ITR filing 2026: When should a salaried taxpayer file ITR-2 instead of ITR-1?

Many salaried taxpayers assume they can simply file ITR-1 (Sahaj) because their primary source of income is salary, which is not always true. If you have income from multiple sources, own certain assets or have carried out specific financial transactions in a financial year, you may have to file a different ITR form.

The due date for filing income tax return (ITR) just less than two weeks away, hence choosing the correct form is the first step towards compliance. The income tax department has prescribed different ITR forms based on the nature of a taxpayer's income and their financial profile.

When can a taxpayer file ITR-1?

A resident salaried taxpayer with a total annual income of up to ₹50 lakh can file ITR-1 if they meet the prescribed eligibility conditions. This form is meant for individuals whose income is limited to the following sources:

• Income from salary or pension
• Income from two house properties
• Long-term capital gains under Section 112A of up to ₹1.25 lakh
• Agriculture income up to ₹5,000
• Interest from savings accounts, deposits, income tax refund, enhanced compensation or any other interest income
• Income of spouse or minor is clubbed (only if the source of income is within the specified limits as mentioned above)

ITR-1 is meant for salaried taxpayers with relatively simple income profiles. However, if a salaried individual has additional sources of income, certain assets, capital gains, foreign holdings, or other reporting requirements that are not covered under ITR-1, they must file ITR-2 instead.

When is ITR-2 filing mandatory?

ITR-2 becomes mandatory when a salaried taxpayer's financial profile is more complex than what can be reported in ITR-1. In most cases, a salaried taxpayer must file ITR-2 in the following situations:

• Income over ₹50 lakh in a financial year
• When tax payment on ESOPs allotted by an eligible start-up has been deferred
• If you are a director in any company
• Income from more than two house properties
• Long-term capital gains under Section 112A of more than ₹1.25 lakh
• Short-term capital gains
• If you held any unlisted equity shares at any time during the previous year
• If you have any asset (including financial interest in any entity) located outside India
• If you have an agricultural income over ₹5,000
• If you have income from any source outside India
• Deposit of amount or aggregates of amount exceeding ₹1 crore in one or more current accounts
• Incurred expenditure of an amount or aggregate of amount exceeding ₹2 lakhs for travel to a foreign country for yourself or any other person
• Incurred expenditure of amount or aggregate of amount exceeding ₹1 lakh on consumption of electricity

While filing your income tax return, the e-filing portal also helps you choose the correct ITR form. It displays the eligibility criteria for each form, including who can and cannot use it, allowing taxpayers to compare their income profile with the prescribed conditions before proceeding with the filing.

The due date to file ITR-1 and ITR-2 is July 31, 2026. If you miss the deadline, you can still file a belated return by December 31, 2026 but it comes at a cost. A penalty of ₹5,000 applies if your total income exceeds ₹5 lakh. For smaller incomes up to ₹5 lakh, the penalty is capped at ₹1,000. Hence, it is advisable to submit your ITR within the original deadline.

What happens if you file the wrong ITR form?

In case you end up filing an incorrect ITR form, the income tax department may treat the return as defective under Section 139(9) and issue a notice requiring correction within a specified time.

In such cases, the return is not processed until the defects are rectified, which in turn may delay refunds and trigger additional verification if income details do not match departmental records.

“Once the return is filed online, it is processed by the CPC (Centralized Processing Centre) through an automated system. If there is a technical defect or mismatch with information available with the tax department, the return may be treated as defective and the taxpayer is generally given 15 days to correct it after receiving a notice,” said Gaurav Makhijani, Managing Partner at MGA.

If the highlighted defect is not rectified within the prescribed time, the return may be treated as invalid, as if no return was filed at all, Makhijani said, adding that in cases involving under-reporting or misreporting of income, the matter may later be picked up in scrutiny proceedings, which may lead to additional tax, interest, and penalties.