It is a responsibility of every individual who makes taxable income to file Income Tax Returns (ITRs). These days, filing returns can be very confusing for salaried individuals, as they may have to select the right form from a sea of options.
The ITR-1 and ITR-2 are the most relevant among the several forms that are offered, applicable for a salaried taxpayer.
Each form serves a certain financial profile and you must choose one so that you can have accurate report of income and be compliant with the tax laws.
So, understanding the differences between ITR 1 vs ITR 2, and making note of the fact that there are certain benefits and exclusions is a very key step in making the tax filing process that much easier and there’s no other hassles in it.
ITR 1 (Sahaj)
The Sahaj or ITR-1 is particularly meant for individuals with simple financial profiles. Applicable to resident taxpayers, whose total annual income does not exceed Rs50 lakh.
The taxpayers whose income is coming in from salary or pension, income from a single house property, and interest from savings accounts or fixed deposits can fill this one form.
Also it allows taxpayers with agricultural income up to Rs5,000 to ITR 1.
ITR 1 is so simple that it’s a great option for a salaried person with limited income sources. This form makes use of fewer sections to complete, thereby making it easy to use and efficient.
For example, let us assume Raj, a software engineer who makes Rs300,000 per month, has a saving interest account and negligible agricultural income, would feel ITR 1 would be just the right fit if his income is on this side.
ITR 2
In contrast, ITR2 is meant for persons with diverse or complex sources of income. If you are a taxpayer who has made capital gains and owns more than one house property or holds foreign assets, you can file it.
Also, it can accommodate income from dividends or interest over and beyond what is allowed for basic savings accounts.
ITR-2 is to be filled by taxpayers to whom belongs income as partners in firms or invested in foreign shares or mutual funds.
Although more comprehensive, ITR-2 demands detailed information and documentation.
For instance, Priya working as a marketing professional makes a salary, has capital gains related to selling of mutual funds, owns two apartments and part of his investments from foreign stocks and all these needs to be accounted for while filing her ITR as Per her income.
Comparing: ITR 1 Vs. ITR 2
It’s essential to understand the differences between ITR 1 and ITR 2 so you file the correct form based on the type of your income.
Knowing your income sources and the complexity of finances can help you see which form you need to use for your tax filing.
By choosing the right form you will help to streamline the filing process, avoid errors, and comply with tax regulations.
- Income Eligibility
For individuals having an income upto Rs 50 lakh, earned from salary, pension, single house property and minor agricultural income, ITR 1 form is filed. However, for people whose income is more than Rs 50Lakh or have more complex sources like capital gain, more than one property or other foreign asset ITR 2 is prescribed.
- Ease of Filing
For most with simple financial profiles, ITR 1 is simple and quick to file. But ITR 2 is a more difficult form to fill, particularly for those with many income sources.
- Exclusions
The ITR 1 is not to be filled up for those, who have income from capital gains, multiple properties or in foreign assets. ITR 2 is necessary for these taxpayers. But ITR 2 does not cover business or profession income that is to be filed in ITR 3 rather.
- Documentation Requirements
ITR 1 can be filed with just Form 16 and simple income proofs. On the other hand, the form ITR 2 requires lots of documentation, such as proof of capital gains, foreign assets and detailed financial statements.
Which Form to Choose When You Work as a Salaried Individual?
With the salaried individual’s income source, one should choose between ITR 1 or ITR 2. ITR 1 is suitable only if the only sources of income are salary, interest from savings or fixed deposit accounts, and agricultural income up to Rs5000.
The filing process is hassle free because its structure is simple and quick.
On the other hand, ITR 2 is suggested to those with a more complicated financial situation. Taxpayers with capital gains, multiple house properties or foreign investments must file ITR 2 to fulfill the tax regulations. In the case of uncertainty, consulting with a tax professional (FileAbhi) may be advised to reduce errors and reports' accuracy.
Conclusion
Getting tax filing right can be daunting but picking the right ITR form makes it a lot easier to navigate. If you are salaried and have a simple financial profile say it comes from salary, pension or interest, ITR 1 is for you but if you have multiple sources of income such as capital gains, multiple properties or foreign assets, you would be better off with the ITR 2.
When it comes to filing, carefully evaluating your income profile will assist you in choosing the right form, so the whole process doesn’t become so complicated.
Especially with the everchanging tax laws, if you’re not sure hire FileAbhi's service to advise you that you’re on the safe side and in compliance with tax laws.
Also Learn: How to File ITR 1 Online: Step-by-Step Guide
FAQs on ITR 1 vs ITR 2: Which Form Should You Choose?
1. What if I Choose ITR 2 In place of ITR 1
Filing of ITR 2 is not a problem when we qualify for ITR 1 but it involves more detailed information. For someone with a simple income profile, ITR2 will add unnecessary complexity to one’s filing process.
2. What is ITR for Pensioners?
Pensioners certainly can file ITR-1 if their annual income is less than Rs 50 lakh and they haven’t got any such additional aggregate sources of income. Most retirees have salary income from their pension income and ITR-1 suits them fine.
References
Income Tax Department. (n.d.). Income tax return forms. Retrieved from https://www.incometax.gov.in/iec/foportal/