ITR 1 vs ITR 2: Difference, Meaning & Applicability

When it comes to filing income tax returns, choosing the right ITR form is essential. If a taxpayer files a wrong ITR form, the IT department can reject the 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 2 - Excel Based Utility released

The excel utilities for ITR-2 and ITR-3 is released by the Income Tax Department for FY 2024-25 (AY 2025-26). Taxpayers who have business income and capital gains income can now proceed to file the returns using the excel based utility.

ITR 2 Excel Based Utility download

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?

Form ITR-1, also known as ITR-1 (SAHAJ) is one of the ITR forms that is best suited for salaried individuals. This form is for taxpayers having salary income, one house property, agricultural income not exceeding Rs. 5000, income from other sources, and long-term capital gains u/s 112A not exceeding Rs. 1.25 lakhs. However, the total income of the taxpayer opting for ITR-1 should not be more than Rs. 50 lakhs for the financial year. 

Resident individuals with total income below Rs. 50 lakhs, can file Form ITR-1 if they fulfill the following conditions:

• 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 with no brought forward or carry forward of losses,
  • 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. 
• The taxpayer should not have foreign income. 

Who is Not Eligible For ITR-1?

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

• Taxpayer who is a Non-Resident or 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 with short-term capital gains, long-term capital gains u/s 112A exceeding Rs. 1.25 lakhs, long-term capital gains other than u/s 112A, and brought forward or carry forwards of losses. 
• 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? 

Form ITR-2 is specifically for individuals and HUFs who do not have business or professional income. Individuals and HUFs with income from salary, multiple house property, all kind of capital gains, foreign income, taxpayers holiding unlisted shares, and agricultural income exceeding Rs. 5,000 can file ITR-2. Taxpayers with total income more than Rs. 50 lakhs in the financial year can also opt for Form ITR-2. ITR-2 covers a more broader range of income sources compared to ITR-1. 

ITR-2 is applicable for salaried resident individuals, Hindu Undivided Families (HUFs) and Non-Resident. ITR-2 is applicable to taxpayers who fulfill the following conditions: 

• Taxpayers not eligible to File ITR-1 (SAHAJ)
• 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.

Who is Not Eligible For ITR-2?

An individual or HUF 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.

ITR-1 and ITR-2 Differences

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.