Tax

Which ITR Form Should You File? ITR-1 vs ITR-2 vs ITR-3 vs ITR-4 Explained (AY 2026-27)

7 min read · Published: 27 Apr 2026

Why Choosing the Right ITR Form Matters

Filing your Income Tax Return using the wrong form is one of the most common mistakes Indian taxpayers make. The Income Tax Department will issue a defective return notice under Section 139(9) if you file the incorrect form — and you will need to refile within 15 days or the return will be treated as invalid. With new changes introduced for AY 2026-27, it is more important than ever to confirm you are using the correct form before you start filing.

The good news: for most salaried individuals, the choice is straightforward. Use this guide to identify your correct form in under 2 minutes.

Quick Decision Guide — Which Form Is Yours?

Answer these questions in order to find your ITR form for FY 2025-26 (AY 2026-27):

Salaried with income up to ₹50L, no capital gains above ₹1.25L, no business income → ITR-1 (Sahaj)
Salaried with capital gains (stocks/MF/property), or income above ₹50L, or director in a company → ITR-2
Business or professional income (freelancer, consultant, trader, partner in firm) → ITR-3
Small business / professional opting for presumptive taxation under 44AD/44ADA → ITR-4 (Sugam)

ITR-1 (Sahaj) — For Simple Salaried Taxpayers

ITR-1, also called Sahaj, is the simplest ITR form and is applicable for resident individuals with total income up to ₹50 lakh from salary or pension, up to two house properties, and other sources such as savings interest and FD interest.

New for AY 2026-27: ITR-1 now allows reporting of Long Term Capital Gains (LTCG) under Section 112A up to ₹1.25 lakh — provided there are no capital losses to carry forward. This means many salaried investors who previously had to file ITR-2 just because of small mutual fund or equity gains can now stick with the simpler ITR-1. Also new: ITR-1 now allows up to two house properties (previously only one).

✅ Salary or pension income
✅ Up to two house properties (new for AY 2026-27)
✅ Interest income — savings, FD, post office
✅ LTCG under Section 112A up to ₹1.25 lakh (new for AY 2026-27)
❌ Cannot use if income exceeds ₹50 lakh
❌ Cannot use if you are a director in any company
❌ Cannot use if you hold unlisted equity shares
❌ Cannot use if you have business or professional income
❌ Cannot use if you have foreign assets or income
Deadline: 31 July 2026

ITR-2 — For Salaried with Capital Gains or High Income

ITR-2 is for individuals and HUFs who have income from salary, capital gains, or multiple house properties — but do not have any income from business or profession. If you sold shares, mutual funds, or property during FY 2025-26, or if your income exceeds ₹50 lakh, ITR-2 is your form.

ITR-2 is also mandatory if you are a Director in any company (listed or unlisted), hold unlisted equity shares, have agricultural income above ₹5,000, or have foreign assets or income from outside India. Compared to ITR-1, ITR-2 has more schedules but is still straightforward to fill on the e-filing portal with the pre-filled data feature.

✅ Salary + capital gains (STCG or LTCG above ₹1.25 lakh)
✅ Income above ₹50 lakh
✅ More than two house properties
✅ Director in a company
✅ Holder of unlisted equity shares
✅ Foreign assets or foreign income
✅ Agricultural income above ₹5,000
❌ Cannot use if you have business or professional income
Deadline: 31 July 2026

ITR-3 — For Business Owners, Freelancers & Traders

ITR-3 is for individuals and HUFs who have income from business or profession — including salaried individuals who also have freelance income, F&O traders, partners in firms, and professionals like doctors, architects, and lawyers with private practice.

If you are a freelancer with clients in India or abroad, an F&O trader with speculative income, or a salaried employee who moonlights as a consultant and receives professional fees, ITR-3 is your form. It is the most comprehensive individual ITR form and requires maintaining books of accounts if turnover exceeds specified limits.

✅ Freelancers and independent consultants
✅ F&O traders (futures and options)
✅ Partners in a partnership firm
✅ Doctors, architects, lawyers with private practice
✅ Anyone with both salary and business/professional income
Deadline: 31 August 2026 for non-audit cases (extended from July 31 in Budget 2026)
Deadline: 31 October 2026 for audit cases

ITR-4 (Sugam) — For Small Business Under Presumptive Taxation

ITR-4 is for individuals, HUFs, and firms (other than LLPs) who have opted for the presumptive taxation scheme under Section 44AD (business), 44ADA (professionals), or 44AE (transport). Under presumptive taxation, you declare a fixed percentage of turnover as income without maintaining detailed books of accounts — significantly reducing compliance burden for small businesses.

New for AY 2026-27: The turnover threshold under Section 44AD has been raised to ₹3 crore for businesses (if at least 95% of transactions are digital). For professionals under 44ADA, the threshold is ₹75 lakh (with 95% digital transactions). ITR-4 now also allows reporting of up to two house properties and LTCG under Section 112A up to ₹1.25 lakh.

✅ Small businesses with turnover up to ₹3 crore (Section 44AD)
✅ Professionals with receipts up to ₹75 lakh (Section 44ADA — doctors, CAs, engineers)
✅ Transporters under Section 44AE
✅ Up to two house properties (new for AY 2026-27)
✅ LTCG under 112A up to ₹1.25 lakh (new for AY 2026-27)
❌ Cannot use if you opt out of presumptive scheme
❌ Cannot use if you are a director in a company
❌ Cannot use if you have foreign assets
Deadline: 31 August 2026 for non-audit cases

Key Changes in ITR Forms for AY 2026-27 — Summary

CBDT notified the updated ITR forms for AY 2026-27 in March 2026, ahead of the financial year — giving taxpayers more time to prepare. Here are the most important changes that affect which form you should file.

ITR-1 & ITR-4 now allow up to two house properties (previously only one)
ITR-1 & ITR-4 now allow LTCG under Section 112A up to ₹1.25 lakh
ITR-3 & ITR-4 deadline extended to August 31 for non-audit cases (Budget 2026)
Section 44AD turnover threshold raised to ₹3 crore (with 95% digital transactions)
Section 44ADA threshold raised to ₹75 lakh (with 95% digital transactions)
Retirement benefit accounts from foreign countries removed from ITR-1 and ITR-4 — must use ITR-2 or ITR-3
New disclosure requirements in ITR-4: investment and bank balance details now mandatory

Still Confused? Use This Simple Rule

If you are a salaried employee with no F&O trading, no freelance income, no foreign assets, and no directorship — you will file either ITR-1 or ITR-2. The only question is: did you sell any stocks, mutual funds, or property in FY 2025-26 with gains above ₹1.25 lakh? If yes → ITR-2. If no → ITR-1.

If you have any business or professional income at all, even as a side income alongside your salary → ITR-3. If that business income is under the presumptive taxation threshold and you want simplified compliance → ITR-4. Use our Income Tax Calculator to estimate your tax liability under old and new regime before you file.