ITR Form Selection Guide for AY 2026-27: Who Must File ITR-1, ITR-2, ITR-3, and ITR-4
Filing the wrong ITR form triggers a defective return notice. With 31 July approaching, this guide tells you which form applies to your income profile — and why NRIs almost never qualify for ITR-1.
Harun Raaj
Chartered Accountant · Harun Raaj & Associates
Filing the wrong ITR form is not a minor mistake — it results in a defective return notice under Section 139(9), which you must respond to within 15 days or the return is treated as never filed. With the AY 2026-27 due date of 31 July 2026 approaching, here is a definitive guide to which form applies to your income profile. NRIs especially need to read this carefully: ITR-1 is almost never the right form for you.
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ITR-1 (Sahaj): The Simplest Form — But Many Eligibility Traps
Who it's for: A resident individual (not HUF) whose total income does not exceed ₹50 lakh, with income only from:
- Salary or pension
- One house property (not a carried-forward loss from house property)
- Other sources: interest income, dividends, family pension — but NOT winnings from lottery, card games, or horse racing
- Agricultural income up to ₹5,000
Who cannot use ITR-1:
- NRIs and Not Ordinarily Residents (NOR) — this is the single most common mistake among NRI filers
- Anyone with capital gains income of any kind (even ₹1 from equity mutual funds)
- Anyone with business or professional income
- Directors of a company
- Anyone who held unlisted equity shares at any point during FY 2025-26
- Anyone with foreign assets or foreign income
- Anyone with a deferred income-tax liability on ESOPs under Section 191
The NRI trap explained: An NRI is a person who was outside India for 182 days or more during the financial year (or met the conditions under Section 6(1)(a)). If you are an NRI, you are ineligible for ITR-1 regardless of how simple your Indian income is. Your default form is ITR-2.
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ITR-2: The NRI Default and the Capital Gains Form
Who it's for: Individuals and HUFs who do NOT have income from business or profession, but have any of:
- Salary from multiple employers
- Income from more than one house property
- Capital gains — short-term, long-term, from equity, from property, from mutual funds, from foreign securities
- Foreign assets (bank accounts, property, investments, ESOPs in foreign companies)
- Foreign income
- NRIs — all NRIs with any Indian income (rental, interest, dividends, capital gains, salary from Indian employer)
- Directors of companies
- Holders of unlisted equity shares
- Agricultural income above ₹5,000
When ITR-2 is mandatory even for salaried people:
- You sold any equity mutual funds (LTCG above ₹1.25L is taxable under Section 112A)
- You sold any property
- You exercised ESOPs and sold shares
- You have interest income from NRO/NRE accounts
ITR-2 for NRIs — key schedules to fill:
- Schedule S: Salary income
- Schedule HP: House property income in India
- Schedule CG: Capital gains
- Schedule FSI: Foreign source income
- Schedule FA: Foreign assets (mandatory if you held foreign bank accounts, foreign property, foreign equity)
- Schedule TR: Tax relief for taxes paid in foreign country (DTAA credit)
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ITR-3: Business/Professional Income
Who it's for: Individuals and HUFs having income from business or profession that is NOT covered under the presumptive taxation scheme. Also used by:
- Partners in a partnership firm
- Those with speculative business income (intraday trading in stocks)
- Those who exceeded presumptive scheme limits in prior years
When traders must use ITR-3 instead of ITR-4:
- Intraday stock traders: even one intraday trade makes it speculative income — ITR-4 does not have a speculative income schedule
- F&O traders: ITR-3 required (F&O trading is a non-speculative business under Section 43(5) proviso)
- Traders with turnover exceeding ₹2 crore (44AD not available above this limit)
Due date: For those requiring audit under Section 44AB — 31 October 2026. For ITR-3 filers who don't need audit — 31 July 2026.
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ITR-4 (Sugam): Presumptive Taxation Scheme
Who it's for: Individuals, HUFs, and firms (other than LLPs) who have opted for presumptive taxation:
- Section 44AD: Business with turnover up to ₹2 crore (or ₹3 crore if 95% receipts are non-cash); declare 8% of turnover as income (6% for digital receipts)
- Section 44ADA: Professionals with gross receipts up to ₹75 lakh (or ₹1.5 crore if 95% non-cash); declare 50% of receipts as income
- Section 44AE: Goods transport operators with up to 10 vehicles
Who cannot use ITR-4:
- NRIs and NORs — not eligible
- Anyone with capital gains (even ₹1 of capital gain disqualifies you)
- Anyone with foreign assets
- Directors of companies
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Quick Decision Tree
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Mandatory Filing Even Below Basic Exemption
Even if your total income is below the basic exemption limit, you must still file an ITR under the seventh proviso to Section 139(1) if any of the following apply during FY 2025-26:
- You deposited ₹1 crore or more in one or more current bank accounts
- You spent more than ₹2 lakh on foreign travel
- Your electricity consumption expenditure exceeded ₹1 lakh
- You have foreign assets (filing is mandatory regardless of income — even if the assets are NRE account deposits)
- Business turnover exceeded ₹60 lakh
- Professional gross receipts exceeded ₹10 lakh
- TDS/TCS deducted from you was ₹25,000 or more (₹50,000 for senior citizens)
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Due Dates for AY 2026-27
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FAQ
Q: I'm an NRI and all my Indian income is just NRE account interest, which is exempt. Do I still need to file?
If your total Indian income (after exemptions) is below the basic exemption limit, you technically don't need to file — unless you have NRO interest with TDS deducted (file to claim refund), or you hold foreign assets. In either case, you must use ITR-2, not ITR-1.
Q: I made ₹12,000 from selling a mutual fund. Can I still use ITR-1?
No. Any amount of capital gains — even ₹1 — disqualifies you from ITR-1. You need ITR-2.
Q: I'm a salaried employee but also run a small tuition business. Which form?
If your tuition income is below ₹75 lakh and you opt for the presumptive scheme under Section 44ADA, you can use ITR-4 — provided you have no capital gains, no foreign assets, and you are resident. Otherwise, use ITR-3.
Q: I filed ITR-1 last year by mistake as an NRI. Can I revise it?
For the current year AY 2026-27, simply use the correct form (ITR-2) from the start. If the income tax department spots the wrong form, they'll issue a defective return notice — you then get 15 days to rectify by filing in the correct form.
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File Early, File Correctly
The 31 July 2026 deadline is days away. Filing the right form the first time saves the hassle of defective return notices, revised filings, and interest. If your income profile involves foreign assets, capital gains, or NRI status — ITR-2 is almost certainly your form.
For a no-guess ITR form determination and guided filing, visit harunraaj.com/contact.
Harun Raaj & Associates | NRI Tax Specialists
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