Explainer: What is the difference between ITR 1 and ITR 2?
In India, individuals are required to file an Income Tax Return (ITR) every year to report their income to the government. To make the process easier, the Indian government has created several forms, each designed to suit different types of income. ITR1 and ITR2 are two of the most commonly used forms for filing income tax returns. These two forms often confuse the ITR filers. Knowing the differences between the two income tax return forms is crucial because if the ITR is submitted using the incorrect ITR form, it will be regarded as a defective return.
In this article, we will explore the differences between ITR1 and ITR2, helping you understand which form you should use based on your income and tax situation. Whether you're a first-time filer or have filed income tax returns in the past, this article will provide the information you need to ensure that your tax returns are filed accurately and efficiently.
Eligibility for filing ITR1:
According to the Income Tax Department of India, ITR 1 (also known as Sahaj) can only be filed by a resident of India whose:
1. Income does not exceed INR 50 lakh in a financial year.
2. Income comes from salary, pension, agricultural land (up to Rs. 5000), etc.
3. Other sources of income include:
- Interest from Savings Accounts
- Interest from Deposits (Bank / Post Office / Cooperative Society)
- Interest from Income Tax Refund
- Interest received on Enhanced Compensation
An individual must be an ordinary resident of India to use ITR1.
Eligibility for filing ITR2:
According to the Income Tax Department of India, ITR-2 can be filed by individuals or HUFs (Hindu Undivided Families) who:
1. Has an income exceeding INR 50 lakh in a financial year.
2. Has income from salaries and more than one residential property.
3. Has foreign income from dividends from overseas shares and other sources.
4. Is the director of a company.
5. Is possessing equity shares that aren't publicly traded.
Difference between ITR 1 and ITR 2:
ITR1 and ITR2 are two different forms used for filing income tax returns in India. The main difference between ITR1 and ITR2 is the type of income they are meant to report:
ITR1 (Sahaj): This form is used by individuals with a total income of up to 50 lakhs from salary, one house property, and other sources (excluding winnings from the lottery and income from racing horses). The individual must be an ordinary resident of India.
ITR2: This form is used by individuals and Hindu Undivided Families (HUFs) who have income from sources other than salary/pension and/or income from more than one house property. This form is also used by individuals who have capital gains or foreign assets/income. Company directors are also required to file an ITR2.
To sum up, ITR1 is meant for individuals with simple tax situations, while ITR2 is meant for individuals with more complex tax situations that include multiple sources of income, capital gains, and foreign assets/income. It's important to use the correct form for your specific tax situation to ensure that your income tax returns are filed accurately and efficiently. Depending on your income, designation, and assets, you can easily decide which of the two forms—ITR1 or ITR2—is for you.
We hope that this article was helpful in explaining the difference between ITR1 and ITR2.
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