ITR-1 vs. ITR-2: Differences and Uses Every Taxpayer Should Know

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ITR 1 vs. ITR 2 - Differences and Uses Every Taxpayer Should Know
ITR 1 vs. ITR 2 - Differences and Uses Every Taxpayer Should Know

Under the Indian Income Tax laws, taxpayers must file annual tax returns. Even those who fall under the 0% tax slab should file tax returns as it brings many advantages. However, a common problem among people filing tax returns for the first time is selecting the right form to file them successfully. The Income Tax department has introduced as many as seven different forms for various types of taxpayers. ITR-1 and ITR-2 are probably the most common as they are used by most individual taxpayers and Hindu Undivided Families (HUFs). If you are unsure about the differences between the two, here is how these two forms vary from each other.

Who Should Use ITR 1 Form?

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 a single-house property or earn exempt income, like agricultural income, up to Rs. 5,000 in a financial year. Even if a taxpayer has other income sources, besides gambling, lotteries, etc., he/she should use ITR 1 for filing tax returns. However, note that the total income for the financial year should not be above Rs.50 lakhs when using this form.

Who Should Use ITR 2 Form?

ITR 2 is for individuals and HUFs (Hindu Undivided Families) who have earned any kind of income from selling an asset or property with a total income in the financial year above Rs. 50 lakhs. Even 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 carried forward losses or earned income from sources like gambling, lotteries, etc., ITR 2 would be the appropriate form for filing tax returns.

Major Differences Between ITR 1 and ITR 2

Here is a quick overview of how these ITR 1 and ITR 2 forms differ:

CriteriaITR 1

ITR 2

Income from PropertySingle house propertyMore than one house property
Exempt IncomeUp to Rs. 5,000

(e.g., agricultural income)

Above Rs. 5,000

(e.g., agricultural income)

Income from Other SourcesNot from gambling, lotteries, etc.Includes income from gambling, lotteries, etc.
Property LossesReported in the same financial yearBrought forward losses from previous years
Income LimitBelow Rs. 50 lakhsAbove Rs. 50 lakhs

 

Understanding the difference between ITR 1 and 2 is crucial for accurate filing. The difference between ITR1 and ITR2 often confuses taxpayers. So, what is the difference between ITR1 and ITR2? ITR-1 vs ITR-2 mainly differ in terms of income sources and limits.

What Are the Other Documents You Need to Filing Tax Returns?

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 required for filing tax returns:

  • Bank statement.
  • ITR of the previous year
  • TDS certificates
  • Interest statement
  • Savings certificates or deductions proof
  • Profit and Loss (P&L) account statement, balance sheet, etc., if applicable

Selecting The Right ITR Form

Now that you know the difference between ITR 1 and 2, it shouldn’t be difficult for you to choose the form that is right for you. In case you are still not sure, it is highly recommended that you consult a tax professional. Choosing the incorrect form for filing your tax returns can result in wasted time and effort. Failing to file your tax returns using the correct form before the due dates may also lead to hefty penalties.

Can I File My ITR Myself?

Yes, you can file your ITR yourself. Here is the process to register or login to the e-filing portal:

  1. If you have registered, click on the ‘Login Here’ button.
  2. If you haven’t registered, click the ‘Register Yourself’ button.
  • Select Taxpayer Option: Click on the ‘Taxpayer’ option.
  • Enter PAN Details: Enter your PAN card details, click on ‘Validate’, and then click on ‘Continue’.
  • Enter Personal Details: Provide details like name, gender, address, date of birth, and residential status.
  • Contact Information: Enter your registered mobile number and Email ID.
  • Verification: After filling out the form, click on ‘Continue’. Verify details with a 6-digit OTP sent to your registered mobile number and Email ID.
  • Set Password: Set up your password and secure the login message.
  • Completion: Click on ‘Register’ and receive an acknowledgment message stating the registration process is finished.

Follow the Below Process to E-File ITR:

  1. Login: Visit the e-filing website and click on the ‘Login’ button. Enter your Username and password, then click on ‘Continue’.
  2. E-File: Click on ‘e-file’ and then ‘File Income Tax Return’.
  3. Assessment Year: Choose the Assessment year.
  4. Filing Mode: Choose whether you want to file your returns online or offline. Select ‘Online’.
  5. Select Status: Choose the applicable status: Individual, Hindu Undivided Family (HUF), or other. Select ‘Individual’.
  6. Select ITR Form: Choose the ITR form you are required to file, such as ITR-1.
  7. Reason for Filing: Select the reason you’re filing the returns.
  8. Bank Details: Enter the bank account details. Pre-validate if already provided.
  9. Confirm Details: Confirm the summary of your returns and validate them.
  10. Verify Returns: Send a hard copy to the Income Tax Department to complete the verification process.

Can a Person File Both ITR-1 and ITR-2?

No, based on the sources of income earned by a person, he/she can either file the ITR-1 or ITR-2 form. It’s essential to know the difference between ITR1 and ITR2 to select the correct form.

Can I Use ITR-1 for Capital Gains?

No, 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 capital gains. However, if a person is earning an income from a business or profession, then he/she must select ITR-3.

Which ITR Form is Submitted for Salary Income?

Salaried individuals are required to select ITR-1 filing if they meet any of the following 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 dividends, interest income, etc., and agriculture income up to Rs. 5,000.
  • The individual must be an Ordinarily Resident Indian.

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

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 must also be filled by NRI (Non-Resident Indians) / RNOR (Resident but Not Ordinary Resident) taxpayers, even if their income is below Rs. 50 lakhs in the financial year.

Is ITR 2 for Capital Gain?

Yes, 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.

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 applicable 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.

The income tax department also has the right to serve a notice to the defaulters. The taxpayers who are served this notice will be required to pay additional tax along with interest. This interest is charged as per the provisions of Sections 234A, 234B, and 234C of the Income Tax Act.

What Are the New Rules for ITR Filing?

Here are some new rules for ITR filing:

  • Option to File Updated Returns: The government has introduced a new provision for filing updated returns within two years from the end of the relevant assessment year.
  • Pre-Filled ITR Forms: This year, taxpayers can access pre-filled ITR forms to ease the return filing process.
  • No Late Fees for Filing ITR: For taxpayers with income below the taxable limit, late fees are not applicable for filing returns.
  • Tax on Virtual Digital Assets: There is a new tax regime for gains on virtual digital assets like cryptocurrencies.
  • New Tax Regime: A new simplified tax regime with lower tax rates but no exemptions or deductions is now available.

What Are the Latest Updates on Income Tax as per Budget 2023?

Here are some latest updates on income tax as per Budget 2023:

  • Revised Tax Slabs: The government has revised the tax slabs to make the tax system simpler.
  • Standard Deduction for New Regime: The standard deduction of Rs. 50,000 has been extended to the new tax regime.
  • Tax Rebate Limit Increased: The limit for tax rebate under Section 87A has been increased from Rs. 5 lakhs to Rs. 7 lakhs.
  • Senior Citizens: The deposit limit for Senior Citizens Savings Scheme has been increased from Rs. 15 lakhs to Rs. 30 lakhs.
  • Women Saving Scheme: A new saving scheme has been introduced exclusively for women.

Choosing the right form to file your tax returns is crucial for accurate and timely filing. While ITR-1 and ITR-2 cater to different types of taxpayers, understanding their differences and uses can ensure a smooth and hassle-free tax filing experience.

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