ITR 1 vs ITR 2: Know the Difference Between Them

Under the Indian IT laws, taxpayers must file tax returns every year. Even people who fall under the 0% tax slab should file tax returns as it brings in a host of advantages.But a common problem among people filing tax returns for the first time, is selecting the right form to file their returns successfully. The IT department has introduced as many as seven different forms for all the different types of taxpayers.ITR 1 and ITR 2 are probably the most common as they are used by most individual taxpayers and HUFs. If you are confused between the two, here is how these two forms are different from each other-

Also known as ‘Sahaj’, ITR 1 should be filed by individual taxpayers who are salaried employees or receive a pension. It can also be used by taxpayers who earn any kind of income from single house property or earn exempt income, like agricultural income, up to Rs. 5,000 in a financial year.Even in case if a taxpayer has other income sources, apart from gambling, lotteries, etc., he/she should use ITR 1 for filing tax returns. But note that the total income for the financial year should not be above Rs. 50 lakhs for using this form.

ITR 2 is for individuals and HUFs (Hindu Undivided Families) who have earned any kind of income from selling an asset or a property with the total income in the financial year above Rs. 50 lakhs. Even in case if the taxpayer earns income from more than one house property or their exempt income, like agricultural income, is above Rs. 5,000, ITR 2 should be used for filing tax returns.If you have brought forward losses or earn income from sources like gambling, lotteries, etc., ITR 2 would be the correct form for filing tax returns.

Here is a quick overview of how these forms are different-

Irrespective of whether you use ITR 1 or ITR 2 for filing tax returns, you will also need a few documents to file the returns successfully. Here is a list of common documents for filing tax returns-

• Bank statement
• ITR of the previous year
• TDS certificates
• Interest statement
• Savings certificates or deductions proof
• P/L account statement, balance sheet, etc. if applicable

Now that you know the differences between ITR 1 vs. ITR 2 , it shouldn’t be difficult for you to choose the form that is right for you. In case if you are still not sure, it is highly recommended that you consult a tax professional.Selecting the wrong form to file your tax returns would only lead to wastage of time and effort. If you fail to file your tax returns using the right form before the due dates, you might also have to pay hefty penalties.

You are allowed to your ITR. Here is the process to register or login to the e-filing portal-

• Visit the e-filing website ( https://www.incometax.gov.in/iec/foportal ).
• If you have registered yourself on the portal, then click on the ‘Login Here’ button.
• If you haven’t registered, then click the ‘Register Yourself’ button.
• After that, click on the ‘Taxpayer’ option.
• Enter your PAN card details. Click on ‘Validate’. After that, click on ‘Continue’.
• Enter your details, like name, gender, address, date of birth, residential status, etc.
• Enter your registered mobile number and Email ID.
• Once you fill out the form, click on ‘Continue’.
• After you verify the details, a 6-digit OTP will be sent to your registered mobile number and Email ID.
• Enter the OTP.
• You’ll be redirected to a new page where you’ll need to check the details entered by you. If any detail is incorrect, then you can change it. After that, another OTP will be sent to validate the change in detail.
• You must set up your password and secure login message.
• Click on ‘Register’, and after that, you’ll receive an acknowledgement message that states the registration process is finished.

Follow the below process to e-file ITR-

• Visit the e-filing website ( https://eportal.incometax.gov.in/iec/foservices/#/login ).
• Click on the ‘Login’ button.
• Enter your Username and password. After that, click on ‘Continue’.
• Click on ‘e-file’. After that, click on ‘File Income Tax Return’.
• Choose the Assessment year.
• You’ll be asked whether you want to file your returns online or offline. Choose online.
• After that, you’ll have to select the status applicable to you. You need to select between three options- Individual, Hindu Undivided Family (HUF), or other. Select the option ‘Individual’.
• Choose the ITR form you are required to file. You can select the ITR-1 form .
• In the next step, you need to select the reason you’re filing the returns.
• Enter the bank account details. In case you have provided your bank account details, you must pre-validate it.
• You will be redirected to a new page to file your returns. There’ll be details mentioned on this page that you must ensure are correct. Once you confirm the summary of your returns, you can validate it.
• After that, you need to verify your returns. Send its hard copy to the Income Tax Department. It’s necessary to finish the verification process.

ITR-1 or Sahaj form can be filed by an individual. An individual becomes eligible to file ITR-1 if he/she meets any of the below requirements-

• The individual is a salaried employee and not an entrepreneur or a businessperson.
• The individual receives a pension.
• The individual receives a tax-free income up to Rs. 5,000, such as agriculture income.
• The individual earns an income from one house property.
• The individual has no property in any other country.
• The individual isn’t receiving an income from other countries.
• The individual isn’t earning an income from any activity, like gambling, lottery, etc.
• The individual’s total income is below Rs. 50 Lakhs.
• The individual is receiving an income from investments in shares or FDs.
• The individual is earning an income from taxable capital gains .

ITR-2 form can be filed by people who have earned an income by selling of an asset or property. It can also be filed by people who are earning an income from other countries. ITR-2 filing can be done by individuals as well as HUFs if they meet any of the below requirements-

• The individual is a salaried employee.
• The individual receives a pension.
• The individual earns an income from more than one house property.
• The individual has assets or property in any other country.
• The individual earns a tax-free income above Rs. 5,000, such as agriculture income.
• The individual earns from activities like gambling, lottery, etc.
• The individual is earning from taxable capital gains.

Based on the sources of income earned by a person, he/she can either file the ITR-1 or ITR-2 form . Therefore, it’s essential to know the difference between ITR-1 and ITR-2 .

You need to select the ITR form based on your sources of income. If you have made an income from capital gains, then you need to file ITR-2 or ITR-3.While a salaried individual is eligible for the ITR-1 form , he/she needs to select ITR-2 to report the capital gains. However, if a person is earning an income from a business or profession, then he/she must select ITR-3.

Salaried individuals are required to select ITR-1 filing if they meet any of the below requirements-

• The total income of the salaried individual is below Rs. 50 Lakhs.
• The source of income can be salary, one house property, other sources of income, like dividend, interest income, etc., and agriculture income up to Rs. 5,000.
• The individual must be Ordinarily Resident Indian.

But if the salaried individual earns income from other sources, like foreign income, capital gains, etc., then he/she needs to select ITR-2 filing .

1. The slab rate for individual taxpayers has increased to Rs. 3 lakhs from Rs. 2.5 lakhs.
2. A tax rebate is now available in the new tax regime of Rs. 7 lakhs which mean taxpayers with income less than Rs. 7 lakhs don’t have to pay income tax as per the new income tax regime.
3. The new slab rates are as follows:
4. The standard deduction under the new tax regime is now Rs. 52,500 for salaried individual taxpayers with a net taxable income of Rs.15.5 lakh or more.
5. The surcharge has been reduced to 25% for people earning more than Rs 5 crores.
6. The default tax regime will be the new tax regime. Taxpayers will have to choose the old tax regime.

1. What is the income limit for ITR 2? Resident individual taxpayers who have a total income of more than Rs. 50 lakhs in a financial year should file ITR-2 . However, resident individual taxpayers who have income from business or profession cannot file ITR-2. Resident individual taxpayers who have more than one house property should file ITR-2.ITR-2 has to be filled by NRI (Non-Resident Indians) / RNOR (Resident but Not Ordinary Resident) taxpayers. These taxpayers have to file ITR-2 even if their income is below Rs. 50 lakhs in the financial year.
2. Is ITR 2 for capital gain? ITR-2 is to be filed by all non-resident taxpayers. Resident taxpayers should file ITR-2 only if their total income is more than Rs. 50 lakhs. This includes income from capital gains as well as income from other sources. However, if the individual taxpayer has income from a business or profession, ITR-2 cannot be filed. Both long-term capital gains and short-term capital gains are to be listed under ITR-2. For long-term capital gains on the sale of equity shares or mutual funds, scrip-wise details are required like ISIN, selling and purchase price, date of transactions, etc.
3. What happens if we don't file ITR 2? Failure to file ITR-2 or any other income tax return before the due date results in a penalty of Rs. 5,000. However, this penalty is only if the taxpayer files the return before December 31 of the assessment year in which the returns were supposed to be filed. This penalty is Rs. 1,000 if the total taxable income is below Rs. 5 lakhs. Income tax returns cannot be filed until the taxpayer makes the payment of the income tax due. An interest of 1% per month or part of the month is charged on the tax amount that is due until the time the taxpayer makes the payment of the taxes.If the taxpayer fails to file the income tax returns even after December, the income tax officers may issue notices. If the taxpayer fails to file the income tax returns even after receiving notices from the income tax department, the income tax officers can initiate proceedings against the taxpayer, which may result in imprisonment between three months to two years with a fine. If the tax due is high, imprisonment could be 7 years.Additionally, a penalty is charged, which could be up to 50% of the amount of tax due if the taxpayer has underreported the income.
4. What are the new rules for ITR filing? A significant change has been made to the income tax return process , effective from April 01, 2022, allowing taxpayers to correct errors or mistakes in their tax returns for up to two years following the end of the relevant assessment year. In the past, taxpayers only had a five-month window after the deadline to revise their tax returns, but now they can make updates beyond that time frame.However, this provision does not allow for reporting additional losses or decreasing tax liability. The purpose of this change is to provide a chance for those who may have missed or failed to disclose income or made other errors that led to underreporting their taxes in their original tax return.
5. What are the latest updates of income tax as per Budget 2023?

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.