5 ITR-1 vs ITR-2 Facts Indians Get Wrong Before Filing in 2026

By Nitish Bharadwaj · Published Jul 3, 2026 · 6 min

For AY 2026-27, choosing between ITR-1 and ITR-2 comes down to five specific facts most salaried taxpayers get wrong: the relaxed capital gains limit now allowed in ITR-1, the new two-house-property allowance, the loss carry-forward restriction that can force ITR-2 even when you technically qualify for ITR-1, the Form 10-IEA rule for switching tax regimes, and what missing the July 31 deadline actually costs you. This guide breaks down each fact with a full form-comparison table so you file the right form the first time.

The July 31, 2026 original deadline for ITR-1 and ITR-2 filers has passed — belated returns are now due December 31, 2026. If you have not yet filed, the first decision is still the same: which form applies to you? For AY 2026-27, the tax department relaxed ITR-1 eligibility in two specific ways, which means the answer that was true last year may no longer be true this year. Here are the five facts that decide it, plus the full comparison table.

Fact 1: ITR-1 Now Allows a Limited Amount of Capital Gains

Until AY 2024-25, booking any capital gain — even ₹500 from selling a mutual fund — forced you into ITR-2. From AY 2025-26 onward (including AY 2026-27), you can report long-term capital gains under Section 112A (from listed equity shares and equity mutual funds) in ITR-1 itself, provided the total LTCG does not exceed ₹1.25 lakh for the year and you have no capital losses to carry forward. Cross the ₹1.25 lakh mark, or have any short-term capital gains, and you're back to ITR-2.

Fact 2: Two House Properties No Longer Force You Into ITR-2

The second relaxation: ITR-1 previously allowed income from only one house property. From AY 2026-27, you can report income from up to two house properties — self-occupied or let-out — and still file ITR-1. A third property, or a house property outside India, still requires ITR-2.

Fact 3: ITR-1 Can't Carry Forward Losses — Even If You Technically Qualify

Fact 4: Switching Tax Regimes Doesn't Need Form 10-IEA — Unless You Have Business Income

The new tax regime is the default for both ITR-1 and ITR-2 filers. If you're salaried or your income comes only from salary, house property, capital gains, or other sources, you can opt for the old regime directly inside the ITR form every year — no separate form required, and no restriction on switching back the following year. Form 10-IEA is only required for individuals or HUFs with business or professional income who want to opt out of the new regime; for them, switching to the old regime and back is a one-time, restricted choice. Our old vs new regime breakeven guide for salaried employees shows exactly where the crossover point falls based on your deductions.

Fact 5: Missing July 31 Costs You the Old Regime Option Too

Quick Checklist Before You File

1. Add up all capital gains for FY 2025-26 — if it's only LTCG under Section 112A and under ₹1.25 lakh, with no losses to carry forward, ITR-1 stays open to you
2. Count your house properties — two or fewer (in India) keeps you on ITR-1; three or more, or one abroad, means ITR-2
3. Check for any foreign income, foreign bank accounts, or foreign shares (including ESOPs from an overseas parent) — any of these mean ITR-2
4. Decide your regime — salaried filers can choose freely inside the form; business-income filers should confirm their Form 10-IEA status first
5. File before July 31, 2026 to keep your regime choice open and avoid the Section 234F penalty

Once you've confirmed the right form, our complete ITR filing guide for AY 2026-27 walks through documents, the filing portal, and e-verification step by step. If Fact 1 pushed you into ITR-2 because of a bigger capital gain, our capital gains tax guide covers exactly how LTCG and STCG are taxed after the Budget 2024 changes.