Which ITR Form Should You File for FY 2024–25? A Complete, Easy Guide to Choosing Between ITR-1 and ITR-2

 

Introduction: The ITR Confusion That Hits Every Year

As the Income Tax Return (ITR) filing deadline for FY 2024–25 (AY 2025–26) approaches, lakhs of taxpayers across India find themselves asking the same question:

“Should I file ITR-1 or ITR-2?”

It sounds simple, but choose the wrong form and you may end up dealing with:

• Return rejection
• Notice from the Income Tax Department
• Additional tax liability
• Delays in refund
• Or unnecessary complications

And trust me, I’ve seen this countless times in my tax practice. A salaried person with a small capital gain files ITR-1 and ends up with a defective return notice. Another taxpayer buys a second house and doesn’t realize ITR-1 is no longer allowed.

This article is here to save you from all that.

I will walk you through eligibility, examples, scenarios, misconceptions, expert insights, and practical decision charts—all in one detailed, easy-to-read guide.

This is not just another generic tax article. It’s packed with real explanations, relatable examples, and a human touch. Consider it your personal handbook for choosing the right ITR form.

 

Understanding Why Choosing the Right ITR Form Matters

Before jumping into the specifics of ITR-1 and ITR-2, let’s understand the bigger picture.

Choosing the correct ITR form is essential because:

✔ It determines whether your return will be accepted

A wrong form means incomplete information, which triggers automatic rejection.

✔ It affects your refund speed

Correct form → smooth processing → faster refunds.

✔ It reduces the chance of receiving notices

Most notices arise because taxpayers file ITR-1 despite being ineligible.

✔ It impacts financial documentation

Loan applications, visa documents, and financial audits may reference your ITR.

✔ It ensures long-term compliance

Tax records matter. Incorrect filings pile up problems for the future.

In short: Filing accurately is as important as filing on time.

 

What Are ITR Forms and Why So Many? (Simple Explanation)

India is a country of diverse income types—salary, rent, farming, capital gains, business income, foreign income, freelancing, and more.

To accommodate this diversity, the Income Tax Department provides different ITR forms:

• ITR-1 to ITR-7 for individuals, HUFs, companies, and charitable institutions.

Among these, the two most common for individuals (non-business taxpayers) are:

ITR-1 Sahaj

A simple form for taxpayers with basic income sources.

ITR-2

A detailed form designed for individuals with multiple or complex income sources.

 

ITR-1 (Sahaj): Who Should File It? A Friendly Explanation

ITR-1 is the simplest form available—almost like a “quick return form” for individuals with uncomplicated finances.

H2: Eligibility for ITR-1

You can file ITR-1 ONLY if ALL these conditions apply:

✔ Your Income Sources Are Simple

You earn from:

• Salary or Pension
• One House Property
• Other income such as:
• Interest from bank FD
• Savings account interest
• Family pension
• Recurring deposit interest

✔ Your Total Income ≤ ₹50 Lakh

✔ Your Agricultural Income ≤ ₹5,000

✔ You Are a Resident Individual

 

Who Cannot File ITR-1? (Important List Most People Miss)

Even if your income is below ₹50 lakh, you cannot file ITR-1 if any of these are true:

• You are a Director of a company
• You own more than one house property
• You have capital gains (selling mutual funds, shares, gold, property)
• You have foreign income or foreign assets
• You have cryptocurrency income
• You have lottery/horse race income
• You have business or professional income
• You are a RNOR or NRI

Important:
Most taxpayers accidentally ignore capital gains and still file ITR-1. That leads to “Defective Return Notice u/s 139(9).”

 

Simple Example of Someone Who Should File ITR-1

Rohan, age 32, works for an IT company.
Income:

• Salary – ₹18 lakh
• One home on housing loan
• FD interest – ₹22,000

No capital gains. No foreign income. No business.

👉 Perfect candidate for ITR-1.

 

ITR-2: Who Should File It? Detailed Yet Simple Explanation

ITR-2 is a more comprehensive form. Think of it as the “complete profile” return for individuals with complex income.

H2: Eligibility for ITR-2

You should file ITR-2 if you are an Individual or HUF and your income includes:

✔ Multiple House Properties

It may be self-occupied, rented, or deemed let out.

✔ Capital Gains

From:

• Sale of equity shares
• Sale/redemption of mutual funds
• Sale of real estate
• Sale of gold
• Sale of cryptocurrency

✔ Foreign Income or Assets

Including:

• Foreign bank accounts
• ESOPs of foreign companies
• Property abroad
• Foreign dividends or investments

✔ Agricultural Income > ₹5,000

✔ No Business Income

If you have business income, you must use ITR-3, not ITR-2.

 

Who Cannot File ITR-2?

• Individuals earning business or professional income
• Individuals who need to file presumptive taxation (44AD/44AE/44ADA)

 

Simple Example of Someone Who Should File ITR-2

Priya, age 29, works in a marketing firm.
Income:

• Salary – ₹14 lakh
• Two properties (one rented, one self-occupied)
• Mutual fund capital gain – ₹32,000
• ESOPs from US employer

👉 She must file ITR-2, not ITR-1.

 

Side-by-Side Comparison: ITR-1 vs ITR-2

To make your decision easier, here’s a simple comparison:

Feature	ITR-1	ITR-2
Income Limit	Up to ₹50 lakh	No limit
Salary/Pension	✔ Allowed	✔ Allowed
House Properties	Only 1	Any number
Capital Gains	Not allowed	Allowed
Agricultural Income	Up to ₹5,000	Any amount
Business Income	❌ Not allowed	❌ Not allowed
Foreign Assets	Not allowed	Allowed
Residential Status	Resident only	Resident / RNOR / NRI
Crypto Income	Not allowed	Allowed
ESOPs (foreign)	Not allowed	Allowed

 

Common Misconceptions About ITR-1 and ITR-2

Let’s bust some myths that taxpayers commonly believe:

❌ Misconception 1: “If my income is below ₹50 lakh, I can file ITR-1.”

✔ Truth: Income source matters more than income amount.

❌ Misconception 2: “I sold some mutual funds, but it's small. ITR-1 is fine.”

✔ Truth: Even ₹1 of capital gain means ITR-2 only.

❌ Misconception 3: “I have two houses but only one is self-occupied, so ITR-1 should work.”

✔ Truth: Owning more than one house disqualifies you from ITR-1.

❌ Misconception 4: “I have ESOPs from a foreign company; still I can file ITR-1.”

✔ Truth: Foreign assets = ITR-2, regardless of value.

❌ Misconception 5: “I am a company director but have no income from it; so I can file ITR-1.”

✔ Truth: Directors must file ITR-2/ITR-3.

 

Step-by-Step Guide: How to Decide Between ITR-1 and ITR-2

Use this quick decision flow:

Step 1: Do you have business income?

✔ Yes → ITR-3
❌ No → Go to Step 2

Step 2: Do you have any capital gains?

✔ Yes → ITR-2
❌ No → Step 3

Step 3: Do you own more than one house property?

✔ Yes → ITR-2
❌ No → Step 4

Step 4: Do you have any foreign income or assets?

✔ Yes → ITR-2
❌ No → Step 5

Step 5: Is your salary income ≤ ₹50 lakh?

✔ Yes → ITR-1
❌ No → ITR-2

 

Why Choosing the Right ITR Form Saves You From Penalties

Incorrect filing can lead to:

✔ Penalty u/s 234F

Late filing or defective filing → penalty up to ₹5,000.

✔ Scrutiny Notice

Mismatch → chances of tax audit increase.

✔ Return being rejected

If form is wrong, data is not accepted by the system.

✔ Loss of refund

Incorrect computation leads to refund delays or losses.

✔ Additional tax liability

Wrong deductions or exemptions get disallowed.

 

Case Studies

Case Study 1: Mutual Fund Redemption Issue

A taxpayer sold mutual funds worth ₹40,000 but filed ITR-1.
System flagged capital gains. Income Tax Department marked return as defective.

Solution: Refiled using ITR-2 → Refund processed smoothly.

Case Study 2: NRI Returned to India

A returning NRI with one house and foreign bank account filed ITR-1.
Got notice for incorrect filing.

Correct Form: ITR-2.

Case Study 3: Second House Purchase

A couple bought a second home as an investment.
Despite having salary income, they had to shift to ITR-2.

 

Expert Insights

Tax professionals agree that:

• Filing the correct ITR is as important as filing before the deadline.
• Assessment Year 2025–26 has stricter validation rules.
• Digital tracking of capital gains, foreign assets, and house properties means you cannot “hide” income even unintentionally.

 

Subtle Branding: Why Consider Using "Manika TaxWise" for Your Tax Filing

At Manika TaxWise, our goal is simple:

To make tax filing stress-free, accurate, and compliant.

We help you with:

• Choosing the correct ITR form
• Filing ITR-1, ITR-2, ITR-3 professionally
• Capital gains reporting
• Foreign asset disclosure
• Rental income calculations
• Notices & compliance support

Whether you're a salaried employee, investor, or NRI—we ensure your ITR is 100% accurate and penalty-proof.

 

Final Checklist Before Filing Your ITR

Here’s a quick, practical checklist:

✔ Check your income sources

Salary? Capital gains? FD interest? Cryptocurrency? Foreign assets?

✔ Match your form with eligibility

Use the comparison table above.

✔ Gather documents

• Form 16
• Form 26AS
• AIS/TIS
• Rent receipts
• Capital gains statements
• Bank statements

✔ Report all income

Even if tax-free.

✔ File before the deadline

Avoid penalties and last-minute rush.

 

Conclusion: Choosing the Right ITR-1 or ITR-2 Isn’t Hard—If You Know the Rules

By now, you probably have more clarity than most taxpayers.

Remember this simple rule:

ITR-1 = Simple income
ITR-2 = Complex income

If even ONE condition for ITR-1 doesn’t apply, don’t risk it—choose ITR-2.

It saves you from notices, penalties, and rejection.

And if you ever feel stuck or confused, Manika TaxWise is always ready to guide you.

 

Author Bio

Written by: Manika TaxWise Team
With over 11 years of experience in accounting, tax filing, financial analysis, and compliance, we simplify taxation for individuals, NRIs, businesses, and families across India.
Our mission is to make tax filing easy, accurate, and affordable for everyone.