ITR-1 vs ITR-2: Differences, Eligibility and Which ITR Form to Choose

What is ITR 1 Vs. ITR 2?

In India, citizens are required to fill up different types of forms to file their income tax returns. The two common forms for income tax return filing include ITR 1 and ITR 2. If you compare ITR 1 vs. ITR 2, you will realize when to fill up each form.

Difference between ITR-1 and ITR-2

Comparing ITR 1 vs. ITR 2 will help you pick the right form to file your returns correctly without wasting time and effort. You must learn the following terminologies to easily compare ITR 1 vs. ITR 2:

Income from Salary 

It is applicable when an employee-employer relationship exists. The employee earns monetary benefits while exchanging services with the company or employer. The aggregate income that is available after calculating exemptions gives the gross salary of an employee. Pension income also falls under the category of income from salary. 

Income from House Property 

All residential and commercial properties in your name are taxable, even if you don’t earn any rental income from them. Your tax amount will be determined by the earning potential of the property. You will be able to enjoy some exemptions on this tax, like a home loan. 

Profits and Gains of Business or Profession 

This category of income rises from selling products or offering services to customers through a business. The profits from a business are calculated after deducting all the incurred expenses. You will have to pay taxes only on the profits.

Income from Capital Gains 

Profits or gains coming from the sale of capital assets like land, gold, or equity are taxable under this category. The tax applicable on these incomes vary depending on whether they are short-term or long-term. Whether a capital gain is short-term or long-term will be determined by how long you held the asset before selling it.

Income from Other Sources 

This category includes all the income from sources other than the ones mentioned above. It can include income from interests, gifts from people other than your relatives, winnings from game shows and lotteries, and more. 

You can choose from ITR 1 vs. ITR 2 after considering the following:

• Who gains the income: The income can be earned by an individual, a company, or a HUF.
• Residential status: The tax implications differ for NRIs and resident Indians. 
• Type of income: The category under which your income falls.
• Carry forward of losses: Losses that are carried forward provide some rebate in future tax liabilities.

ITR-1

Individuals are required to fill up the ITR 1 Sahaj form under the following circumstances:

• You earn a monthly salary or pension.
• You earn something from a property.
• You have a source of exempt income like agricultural income of up to Rs 5000
• You have income from other sources, excluding lotteries, gambling, and racehorses.

You are not required to fill up the ITR-1 form under the following circumstances:

• You are not an individual for taxation purposes.
• You gain an income from more than one property.
• You earn an income from other sources like horse race betting, gambling, and lotteries. 
• Your income comes from non-tax exempted short or long-term capital gains.
• Your income source is a business or a profession.
• You have reported losses under Other Sources of Income.
• Your exempt income is over Rs 5000.

ITR-2A

You should fill up the ITR-2A form for individuals or HUF under the following conditions:

• You have a salary or pension income.
• You earn income from more than one property.
• You have an income from other sources, excluding lotteries, gambling, and racehorses.

You can avoid filling up the ITR-2A in the following circumstances:

• You have an income from capital gains.
• You enjoy tax benefits for taxes paid in foreign countries.
• You have a source of foreign income.
• Your income is generated from a business or profession.
• You own financial interests or assets outside India.

ITR-2

You should fill up ITR 2 form for individuals or HUF under the following conditions:

• You earn an income from a pension or salary.
• You earn an income from more than one property.
• You have brought forward losses.
• You have an income from other sources, including gambling, racehorses, and lotteries. 
• You want to make capital gains reporting.

You don’t have to fill up the ITR-2 form if your income comes from a business or profession.

ITR-2A and ITR-2

The ITR-2 form can be considered a more comprehensive version of the ITR-2A form. Anyone who uses the ITR-2A form can alternatively choose the ITR-2 form. The only difference is that you cannot use ITR-2A if you have an income from capital gains.  

Apart from the ITR forms, you will also have to submit other documents like the following:

• A copy of last year’s tax return
• Your TDS certificates
• A bank statement
• Your Deductions or Savings Certificates
• An interest statement revealing the interest paid to you
• Profit and loss account statements, balance sheets, audit reports, and other requisites, wherever applicable

Conclusion

You will have to fill up different income tax return forms in India according to your income sources and amount. Consolidating all your incomes and proofs into a single, easy-to-understand document will help you understand that you are filling up the right ITR form. It will lead to a completely hassle-free process of claiming Income Tax Returns.