs in one place before starting the return filing process. Doing so will enable you to complete the entire process without facing any hassles.