ITR-1 Is Declining for the First Time in History — Here's Why
- ITR-1 (Sahaj) filings are down 2.5% YoY in FY 2025-26 — the first-ever decline
- ITR-1's share has fallen from 44.6% to 38.7% in 5 years
- ITR-2 has surged 127% in 4 years — from 54 lakh to 1.23 crore filings
- The primary driver: capital gains from stocks and mutual funds disqualify ITR-1
- India's Demat accounts grew from 4 Cr to 17+ Cr — salaried investors now need ITR-2
For over a decade, ITR-1 (Sahaj) has been the default tax return for salaried India. Simple income, simple form. No capital gains, no business income, no complications. Just salary, one house, and maybe some FD interest.
That era is ending.
For the first time in history, ITR-1 filings are declining. In FY 2025-26 (data through January), ITR-1 is down 2.5% compared to the same period last year — a drop of nearly 9 lakh filings. And this isn't a one-year blip. The share of ITR-1 has been eroding steadily for five years, while ITR-2 has been on a near-vertical climb.
We pulled data from the Income Tax e-Filing Portal for five financial years to understand what's happening — and why it matters.
The Numbers: 5 Years of Shift
Here's how the filing landscape has shifted year by year:
| Financial Year | ITR-1 Filings | Share | YoY Growth |
|---|---|---|---|
| FY 2020-21 | 3.29 Cr | 44.6% | — |
| FY 2021-22 | 3.17 Cr | 43.4% | -3.8% |
| FY 2022-23 | 3.29 Cr | 42.3% | +3.8% |
| FY 2023-24 | 3.60 Cr | 42.2% | +9.5% |
| FY 2024-25 | 3.62 Cr | 39.4% | +0.5% |
| FY 2025-26* | 3.51 Cr | 38.7% | -2.5% |
*FY 2025-26 data is through January 2026 (like-for-like comparison). Source: Income Tax e-Filing Portal API.
The decline didn't happen overnight. ITR-1's share has been falling even as the absolute numbers grew — from 44.6% in FY 2020-21 to 39.4% in FY 2024-25. In FY 2025-26, both the share and the absolute number have dropped.
While ITR-1 flatlined and then declined, ITR-2 has been on an extraordinary run:
| Financial Year | ITR-2 Filings | Share | YoY Growth |
|---|---|---|---|
| FY 2020-21 | 53.9 L | 7.3% | — |
| FY 2021-22 | 62.8 L | 8.6% | +16.4% |
| FY 2022-23 | 80.0 L | 10.3% | +27.5% |
| FY 2023-24 | 91.1 L | 10.7% | +13.9% |
| FY 2024-25 | 1.23 Cr | 13.4% | +34.7% |
Source: Income Tax e-Filing Portal API. Full-year data for completed FYs.
In FY 2024-25, 31.6 lakh new ITR-2 filings were added — more than the total ITR-2 filings of all of FY 2020-21. The form's share has nearly doubled from 7.3% to 13.4% in just four years.
The Market Share Shift
To see the full picture, let's look at how every major form's share has changed:
The pattern is clear: ITR-1 and ITR-4 (the two "simple" forms) are losing ground, while ITR-2 and ITR-3 (the "complex" forms) are gaining.
| Category | FY 2020-21 | FY 2024-25 | Change |
|---|---|---|---|
| Simple forms (ITR-1 + ITR-4) | 71.6% | 65.9% | -5.7 pts |
| Complex forms (ITR-2 + ITR-3) | 24.3% | 30.3% | +6.0 pts |
In just four years, 6 percentage points of all tax filings shifted from simple forms to complex ones. That represents roughly 55 lakh additional people filing more complex returns every year. And this shift is accelerating.
Why Is This Happening?
The answer is surprisingly simple: India started investing.
1. The Capital Gains Disqualifier
ITR-1 cannot be used by anyone who has any capital gains income — short-term or long-term. This means:
- Sold shares on Zerodha or Groww? → ITR-2
- Redeemed a mutual fund? → ITR-2
- Sold property? → ITR-2
- Earned from crypto? → ITR-2
Even ₹100 of capital gains from a mutual fund redemption makes you ineligible for ITR-1. There is no threshold — it's binary.
2. India's Demat Account Explosion
This is the structural force behind the shift. India's Demat account base has grown dramatically:
More than 13 crore new Demat accounts were opened in 5 years. These are predominantly salaried individuals who previously had no capital gains and happily filed ITR-1. The moment they sell a single share or redeem a mutual fund, they're forced into ITR-2.
The trigger is irreversible: Once a salaried person starts investing in equities, they almost always have some capital gains (or losses) to report every year. They rarely go back to ITR-1. This means the shift is structural, not temporary.
3. Other ITR-1 Disqualifiers
Capital gains are the biggest driver, but other factors also push filers out of ITR-1:
- Income above ₹50 lakh — ITR-1 has a hard ceiling. Rising salaries push people past this limit
- Multiple house properties — ITR-1 allows only one. Anyone with an inherited property or a rental investment needs ITR-2
- Foreign assets or income — NRIs and those with overseas accounts or RSUs from global employers can't use ITR-1
- Company directorship — Even a directorship in a dormant startup disqualifies ITR-1
- Agricultural income above ₹5,000 — Common in semi-rural areas
4. What About the New Tax Regime?
The new tax regime (default since FY 2023-24) doesn't directly change which form you file. However, it has an indirect effect: since the new regime eliminates most deductions, the simplicity advantage of ITR-1 matters less. People who switch to the new regime don't gain anything from staying on ITR-1 — and many simultaneously have capital gains that force them to ITR-2 anyway.
Growth Rate Comparison
The divergence between ITR-1 and ITR-2 growth rates tells the story most clearly:
ITR-2's growth rate has been consistently 3–10x higher than ITR-1's. In FY 2024-25, ITR-2 grew at 34.7% while ITR-1 grew at just 0.5%. That 0.5% has now turned into -2.5% in FY 2025-26.
What This Means
This isn't just a form-level change. It reflects a fundamental shift in how Indians earn and manage money:
- India's financial inclusion is working. More people investing means more complex tax situations. This is ultimately a positive sign
- Tax filing is getting harder for the average person. ITR-2 is significantly more complex than ITR-1. It requires reporting of capital gains schedules, multiple income heads, and more detailed disclosures
- The IT department's utility share is falling. In FY 2020-21, 44.7% of filers used the department's own tool. By FY 2025-26, that's down to 42.5%. Complex forms push people toward third-party platforms like ClearTax and Groww
- The compliance burden is rising. Many first-time investors don't even know they can't file ITR-1. Incorrect form selection is one of the most common reasons for ITR rejection
Will ITR-1 ever recover? Unlikely — unless the government expands ITR-1 eligibility to include basic capital gains (e.g., LTCG under ₹1 lakh). With Demat accounts still growing and mutual fund SIP penetration increasing, the structural shift away from ITR-1 will continue. We may see ITR-2 overtake ITR-3 in absolute numbers within the next 2–3 years.
Explore the Full Data
Track ITR filing trends, form-wise breakdowns, and state-level data in real time on our Insights page.
View ITR Insights →Frequently Asked Questions
ITR-1 (Sahaj) cannot handle capital gains income. With the explosion of retail investing — Demat accounts grew from 4 crore to over 17 crore between 2020 and 2025 — millions of salaried Indians who sell stocks or redeem mutual fund units now have capital gains and must file ITR-2 instead. In FY 2025-26, ITR-1 filings declined 2.5% YoY for the first time ever.
ITR-1 (Sahaj) is for salaried individuals with income up to ₹50 lakh from salary, one house property, and other sources like FD interest. ITR-2 is for individuals with capital gains (stocks, mutual funds, property), more than one house property, foreign assets, or income above ₹50 lakh. Even ₹100 of capital gains disqualifies ITR-1.
ITR-2 filings have grown 127% in 4 years — from 53.9 lakh in FY 2020-21 to 1.23 crore in FY 2024-25. In FY 2024-25 alone, 31.6 lakh new ITR-2 filings were added — a 34.7% single-year surge. It is the fastest-growing ITR form by a significant margin.
Only resident individuals with total income up to ₹50 lakh. Income must be limited to salary/pension, one house property, and other sources (FD interest, savings interest). You cannot use ITR-1 if you have capital gains, foreign assets, more than one house property, agricultural income above ₹5,000, or are a director in a company.
The structural trend strongly suggests yes. As more Indians invest in stocks and mutual funds, they become ineligible for ITR-1. India's Demat account base is still growing rapidly. Unless the government expands ITR-1 eligibility to include basic capital gains, the shift to ITR-2 is likely to accelerate.