ITR 1 vs ITR 2: Difference, Meaning & Applicability

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.  

What is ITR 1 and its Applicability?

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:

• Income source should be salary or pension. 
• Income should be from a single property. 
• There can be Income from Other Sources (excluding activities like horse racing, gambling, lotteries and more).
• The person should not own any property outside India. 
• He/she should not receive revenue from other countries. 
• If exempt income (e.g. agricultural income) is less than Rs 5000.  

Applicants do not need to file ITR 1 in case of the following:

• If the person is not an individual taxpayer. 
• If the individual’s Income comes from more than one property. 
• If the individual earns income via a profession or business.
• If the taxpayer receives Income from Other Sources (which includes activities like lotteries, gambling, horse racing, card games, etc.).
• If the person has incurred losses under Income from Other Sources.
• If the person has incurred non-tax-exempted short-term and long-term capital gains. 
• If exempt income is more than Rs 5,000. 

What is ITR 2 and its Applicability? 

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:

• In case they have income from salary/pension.
• In case they have income from more than one property. 
• In case they have Income from Other Sources (including horse racing, card games, lotteries, gambling, etc.).
• In case the taxpayer has capital gains earnings. 
• In case the individual has forwarding losses from the previous financial year under Income from Other Sources. 
• If the individual earns an exempt income of more than Rs 5,000 within a financial year. 
• In case the individual has property or assets abroad. 
• If the applicant does not receive revenue from other nations. 

An individual does not have to file ITR 2 under the following circumstances:

• In case the person qualifies to file ITR 1. 
• If the applicant is an entrepreneur or a HUF with a business or job as an income source. 

Difference Between ITR 1 and ITR 2

Here are the key differences between ITR 1 and ITR 2:

What Should Investors File for Declaring Dividend Income: ITR 1 or ITR 2?

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. 

Final Word

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.