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ITR-1 vs ITR-2: Eligibility and Selection for AY 2026-27

Tax Insights Team
  • Updated

 

Applicable period: FY 2025-26 | AY 2026-27
Applicable law: Income-tax Act, 1961 and notified AY 2026-27 forms

ITR-1 is a simplified form for eligible resident individuals with limited income sources. ITR-2 is for individuals and HUFs who do not have business or professional income but require broader reporting.

ITR-1 and ITR-2 Compared

Point ITR-1 ITR-2
Taxpayer Resident ordinarily resident individual only. Individual or HUF, including resident, RNOR or non-resident, where applicable.
Total income Up to ₹50 lakh. No ₹50 lakh eligibility ceiling merely for selecting ITR-2.
Salary or pension Permitted. Permitted.
House property Up to two eligible house properties for AY 2026-27. Suitable for more complex or additional house-property reporting.
Capital gains Only eligible long-term capital gains under section 112A up to ₹1.25 lakh. Short-term and long-term capital gains, subject to applicable schedules.
Business or profession Not permitted. Not permitted. Use ITR-3 or check ITR-4.
Foreign assets or income Not permitted. Can be reported through the applicable schedules.

Who Can Generally Use ITR-1?

An individual may use ITR-1 for AY 2026-27 when all conditions are met, including:

  • Resident ordinarily resident status.
  • Total income not exceeding ₹50 lakh.
  • Income from salary or pension, up to two eligible house properties and permitted other sources.
  • Agricultural income not exceeding ₹5,000.
  • Long-term capital gains under section 112A not exceeding ₹1.25 lakh.

When Is ITR-1 Not Suitable?

ITR-1 is generally unavailable where the taxpayer has:

  • RNOR or non-resident status.
  • Business or professional income.
  • Short-term capital gains or section 112A gains above ₹1.25 lakh.
  • Foreign assets, foreign income or foreign signing authority.
  • More than two house properties.
  • Directorship in a company or investment in unlisted equity shares.
  • Brought-forward or carry-forward losses requiring detailed schedules.
  • Any other income or condition excluded by the notified form.
Do not select ITR-1 only because income is below ₹50 lakh. The income sources and exclusion conditions are equally important.

When to Use ITR-2

ITR-2 is generally appropriate for an individual or HUF without business or professional income who has capital gains, multiple or complex house properties, foreign assets or income, income above ₹50 lakh, directorship, unlisted shares or other disclosures not supported by ITR-1.

Capital-gain update: A small eligible section 112A long-term capital gain does not automatically require ITR-2 for AY 2026-27. ITR-1 may be used up to the notified ₹1.25 lakh limit if every other ITR-1 condition is satisfied.

 

Selection Steps in myITreturn

  1. Confirm residential status and taxpayer type.
  2. Review salary, house-property, capital-gain, other-source and foreign-income details.
  3. Check exclusions such as directorship, unlisted shares and carried-forward losses.
  4. Allow the filing flow to determine the applicable form, then review the selected ITR before submission.

 

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