Introduction: 

When filing income tax, the right form choose is essential for successful tax filing. If this is not done he may be subject to a tax department rejection and may incur penalty payments for late submission. As a consequence, the majority of the individual tax payers face confusion when identifying between ITR 1 and ITR 2.

Both return forms contain similarly, nearly all, income categories, but some differences in these income categories make the two forms unique. Indeed, so if you will make the decision to file you income tax returns, reading this article will be a must. This article aims to give you an in-depth study of ITR 1 and ITR 2 along with the differences in their eligibility and various relevant aspects.

ITR-1: 

ITR-1, commonly referred to as Sahaj, is a streamlined tax return form applicable to individuals earning income from salaries, a single house property, and other sources. Those with  annual income of up to Rs. 50 lakhs are eligible to utilize this form for filing their tax returns.

ITR-2: 

ITR-2 is a tax return form tailored for individuals earning income from salaries, multiple house properties, capital gains, and other sources. Individuals with annual income exceeding Rs. 50 lakhs must utilize this form for filing their tax returns.

Applicability of ITR-1:

The following criteria delineate their applicability:

• The income source should be either salary or pension.
• Other sources of income may include income from sources other than horse racing, gambling, lotteries, and similar activities
• They should not receive revenue from foreign sources.
• If the exempt income, such as agricultural income, amounts to less than Rs 5000.
• The income should originate from a sole property.
• Applicants need not file ITR 1 in the following cases.
• If income is derived from multiple assets.
• If the taxpayer receives income from other sources, these include lotteries, gambling, horse racing, card games and other activities.
• If the individual has accrued non-tax-exempted short-term and long-term capital gains.
• If the person is not classified as an individual taxpayer.

Applicability of ITR-2:

Applicants are required to opt for ITR 2 in the following circumstances.

• If they earn income from salary or pension.
• If the taxpayer receives income from other sources, these include lotteries, gambling, horse racing, card games and other activities.
• If the taxpayer has earnings from capital gains.
• If the person has carried forward a loss from the previous financial year in other sources of income.
• If the person owns property or assets abroad.
• If the applicant does not receive income from foreign countries.
• An individual does not have to file ITR 2 in the following circumstances:
• If the person is eligible to file ITR 1 .
• If the applicant is a professional or a Hindu Undivided Family (HUF) whose source of income is professional or employment.

Difference between ITR-1 vs ITR-2:

Particulars	ITR-1	ITR-2
Income sources	ITR-1 is for salaried persons who have one household asset and other income such as interest or fixed deposits. but those whose income, capital, or agricultural income exceeds Rs. 5,000 cannot be used.	In contrast, ITR-2 is designed for individuals with income, such as salary, multi-household property, capital income, etc. and is also applicable to individuals with foreign assets or income.
Clubbing of income	If a person has clubbed income, which is an income added to his gross income and is taxed at the appropriate rate, then they are not eligible for ITR-1	Instead, ITR-2 should be used. The income category generally occurs when a taxpayer’s income is combined with that of their spouse or child.
Capital gains	If an individual has incurred capital gains during the financial year, they are ineligible to use ITR-1.	Instead, ITR-2 should be used. Capital gains can come from the sale of stocks, mutual funds, real estate, or other assets. Because capital gains are taxed differently than other types of income, accurate reporting is essential.
Deductions	ITR-1 allows only restricted deductions, as mentioned in Sections 80C, 80D and 80G of the Income Tax Act. For claiming additional deduction, a person is not eligible to use ITR-1 and has to opt for ITR-2 instead.	ITR-2 offers a wide range of deductions, including those mentioned in sections 80E, 80GGA and 80QQB. This deduction reduces an individual’s taxable income, thereby facilitating potential tax savings.
Form of filing	ITR-1 can be filed electronically (e-filed) or on paper only.	However, ITR-2 can be filed in three formats: electronically (e-filing), paper, or digital signature.
Pre-filled information	ITR-1 contains pre-filled details, including name, address, PAN, TDS details and employer details of the individual.	However, ITR-2 does not come with pre-filled information; All required information must be handwritten by the person.

Which form should choose:

If you are a salaried person with income from a household asset and other sources, and your annual income comes up to Rs. 50 lakhs, use ITR-1. But if you have a lot of domestic assets, capital income, or foreign assets, or if your annual income exceeds Rs. 50 lakhs, you have to use ITR-2.

Conclusion:

In summary, both ITR-1 and ITR-2 are important tax documents for individuals in India to file their tax returns. Understanding the difference between these two forms helps you choose the one that best suits your needs. Be diligent in calculating your income and annual income to determine the correct form for filing your tax returns. If there is any doubt about the correct form or questions arise during the tax filing process, it is advisable to seek the guidance of a tax professional.