Which ITR form should you file for AY 2026-27: ITR-1 vs ITR-2 vs ITR-3 vs ITR-4
Filing the wrong ITR form triggers a defective return notice. ITR-1 works for salary + interest up to ₹50L with LTCG under ₹1.25L. Sold equity above ₹1.25L? You need ITR-2. Traded F&O or freelance? ITR-3 is mandatory even for one trade. Here's the full decision table for salaried employees.
All figures and facts in this article are sourced directly from primary government and regulatory publications — including the Reserve Bank of India, SEBI, EPFO, the Income Tax Department, PFRDA, and IRDAI — and verified before publication. No claim is published from a single source without corroboration.
For informational purposes only. Filing the wrong ITR form can result in a defective return notice. Verify the correct form for your situation at incometax.gov.in or consult a CA.
The income tax department has notified seven ITR forms for AY 2026-27 (FY 2025-26). Filing the wrong one results in a "defective return" notice under Section 139(9), which you then have to correct. For salaried employees, the choice is usually between ITR-1, ITR-2, and ITR-3. This guide shows exactly which applies to you.
ITR-1 (Sahaj): the simplest form for most salaried employees
You can file ITR-1 if all of these are true:
- You are a resident individual (not NRI)
- Total income is up to ₹50 lakh
- Income is from salary or pension
- Income from up to two house properties (the two-property allowance is new for AY 2026-27 — previously ITR-1 allowed only one)
- Income from other sources (interest, dividends)
- Long-term capital gains under Section 112A (equity) up to ₹1.25 lakh, with no carried-forward losses
You cannot file ITR-1 if any of these apply:
- Total income exceeds ₹50 lakh
- You have capital gains above ₹1.25 lakh, or any STCG on equity, or capital gains from property/debt funds
- You have income from business or profession
- You own more than two house properties
- You have foreign income or foreign assets
- You are a director in a company or hold unlisted shares
- You have agricultural income above ₹5,000
Source: ITR-1 AY 2026-27, ClearTax
ITR-2: for capital gains and higher income
File ITR-2 if you are an individual or HUF with no business income, and any of these apply:
- Total income exceeds ₹50 lakh
- Capital gains (equity STCG, LTCG above ₹1.25 lakh, property sale, debt fund gains)
- More than two house properties
- Foreign income or foreign assets
- You are a company director or hold unlisted equity shares
- Carried-forward capital losses to set off
This is the most common form for salaried employees who also invest in equity and redeem mutual funds or stocks during the year (triggering capital gains above the ITR-1 limits).
◇ Quick check: If you sold any equity mutual funds or stocks during FY 2025-26 and your gains exceed ₹1.25 lakh (or you have any short-term equity gains), you need ITR-2, not ITR-1 — even if your salary is modest.
ITR-3: for salaried employees with business or professional income
File ITR-3 if you have any income from business or profession, including:
- Freelance or consulting income
- F&O (futures and options) trading — this is business income, so even one F&O trade requires ITR-3
- Intraday equity trading (speculative business income)
- Any proprietary business or professional practice
- Partner's income from a partnership firm
If you are salaried but also do freelance work or trade F&O, ITR-3 is mandatory regardless of how small the business income is.
Source: ITR-3 AY 2026-27, ClearTax
ITR-4 (Sugam): for presumptive business income
File ITR-4 if:
- You are a resident individual, HUF, or firm (other than LLP)
- Total income up to ₹50 lakh
- You have business or professional income declared on a presumptive basis under Sections 44AD, 44ADA, or 44AE
This applies to small business owners and professionals (doctors, lawyers, consultants) who opt for presumptive taxation — declaring a fixed percentage of turnover as income without maintaining detailed books.
Decision table for salaried employees
| Your situation | Form |
| Only salary + interest, income ≤ ₹50L, LTCG ≤ ₹1.25L | ITR-1 |
| Salary + capital gains above ITR-1 limits, or income > ₹50L | ITR-2 |
| Salary + foreign assets / unlisted shares / company director | ITR-2 |
| Salary + freelance / consulting / F&O / intraday | ITR-3 |
| Salary + small business on presumptive basis | ITR-4 |
⚠ Common mistakes
Mistake 1: Using ITR-1 when you have equity capital gains above ₹1.25L. A salaried employee who redeemed mutual funds with ₹2 lakh of LTCG cannot use ITR-1. The portal may let you file, but it will be flagged as defective.
Mistake 2: Using ITR-1 or ITR-2 when you traded F&O. F&O is business income — it mandates ITR-3 even if you only made a few trades and even if you lost money.
Mistake 3: Not reporting capital gains because "they were small." All capital gains must be reported regardless of amount. The exemption (₹1.25L for equity LTCG) is applied during computation, not a reason to skip reporting.
What happens if you file the wrong form
If you file an incorrect form, the income tax department issues a defective return notice under Section 139(9). You get 15 days (extendable) to file a corrected return using the right form. If you do not respond, your return is treated as invalid — as if you never filed — which can attract late filing penalties and loss of refund.
Filing the right form the first time avoids this entirely.
Bottom line
- ITR-1 (Sahaj): resident, income ≤ ₹50L, salary + up to two house properties + LTCG ≤ ₹1.25L
- ITR-2: capital gains above ITR-1 limits, income > ₹50L, foreign assets, or unlisted shares
- ITR-3: any business or professional income, including F&O and freelance
- ITR-4 (Sugam): presumptive business income up to ₹50L
- Filing the wrong form triggers a defective return notice — check the criteria before filing
Frequently asked questions
Q: I am salaried and also earned ₹40,000 from freelance work. Which form?
A: ITR-3. Any business or professional income (freelance is professional income) requires ITR-3, regardless of the amount. Alternatively, if you opt for presumptive taxation under Section 44ADA, ITR-4 may apply.
Q: I only have salary and a savings account. ITR-1?
A: Yes. Salary plus interest income, with total income under ₹50 lakh and no capital gains above the limit, is exactly what ITR-1 is designed for.
Q: I redeemed ₹50,000 of equity mutual fund gains. Can I still use ITR-1?
A: Yes — if it is LTCG under Section 112A and the total is within ₹1.25 lakh, ITR-1 now permits it for AY 2026-27. If it included any short-term gains or exceeded ₹1.25 lakh, you need ITR-2.
Q: Does the income tax portal auto-select the right form?
A: The portal offers a form based on your answers to preliminary questions, but it does not guarantee correctness. You are responsible for selecting the right form. When in doubt, ITR-2 covers more situations than ITR-1 for salaried individuals with investments.
Sources: Salaried individuals AY 2026-27, Income Tax Department · Which ITR to file, ClearTax · ITR-1, ClearTax
Last verified: June 2026. ITR form rules are for AY 2026-27 (FY 2025-26). Verify at incometax.gov.in before filing.
Content on Ek Crore is for educational purposes only. Nothing here is financial advice. Always consult a SEBI-registered advisor, CA, or qualified professional before making investment or tax decisions.