Which ITR form applies to you, and what happens if you pick the wrong one

The ITR form is not a preference. It is determined by what kind of income you have and, in some cases, by how much. Filing the wrong one produces a defective return under section 139(9), and if the defect is not cured in time the return is treated as never filed.

ITR-1 (Sahaj)

For: a resident individual with total income up to ₹50 lakh, from salary or pension, one house property, and other sources such as interest. Long-term capital gains under section 112A up to ₹1.25 lakh may now also be included.

Not for: anyone who is a director in a company, holds unlisted equity shares, has foreign income or foreign assets, has agricultural income above ₹5,000, owns more than one house property, or has brought-forward losses.

This is the simplest form and the one most salaried people should use — but the exclusions catch more people than expected. Holding ESOPs in an unlisted parent company, for instance, rules it out entirely.

ITR-2

For: individuals and HUFs with no business or professional income. This is the form for capital gains, more than one house property, foreign assets, foreign income, directorships, unlisted shares, and income above ₹50 lakh.

If you sold shares, mutual fund units or property during the year, this is almost certainly your form. Each gain has to be reported with its own holding period and cost — work out the tax on each asset separately, since equity, debt and property are now taxed under different rules.

ITR-3

For: individuals and HUFs with income from a business or profession where books are maintained. It is the most detailed of the individual forms, carrying a balance sheet and profit and loss schedule.

A salaried person who also consults on the side, and does not use the presumptive scheme, files this.

ITR-4 (Sugam)

For: residents with presumptive income under sections 44AD, 44ADA or 44AE, with total income up to ₹50 lakh.

This is the form for most freelancers and small businesses using the presumptive route. No books, no balance sheet — just gross receipts and the declared percentage. Check whether the scheme applies to your receipts before choosing it, since the ceilings depend on how much of your income is banked.

Note the ₹50 lakh total income cap on ITR-4 is separate from the ₹75 lakh receipts ceiling under 44ADA. A professional with ₹70 lakh of receipts declaring ₹35 lakh of income stays within both; one declaring ₹55 lakh does not and moves to ITR-3.

ITR-5, 6 and 7

ITR-5 for firms, LLPs and AOPs. ITR-6 for companies other than those claiming exemption under section 11. ITR-7 for trusts, political parties and institutions filing under sections 139(4A) to 139(4D).

What goes wrong

Capital gains on ITR-1. The most common error. Any gain beyond the small 112A allowance moves you to ITR-2.

Unlisted shares. Holding even one share in an unlisted company — including an employer's holding company — rules out ITR-1 and ITR-4.

Foreign assets. A foreign bank account, a brokerage account, or vested RSUs in a foreign parent all require ITR-2 or ITR-3 and a completed Schedule FA. Omitting Schedule FA is treated far more seriously than a late return.

Two house properties. Including a property let to a relative at nominal rent.

If you have already filed the wrong form

File a revised return under section 139(5) with the correct form, before 31 December of the assessment year. A revised return replaces the original entirely. If the department has already issued a 139(9) defect notice, respond to that notice with the corrected return rather than filing an unlinked revision — the two routes are not interchangeable, and an unlinked filing leaves the defect outstanding.

A practical order

1. Download the AIS and Form 26AS first. They tell you what the department already knows about your year.
2. List every source of income, including the ones with no TDS.
3. Check the exclusions for ITR-1 and ITR-4 against that list.
4. Pick the simplest form you are not excluded from.

Doing it in that order takes twenty minutes and prevents the defect notice that otherwise arrives in September.