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As soon as the Income Tax Return filing season starts in the country, most of the employed people directly choose ITR-1 (Sahaj Form) without thinking. Admittedly, this is the easiest form of the tax department, but according to tax experts, it should not be chosen just because it is very simple to fill.
According to Mumbai-based renowned Chartered Accountant (CA) Suresh Surana, if you have made any small or big transaction related to stock market, mutual fund, real estate or foreign property during the entire year, then you become completely ineligible to fill ITR-1 form. In such a situation, you will have to choose ITR-2 or ITR-3 form as per the rules. If you choose the wrong form even by mistake, the Income Tax Department may send you a notice of ‘defective return’. Let us know in detail those 10 big cases in which it is legally prohibited for you to fill ITR-1 form.
1. Short-term capital gains (STCG) on selling shares or mutual funds
If you have bought and sold shares or equity-oriented mutual funds listed in the stock market before the completion of the period of 1 year and you have made short-term capital gain on it, then you cannot file ITR-1. To declare this income, it will be mandatory for you to choose ITR-2 form.
2. Long-term capital gains (LTCG) more than ₹1.25 lakh
If you have made long-term capital gains of more than ₹1.25 lakh in a financial year under Section 112A of the Income Tax Act on sale of listed shares or equity mutual funds after holding them for a long period, then the ITR-1 route is completely closed for you.
3. Selling land, house, commercial property or gold
If you have sold any property (like vacant land, flat or commercial building), jewelery or debt mutual fund during the year, then you have to show the total income from it in the ‘Capital Gains Schedule’. This special schedule is not available in ITR-1 form, hence it is mandatory to fill ITR-2.
4. Income from business or independent profession
If, along with being a salaried employee, you also earn from freelancing, consultancy, any other independent profession or your own small business, then you cannot opt for ITR-1. In such cases, you have to directly fill ITR-3 form, provided you are not eligible for ITR-4 under the presumptive taxation scheme.
5. F&O and Intraday Trading (Intraday/Derivative Trading)
The income or loss arising from daily intraday trading in the stock market or trading in Futures and Options (F&O) is considered as ‘Business Income’ (Speculative/Non-Speculative) in tax parlance. Such financial transactions also cannot be shown in ITR-1.
Apart from salary, your form will also change in these 5 technical situations.
6. Investing in Unlisted Shares
If you have purchased shares of any startup or company which is not currently listed in the domestic stock market, then you are not eligible to file ITR-1 at any time during the entire financial year.
7. Holding the post of director in a company
If you are working as a director in any small, big or private limited company, then you cannot use ITR-1 for your salary return. You will have to fill ITR-2 or ITR-3 form only for details.
8. Having foreign assets or a foreign bank account
If you own any real estate property outside the borders of India, shares in a foreign company (such as US stock), or have signing authority in a foreign bank account, you will be required to file the detailed ‘Schedule FA’ (Foreign Assets) available in other forms instead of ITR-1.
9. Any other income from abroad
If you are getting any source of income from abroad in the form of salary, dividend, interest on savings or rent, then the information cannot be submitted in ITR-1. For this, ‘Schedule FSI’ and ‘Schedule TR’ have to be filled along with ITR-2 or ITR-3 form.
10. Total earnings or past losses of more than ₹50 lakh
If your total annual taxable income from all sources combined exceeds ₹50 lakh, you cannot use the ITR-1 form. Apart from this, if you have any old business or capital loss which you want to adjust (Set-off/Carry forward) from this year’s profit, or have huge income from special categories like lottery and horse racing, then ITR-1 will also not be valid for you.
Final advice from tax expert: Income tax experts say that choosing the right ITR form is as important as filing the return on time. If you inadvertently select the wrong form, the tax department will declare your return invalid or defective, delaying your tax refund by months and requiring you to file a ‘revised return’ again with or without penalty. Therefore, before final filing, get your Form 26AS, AIS and all financial transactions reviewed by your CA.