Should you even use ITR-1?
In this chapter: The eligibility rules — total income, sources, foreign assets · When to graduate to ITR-2 (capital gains, more than one house property) · Common mistakes that lead to defective returns
ITR-1 (Sahaj) is for salaried residents with total income under ₹50 lakh, one house property (self-occupied or one let-out), and other income limited to interest, dividends, family pension, and small agricultural income. It is the simplest form on the income-tax portal and gets pre-filled with most of your data. If any of the boundary conditions fails — say, you sold equity shares with capital gains, or own multiple houses, or have foreign assets — you must use ITR-2 or beyond.
Boundaries that disqualify ITR-1: capital gains of any kind (use ITR-2); income from business or profession (ITR-3 or 4); director in a company; owning unlisted equity shares; agricultural income above ₹5,000; income from outside India or foreign assets/accounts; lottery winnings or horse-race winnings; and total income above ₹50 lakh. Filing ITR-1 when ineligible leads to a "defective return" notice under Section 139(9) — you have 15 days to refile correctly, or the return is treated as invalid.
Even if eligible, choosing ITR-1 vs ITR-2 has a subtle implication: ITR-2 lets you claim more nuanced deductions and report additional schedules (e.g., specified financial transactions) that some taxpayers prefer to disclose proactively. If you have a tax-loss-harvested STCL or LTCL you want to carry forward, you must use ITR-2 — the loss can only be carried forward if reported in the year incurred, not retrospectively. Choose carefully.