ITR 1 vs ITR 2: Key Differences Explained for Easy Tax Filing

Understand the key difference between ITR 1 and ITR 2 to simplify your tax filing process.
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2 min
10 January 2025
When it is tax season, selecting the right Income Tax Return (ITR) form is the first step. For individual taxpayers, the two most commonly used forms are ITR 1 and ITR 2. But how do you decide which one to use? In this blog, we will break down the difference between ITR 1 and 2 in simple terms, so you can make an informed choice.

What is ITR 1 (Sahaj)?

ITR 1, also called Sahaj, is designed for individual taxpayers with straightforward income sources. Here is who can file ITR 1:

  • Salary or pension: If you earn income solely through a salary or pension.
  • House property income: If you have income from one house property (not involving losses from previous years).
  • Other sources: Interest from savings accounts, fixed deposits, or other investments.
  • Total income cap: Your total income should not exceed Rs. 50 lakh in a financial year.

Who should not file ITR 1?

You cannot use ITR 1 if you:

  • Own more than one house property.
  • Have capital gains from the sale of investments or property.
  • Earn income from a business or profession.
  • Have agricultural income exceeding Rs. 5,000.
  • Are a director in a company or hold unlisted equity shares.

What is ITR 2?

ITR 2 is meant for individuals and Hindu Undivided Families (HUFs) with more complex income sources. It caters to those whose income exceeds the limitations of ITR 1.

Who can file ITR 2?

You should file ITR 2 if you:

  • Have capital gains: Earn from selling stocks, mutual funds, or property.
  • Own multiple properties: Have income from more than one house property.
  • Have foreign income or assets: Earn income outside India or own foreign assets.
  • Earn agricultural income: Your agricultural income exceeds Rs. 5,000.
  • Have dividend income: If your dividend income from stocks exceeds Rs. 10 lakh and attracts a dividend tax.
Key Differences Between ITR 1 and ITR 2

FeatureITR 1 (Sahaj)ITR 2
EligibilityIndividuals with simple income sourcesIndividuals and HUFs with diverse income
Income capUp to Rs. 50 lakhNo limit on income
Capital gainsNot applicableApplicable
House propertiesIncome from one house propertyIncome from multiple house properties
Foreign income/assetsNot applicableMandatory to report foreign income/assets
Director/equityNot applicableMandatory disclosure


Why choosing the right ITR form matters

Filing the wrong ITR form can lead to:

  • Rejections: The Income Tax Department may reject your return.
  • Penalties: Incorrect filing can attract fines.
  • Missed benefits: Tax-saving opportunities could be overlooked.
Understanding the difference between ITR 1 and 2 ensures that you file the right form and stay compliant.

How your home loan fits into tax filing

When filing your ITR, do not forget to factor in your home loan. A home loan offers multiple tax benefits:

  • Section 80C deductions: Claim up to Rs. 1.5 lakh on principal repayment.
  • Section 24(b): Deduct up to Rs. 2 lakh on interest paid for a self-occupied property.
  • Additional deduction: Under Section 80EEA, first-time homebuyers can claim an extra Rs. 1.5 lakh on interest, provided certain conditions are met.
If you are filing ITR 2 due to multiple properties or capital gains, these deductions can reduce your taxable income significantly.

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Frequently asked questions

What is the difference between ITR-3 and ITR-4 forms?
ITR-3 is for individuals and HUFs earning income from business/profession, including salary and income from capital gains. ITR-4 is designed for individuals, HUFs, and firms opting for the presumptive taxation scheme, which simplifies tax reporting for small businesses with a specified income threshold.

Who is eligible to file ITR-4 under the presumptive taxation scheme?
ITR-4 is for individuals, Hindu Undivided Families (HUFs), and firms (excluding LLPs) engaged in business or profession with a turnover up to Rs. 2 crore. It allows taxpayers to declare income at a prescribed rate (8% of turnover) without detailed accounting records, simplifying the tax filing process.

Can a partnership firm file ITR-4?
Yes, a partnership firm can file ITR-4 if it meets the eligibility criteria for the presumptive taxation scheme. This includes firms with a turnover of up to Rs. 2 crore and those involved in business or profession, provided they opt for the simplified tax calculation under the scheme.

What documents are required to file ITR-3 for business income?
To file ITR-3 for business income, you will need documents such as the profit and loss account, balance sheet, audit report (if applicable), details of capital gains or losses, details of income from other sources, and any deductions under sections like 80C. Income details should be clearly documented.

What are the due dates for filing ITR for businesses?
For businesses, the due date to file ITR is generally July 31 of the assessment year if no audit is required. If the business is subject to audit, the due date extends to October 31. Taxpayers with international transactions must file by November 30 of the assessment year.

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