Which ITR Form for Salaried Employees 2026: ITR-1 or ITR-2?
This guide is for financial year 2025-26 (AY 2026-27) — the return you file in 2026 for income earned from April 2025 to March 2026.
Which ITR Form Do Salaried Employees File?
Most salaried employees file ITR-1 (Sahaj) or ITR-2. Use ITR-1 if your total income is up to Rs 50 lakh and comes only from salary, one house property, and other sources (interest, family pension). Use ITR-2 if you have capital gains (stocks, mutual funds, property sale), income above Rs 50 lakh, more than one house property, foreign income, or you are a director in a company.
Filing for a Hindu Undivided Family (HUF) instead of as an individual? HUFs cannot use ITR-1 — see our guide to filing an ITR for an HUF for which form applies and how the steps differ.
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Who Files ITR-1 (Sahaj)?
ITR-1 is the simplest form. In FY 2025-26, 3.52 crore taxpayers (38.3% of all returns) filed ITR-1. Most of them are salaried individuals with straightforward income.
You can use ITR-1 if all of the following are true:
- You are a resident individual (not NRI/RNOR).
- Total income does not exceed Rs 50 lakh.
- Income is only from: salary/pension, one house property, other sources (interest, family pension), and agricultural income up to Rs 5,000.
- From FY 2025-26: LTCG under Section 112A from listed shares or equity mutual funds up to Rs 1.25 lakh is allowed in ITR-1 (see section below).
- You are not a director in a company; you have no unlisted equity shares; no foreign income or assets; no losses to carry forward.
If any of these conditions fail, you need ITR-2 (or ITR-3/4 if you have business income).
Who Files ITR-2?
ITR-2 is for individuals and HUFs who do not have business or profession income but have more complex situations. ITR-2 filings grew 0.3% year-on-year in FY 2025-26. More salaried Indians than ever now have capital gains, second properties, or director roles. We wrote about this shift in ITR-1 Is Declining for the First Time.
You must use ITR-2 if you have any of the following:
- Capital gains (from stocks, mutual funds, property, crypto, or any other asset) except the small LTCG window allowed in ITR-1.
- Total income above Rs 50 lakh.
- More than one house property.
- Foreign income or foreign assets.
- You are a director in a company (even if inactive).
- Unlisted equity share investments.
- Agricultural income above Rs 5,000.
- Losses to carry forward under capital gains or house property.
Rule of thumb: If you sold stocks or redeemed mutual fund units during the year (even at a loss), you almost always need ITR-2. The only exception is LTCG under Section 112A up to Rs 1.25 lakh with no other capital gains and no carry-forward losses.
Four Salaried Scenarios
Real situations, clear answers. Tip: the number on your Form 16 is gross salary, not the monthly amount you actually take home — if you want to translate CTC into monthly in-hand before reading on, run it through our CTC to in-hand salary calculator (shows EPF, professional tax, and income tax deductions side-by-side for both regimes).
- Ramesh: Rs 12 lakh salary, FD interest, one house. No capital gains, no directorship. ITR-1.
- Priya: Salary plus sold some mutual funds this year. She has capital gains to report. ITR-2.
- Amit: Rs 55 lakh salary, interest income only. Total income is above Rs 50 lakh. ITR-2.
- Sneha: Director in a startup and draws salary. Director status alone disqualifies ITR-1. ITR-2.
The One Rule That Changed in 2025-26
From FY 2025-26 (AY 2026-27), long-term capital gains under Section 112A from listed company shares or equity-oriented mutual funds up to Rs 1.25 lakh can be reported in ITR-1. You must have no other capital gains and no brought-forward or carry-forward losses under that head.
So if you are salaried and only have a small amount of LTCG from equity (within Rs 1.25 lakh), you can still use ITR-1. If your LTCG exceeds that limit, or you have any other capital gains (short-term, property, unlisted shares), you need ITR-2.
What If I File the Wrong Form?
The Income Tax Department may treat your return as defective and issue a notice. You will need to file a revised return using the correct form. Filing the wrong form can also delay refunds. Confirm your form before you file. Use our ITR form selector for a definitive answer in five questions.
Frequently Asked Questions
Most salaried employees file either ITR-1 (Sahaj) or ITR-2. ITR-1 is for those with income up to Rs 50 lakh from salary, one house property, and other sources like interest. ITR-2 is for those with capital gains, income above Rs 50 lakh, multiple house properties, foreign income, or director status.
From FY 2025-26 (AY 2026-27), you can file ITR-1 if you have only long-term capital gains under Section 112A from listed shares or equity mutual funds up to Rs 1.25 lakh, with no other capital gains and no carry-forward losses. Any other capital gains require ITR-2.
If your total income exceeds Rs 50 lakh, you must file ITR-2. ITR-1 has a hard ceiling of Rs 50 lakh total income. This applies even if your only source is salary and interest.
If you are a director in a company, you cannot file ITR-1. You must file ITR-2 (or ITR-3 if you have business income). This applies even if the company is inactive or you draw only salary.
The Income Tax Department may treat your return as defective and send a notice. You will need to file a revised return using the correct form. Filing the wrong form can also delay refunds. It is best to confirm your form before filing.
Disclaimer: This article is for informational purposes only. Tax rules can change. Consult a qualified CA or tax professional for advice specific to your situation.
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