One of the most important decisions in the entire ITR filing process is choosing the correct form. Yet this is also one of the most commonly mishandled steps. Many salaried individuals simply use the same form they filed last year without checking whether their income profile has changed. Others pick the form that looks simplest and hope for the best. Both approaches can result in a defective return notice from the Income Tax Department, which requires the return to be corrected and refiled, sometimes under time pressure and with potential loss of tax benefits like carry forward of losses.
For Assessment Year 2026-27, covering income earned in FY 2025-26, the Income Tax Department has made four forms available for individual taxpayers: ITR-1, ITR-2, ITR-3, and ITR-4. This article explains, in plain language, which form applies to which type of salaried individual, what has changed this year, and what the key restrictions are for each form.
Why the Right Form Matters More Than Ever
Each ITR form is built for a specific type of income profile. The forms are not interchangeable. ITR-1 simply does not contain the schedules needed to report capital gains from share sales. ITR-2 has no provision for business income. Filing a form that does not match your actual income means entire categories of income are structurally absent from the return, which is both legally incorrect and increasingly easy for the department to detect through its Annual Information Statement data.
The consequences go beyond receiving a defective return notice. Using the wrong form can delay your refund, expose you to scrutiny queries, and result in the permanent loss of the right to carry forward business or capital losses, which can only be preserved by filing the correct form on or before the original due date. Getting this right from the beginning is far simpler than fixing it after submission.
ITR-1 (SAHAJ): For Straightforward Salary Cases
ITR-1, also called Sahaj, is the simplest form and is designed for the most straightforward income situations. It is available only to resident individuals who are ordinarily resident in India. Non-Resident Indians, Resident but Not Ordinarily Resident individuals, and HUFs cannot use this form regardless of their income level.
For AY 2026-27, a resident individual can use ITR-1 if total income comes from the following sources and does not exceed Rs 50 lakh in total: salary or pension income, income from up to two house properties, income from other sources such as interest from savings accounts and fixed deposits, family pension, and dividends, agricultural income not exceeding Rs 5,000.
Two important updates make ITR-1 more useful this year than in previous years. First, the form now allows income from up to two house properties, whereas earlier even a second property forced the taxpayer into ITR-2. This change is genuinely helpful for salaried individuals who own a second self-occupied property or a property that is jointly owned. Second, the form now accommodates a small amount of LTCG from listed equity shares or equity mutual funds, up to Rs 1,25,000, without requiring a switch to ITR-2.
ITR-1 cannot be used by a person who is a director in a company of any kind including an inactive or dormant company, has short-term capital gains of any amount, has long-term capital gains under Section 112A exceeding Rs 1,25,000, has held any unlisted equity shares at any time during the year, has any asset including a financial interest in any entity located outside India, has signing authority in any account located outside India, has income from any source outside India including foreign dividends or rental income, has had tax deducted under Section 194N, has deferred income tax on ESOPs from a startup employer, has any brought-forward loss or loss to be carried forward under any head of income, or has total income exceeding Rs 50 lakh, excluding the permitted LTCG amount.
The due date for filing ITR-1 for FY 2025-26 is 31st July 2026 for individuals not subject to a tax audit.
ITR-2: For Salaried Individuals With More Complex Income
ITR-2 is for individuals and HUFs who do not have any income from business or profession. In straightforward terms, if your income situation goes beyond what ITR-1 can handle but you do not have business or self-employment income, ITR-2 is your form. It is available to both resident and non-resident individuals, making it applicable to a wider range of taxpayers than ITR-1.
ITR-2 is the correct form if you are a salaried individual with any of the following: capital gains of any type or amount, including short-term capital gains from shares or property, or LTCG exceeding Rs 1,25,000; income from more than two house properties; foreign income of any kind including interest, dividends, or rental income earned abroad; foreign assets including overseas bank accounts, property, shares, or any financial interest in a foreign entity; ESOPs from a foreign parent company; agricultural income exceeding Rs 5,000; a directorship in any company; holding of unlisted equity shares at any point during the year; income from lotteries, gambling, or racehorses; brought-forward losses from any previous assessment year; or total income exceeding Rs 50 lakh.
A large proportion of salaried professionals across India working in IT, banking, consulting, and financial services will find they belong to the ITR-2 category rather than ITR-1. Anyone who has sold listed shares or mutual fund units during the year, holds ESOPs from a foreign employer, is listed as a director even on paper in an old company, or owns a second property that is let out, moves into ITR-2 territory regardless of how simple the rest of their income may seem.
There is no upper income ceiling for ITR-2. Individuals with very high incomes who do not have business income should still file ITR-2. The form includes full asset and liability disclosure for taxpayers with income above Rs 50 lakh, making it more detailed than ITR-1 but comprehensive enough to handle almost any non-business income profile.
Capital gains reporting in ITR-2 has been simplified for AY 2026-27. The transitional reporting requirement that existed last year, where gains before and after 23rd July 2024 had to be separately disclosed at different rates, has been removed. Only the current rates apply for the full year, which makes Schedule CG considerably simpler to fill compared to the previous assessment year.
The due date for ITR-2 is 31st July 2026 for non-audit cases.
ITR-3: For Salaried Individuals Who Also Have Business or Professional Income
ITR-3 is meant for individuals and HUFs who have income from business or profession that is not covered under the presumptive taxation scheme. A salaried person who also earns freelance income outside the scope of Section 44ADA, runs a small business on the side, trades actively in futures and options, or receives remuneration and interest as a partner in a partnership firm, will generally need to file ITR-3.
F&O trading income is classified as business income under the Income Tax Act, not as capital gains, and it must be reported in ITR-3. Using ITR-2 for F&O income is a structural error since that schedule does not exist in ITR-2. For AY 2026-27, separate dedicated disclosure fields have been introduced in ITR-3 specifically for futures and options income and intraday equity trading income, which means these cannot be merged into a general business income line and must be disclosed distinctly.
ITR-3 requires more detailed disclosures than ITR-1 or ITR-2, including a profit and loss account and balance sheet for the business or professional income portion. Where a tax audit is required, the audit report in Form 3CB and Form 3CD must be filed before the return itself is submitted.
The due date for ITR-3 filers not requiring a tax audit is 31st August 2026. For those requiring an audit, the due date for the return is 31st October 2026.
ITR-4 (SUGAM): For Presumptive Taxation Cases
ITR-4, also known as Sugam, is available to resident individuals, HUFs, and partnership firms other than LLPs, who have opted for the presumptive taxation scheme under Section 44AD for small business income or Section 44ADA for specified professional income. Total income must not exceed Rs 50 lakh.
For AY 2026-27, ITR-4 has been expanded to also accommodate long-term capital gains on listed equity shares and equity mutual funds under Section 112A, up to Rs 1,25,000, provided there are no brought-forward or carry-forward capital losses. This mirrors the relaxation given to ITR-1 and allows small investors using the presumptive scheme to remain in the simpler ITR-4 rather than being forced into ITR-3 purely because of modest equity gains.
ITR-4 cannot be used by anyone who is a director in a company, holds unlisted equity shares, has foreign assets or foreign income, has income from lotteries or speculative sources other than the permitted types, has income from more than two house properties, or has total income exceeding Rs 50 lakh. These exclusions are identical to those in ITR-1 for the most part, since both forms are designed for the same category of relatively straightforward taxpayer, one with business income and one without.
For AY 2026-27, ITR-4 filers now face additional disclosure requirements compared to earlier years. Reporting of bank balances has become mandatory, and a new investments disclosure field has been added under the Financial Particulars section of Schedule BP, though this is currently optional. These changes indicate a gradual move toward requiring more financial transparency even within the simplified presumptive framework.
The due date for ITR-4 for FY 2025-26 is 31st August 2026 for non-audit taxpayers, which is one month later than ITR-1 and ITR-2.
A Quick Reference: Which Form Is Right for You
If you are a resident salaried individual with salary, up to two house properties, interest income, and LTCG under Rs 1,25,000, with total income up to Rs 50 lakh and no business income, foreign income, or directorship, file ITR-1.
If you have capital gains of any amount, more than two house properties, foreign assets or income, a directorship, brought-forward losses, or total income above Rs 50 lakh, but no business income, file ITR-2.
If you have business or professional income outside the presumptive scheme, F&O or intraday trading income, or are a partner receiving remuneration from a firm, file ITR-3.
If you have opted for the presumptive scheme under Section 44AD or Section 44ADA, with total income up to Rs 50 lakh and no foreign assets, directorship, or unlisted shares, file ITR-4.
Key Changes in ITR Forms for AY 2026-27 Worth Noting
All four forms now require taxpayers to furnish a secondary mobile number, secondary email address, and secondary address in addition to primary contact details. This is a new field intended to ensure uninterrupted communication between the department and the taxpayer.
The Form 10-IEA disclosure requirements have been expanded significantly from AY 2026-27. Taxpayers with business income who wish to opt out of the default new tax regime and file under the old regime must ensure this form is filed correctly before the ITR due date.
The standard deduction for salaried individuals under the new tax regime for FY 2025-26 is Rs 75,000. The basic exemption limit under the new regime has been raised to Rs 4,00,000, and the Section 87A rebate has been enhanced to make income up to Rs 12 lakh effectively tax-free for eligible resident individuals, subject to the income being of a nature eligible for the rebate.
Frequently Asked Questions
1. Can a salaried person with small mutual fund gains still use ITR-1? Yes. For AY 2026-27, a resident salaried individual with long-term capital gains under Section 112A up to Rs 1,25,000 can use ITR-1, provided all other ITR-1 conditions are satisfied and there are no short-term capital gains of any amount.
2. I am salaried and also a director in my spouse’s company. Which ITR form do I file? You must file ITR-2. Being a director in any company, active or inactive, disqualifies you from ITR-1. Since you have no business income yourself, ITR-3 is not required, and ITR-2 is the correct form.
3. I have salary income and also traded in futures and options this year. Which form applies? F&O income is classified as business income under the Income Tax Act. You must file ITR-3 regardless of whether the F&O activity resulted in a profit or a loss. Using ITR-1 or ITR-2 for F&O income is structurally incorrect and will result in a defective return notice.
4. What is the due date for salaried individuals filing ITR-1 or ITR-2 for FY 2025-26? The due date for ITR-1 and ITR-2 is 31st July 2026 for individuals not requiring a tax audit. For ITR-4, the due date is 31st August 2026. For ITR-3 non-audit cases, it is also 31st August 2026.
5. Can a non-resident Indian file ITR-1? No. ITR-1 is available only to resident individuals who are ordinarily resident in India. NRIs and Resident but Not Ordinarily Resident individuals must file ITR-2.
6. I now own two properties but only my second house is rented out. Can I still use ITR-1? Yes, for AY 2026-27. The relaxation allowing up to two house properties in ITR-1 is new from this year. As long as the other conditions are met and your total income is within Rs 50 lakh, two house properties no longer require you to move to ITR-2.
7. I am a freelancer who has opted for Section 44ADA. Do I need to file ITR-3 or ITR-4? If your gross receipts are within the applicable Section 44ADA limit and you have opted for the presumptive scheme, ITR-4 is the correct form, provided your total income does not exceed Rs 50 lakh and the other ITR-4 exclusions do not apply. If your receipts exceed the limit or you have capital gains, foreign income, or other complex income alongside your professional income, ITR-3 may be required.
8. What happens if I file the wrong ITR form? The return will be treated as defective under Section 139(9), and the department will issue a notice asking you to refile using the correct form within the deadline stated in the notice. If the defect is not corrected in time, the return may be treated as if it was never filed at all, with the same consequences as non-filing including loss of carry forward of losses and exposure to late filing fees and interest.
