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. 

ITR 1 can be filed for Long Term Capital Gain Income u/s 112A, not exceeding Rs.1.25 lakh. Also, the taxpayer should not have carry forward of any losses under the head.

Both income tax return forms cover almost the same income categories but have subtle differences that 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 having a maximum income of Rs 50 lakh within a financial year need to choose the ITR 1 form while filing their returns. Here are the criteria that determine their applicability:

• The income source should be the following 
  • Salary or Pension, 
  • One house property,
  • Agricultural Income within Rs.5,000,
  • LTCG u/s 112A  not exceeding Rs.1.25 lakh (or),
  • Other Sources (excluding activities like horse racing, gambling, lotteries, and more). Eg., SB interest, FD interest, etc.,
• The person should not own any property outside India. 
• He/she should not receive revenue from other countries. 

Taxpayers are not eligible to file ITR 1 in the following cases:

• Taxpayer with residential status - Non-Resident and Resident but not ordinarily Resident. 
• Has total income exceeding Rs 50 lakhs
• 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 capital gains (He can still file ITR-1 if his capital gains under section 112A do not exceed ₹1.25 lakhs and he has no other capital gains income).
• If agricultural income is more than Rs 5,000. 
• Has invested in unlisted equity shares.
• Is a director in a company.
• Has deferred income tax on ESOP received from the employer being an eligible start-up.

What is ITR 2 and Its Applicability? 

ITR 2 is applicable for salaried resident individuals, Hindu Undivided Families (HUFs) and Non-Resident within a financial year. Applicants have to choose ITR 2 in case of the following:

• Taxpayers not eligible to File ITR-1
• If they have income from the following sources:
  • Salary/pension.
  • More than one house property. 
  • Capital gains (He can still file ITR-1 if his capital gains under section 112A do not exceed ₹1.25 lakhs and he has no other capital gains income)
  • Other Sources (including horse racing, card games, lotteries, gambling, etc.). 
• In case the individual has brought forward losses from the previous financial year. 
• If the individual has an agricultural income of more than Rs 5,000 within a financial year. 
• Taxable income exceeding Rs 50 lakhs
• In case the individual has property or assets abroad. 
• Taxpayers who have foreign income or income from outside India.
• Taxpayers who want to claim DTAA benefits or Relief u/s 90/91.
• Has invested in unlisted equity shares.
• Is a director in a company.
• Has deferred income tax on ESOP received from an employer being an eligible start-up.

An individual who is not eligible to file ITR 2 under the following circumstances:

• Taxpayers (Individual or HUF) having income from Business or profession are not eligible to file ITR.
• Companies, Firms, and trusts are not eligible to file ITR 2 or ITR 1.

Difference Between ITR 1 and ITR 2

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

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.