ITR-1 vs ITR-2 — Which Form Should You File in 2025-26?

Every year, salaried employees get confused — "Should I file ITR-1 or ITR-2?" The wrong choice can lead to a defective return notice from the Income Tax Department.

Here's the complete breakdown for Assessment Year 2025-26 (Financial Year 2024-25).

ITR-1 (Sahaj) — Who Can File?

ITR-1 is the simplest form — designed for ordinary salaried individuals with simple income. You can file ITR-1 if ALL of the following apply:

• Resident Individual (not NRI, not HUF)
• Total income up to ₹50 lakh
• Income only from: Salary/Pension + One House Property + Other Sources (interest, FD, etc.)
• Agricultural income up to ₹5,000

Who CANNOT File ITR-1 (must use ITR-2 or higher):

• Total income exceeds ₹50 lakh
• Capital gains from stocks, mutual funds, property
• More than one house property
• Foreign income, foreign assets (even small amounts)
• Director in a company (even a dormant one)
• Investment in unlisted equity shares
• TDS under Section 194N (cash withdrawal from bank >₹1 crore)
• Deferred ESOP tax (startup employees)

ITR-2 — Who Should File?

ITR-2 covers all the cases that ITR-1 doesn't. File ITR-2 if you are a resident or non-resident individual/HUF with:

• Income from salary/pension (any amount)
• Capital gains — STCG or LTCG from stocks, mutual funds, property, gold
• More than one house property (even if loss)
• Foreign income or foreign assets
• Income above ₹50 lakh
• Director in any company
• Unlisted equity investments
• NRI with income in India

ITR-2 does NOT cover business/professional income. If you have freelance or business income, you need ITR-3 or ITR-4.

The Capital Gains Rule — Common Confusing Area

Many salaried employees invest in mutual funds or stocks. Even a small LTCG redemption means you CANNOT file ITR-1.

Type of Capital Gain	ITR Form Required
LTCG from equity MF/stocks (any amount)	ITR-2 (not ITR-1)
STCG from equity MF/stocks	ITR-2
LTCG on property sale	ITR-2
Debt MF (STCG)	ITR-2
No capital gains	ITR-1 (if other conditions met)

Even if LTCG is below the ₹1.25 lakh exemption threshold — you still must report it, and you must use ITR-2.

House Property — 1 vs 2 Properties

• 1 self-occupied property with no rental income — ITR-1 is fine
• 1 let-out property — ITR-1 is fine (rental income goes under "House Property")
• 2 or more properties (any combination) — ITR-2 required
• Home loan interest loss carry-forward — ITR-2 required

NRI Salaried Employee — Which Form?

NRIs cannot file ITR-1. They must use ITR-2 even for simple salary income. This is because ITR-1 is only for residents.

Director in a Company — Even If Dormant

If you are listed as a director in any company — whether active or dormant — you cannot file ITR-1. This includes:

• Startups you co-founded years ago
• Family business where you were added as director
• Dormant private limited companies

What Happens If You File Wrong Form?

If you file ITR-1 when ITR-2 was required:

• You'll receive a Defective Return Notice (Section 139(9))
• You'll need to revise and refile within 15 days
• If deadline is missed, return treated as invalid (not filed)
• You may face penalties if tax was underpaid

Filing Deadline — AY 2025-26

Category	Due Date
Salaried individuals (no audit)	31st July 2025
Businesses requiring audit	31st October 2025
Revised return	31st December 2025
Belated return (with penalty)	31st December 2025