ITR-1 or ITR-2? Which Form Fits Your Salary in 2026

Aditi Rao
3 July 2026
5 min read

The e-filing portal is open, the 31 July deadline is four weeks out, and the first real question it asks is the one that stalls most salaried filers: which form? Pick right and filing takes an evening. Pick wrong and the department writes back with a defective-return notice and a 15-day timer.

For most people on a salary the answer is ITR-1. But a single mutual fund sale, a handful of company RSUs, or one crypto trade can quietly flip you to ITR-2, and the portal will not always stop you from choosing badly. Here is the 2026 line between the two forms, drawn where people actually trip over it.

The 30-second answer

You can file ITR-1 (Sahaj) for AY 2026-27 only if every one of these is true:

You are a resident individual with total income up to ₹50 lakh
Your income is salary or pension, plus interest and dividends
You own no more than two house properties
Your only capital gains are long-term gains on listed equity or equity mutual funds, and they total ₹1.25 lakh or less
You have no foreign assets, no crypto income, no business income
You are not a company director and hold no unlisted shares

One “no” anywhere, and you file ITR-2. That is the whole decision.

ITR-1 got wider this year

Two changes make Sahaj roomier for AY 2026-27 than the older guides suggest:

Two house properties now fit. Until last year a second house pushed you out of ITR-1. From this year you can report up to two.
Small equity LTCG now fits. Long-term gains under Section 112A, up to ₹1.25 lakh, can be reported inside ITR-1, provided you have no capital losses to carry forward.

So the classic advice “sold anything, use ITR-2” is out of date. A salaried person who cashed ₹80,000 of long-held mutual funds stays comfortably in the simpler form.

The ₹1.25 lakh line, and the short-term trap

The equity carve-out is narrow, and it is where most wrong-form filings will happen this year:

Long-term listed equity or equity mutual fund gains up to ₹1.25 lakh: ITR-1 works
Long-term gains above ₹1.25 lakh: ITR-2
Any short-term gain at all, even ₹500 from units sold within a year: ITR-2
Any capital loss you want to carry forward: ITR-2

Check your fund statement for the holding period before you assume. A ₹40,000 gain on units held three years keeps you in ITR-1. A ₹2,000 gain on units held eight months does not.

Sold property, gold, or debt funds? ITR-2

The carve-out is for listed equity only. Gains from a flat, a plot, physical or digital gold, or debt mutual funds go to ITR-2 regardless of the amount. There is no small-gains exception for these.

Foreign stocks and RSUs push you out

If your employer gives you RSUs or ESPP shares of a foreign parent company, you hold foreign assets, and Schedule FA in ITR-2 is mandatory. This applies even if you sold nothing all year; merely holding them at any point during the year triggers the disclosure. Skipping it is not a small miss, since undisclosed foreign assets fall under the Black Money Act’s penalty regime. Tech employees with US-listed stock grants: this one is for you.

Crypto counts too

Income from virtual digital assets is reported in Schedule VDA, which exists only in ITR-2 and ITR-3. One profitable crypto or NFT trade in FY 2025-26 means ITR-1 is off the table, whatever the amount.

Things that do NOT change your form

Plenty of “complicated” situations still belong in ITR-1:

Two employers, two Form 16s. A job switch changes your tax math, not your form; see why two Form 16s can mean you owe tax
Rent from a let-out house, now up to two properties
A home loan, including the interest deduction
Fixed deposit and savings interest, however many accounts
Dividends from Indian shares and mutual funds

The form follows the type of income, not how stressful your year was.

Pick wrong, and the portal writes back

File ITR-1 when you needed ITR-2 and the return is defective under Section 139(9). You get a notice and 15 days to respond; miss that window and the return is treated as never filed, which means late-filing fees and a refund stuck at zero. Since a valid return is also what starts the refund clock, the wrong form delays your money twice.

The portal’s “help me decide” prompts are decent but not a guarantee, and the responsibility stays with you. When in doubt, file ITR-2. Filing a bigger form than needed is always allowed; the reverse is not.

Freelance or side-business income? Different lane entirely

Money from freelancing, consulting, or any business puts you outside both forms: that is ITR-3, or ITR-4 if you use the presumptive scheme. A salaried person with even a small paid side project should read up on those instead. Salary plus investments, though, never needs more than ITR-2.

FAQ: picking your form

The portal pre-selected ITR-1 for me. Can I trust it? Mostly, but it cannot see everything, especially foreign RSUs and crypto trades from exchanges that report late. Run the checklist above yourself; it takes half a minute.

Can I file ITR-2 even though I qualify for ITR-1? Yes. ITR-2 accepts everything ITR-1 does and more. It is longer, not riskier.

Does choosing the old or new tax regime affect which form I use? No. The regime is a choice you make inside either form; our old vs new regime breakdown covers that decision separately.

I have agricultural income. ITR-1? Only if it is ₹5,000 or less for the year. Above that, ITR-2.

I filed the wrong form last year and nothing happened. Am I safe? Not necessarily; processing sometimes catches it late. If a return is still within the revision window, file a revised return with the right form rather than waiting for a notice.

Five minutes with your AIS open answers the form question for good: scan what the department already knows about you, match each income type against the checklist, and the form picks itself. Then file, e-verify the same day, and let the clock run.