If you are confused about how to choose the correct ITR form based on your income sources, then start by identifying the type of income you have. According to Income Tax law, there are generally five main heads of income:
- Salary
- Capital gains
- Income from house property
- Profits and gains from business and profession
- Income from other sources
The applicable ITR form is determined not only by the individual head of income but also by the combination of incomes, total income, residential status and other prescribed eligibility conditions.
Also read: ITR filing: Got Section 143(1) intimation after filing your income tax return? Here’s what it means
Keep reading to know more about these five income sources and how to determine which ITR form is required for different types of income.
Salary income
Salary income consists of your basic pay, allowances, bonuses, commissions, taxable perquisites, employer-provided benefits and pension received from a former employer. To qualify as salary income,there must be an employer-employee relationship.
If you’re a resident individual earning a salary, income from up to two house properties and specified income from other sources, you can typically file ITR-1, as long as your total taxable income does not cross Rs 50 lakh and you meet the other eligibility criteria.
If you don’t qualify for ITR-1 but aren’t earning any business or professional income, you would usually file ITR-2.
Chartered Accountant Suresh Surana says says: “If salary is combined with business or professional income, ITR-3 or, in eligible presumptive taxation cases, ITR-4 would apply.”
House property income
Income from house property covers the annual value or rental income from a building or land appurtenant thereto owned by the taxpayer. The taxable amount is calculated after deducting municipal taxes, the statutory deduction of 30% and eligible interest on borrowed capital.
A property used for the taxpayer’s own business or profession is generally not taxed under this head. For AY 2026-27, income from up to two house properties may be reported in ITR-1, subject to its other conditions.
ITR-2 generally applies where the taxpayer has more than two properties or is otherwise ineligible for ITR-1 but does not have PGBP income.
Surana says: “If house-property income is combined with business or professional income, ITR-3 or eligible ITR-4 would apply.”
Also read: ITR-4 or ITR-3? Know which ITR form to file under presumptive taxation scheme and the documents required
Business or professional income
Profits and Gains of Business or Profession (PGBP) covers profits from a business, trade, profession, consultancy, freelancing, proprietorship, F&O trading and other commercial activities. It also includes taxable remuneration, interest, bonus or commission received by a partner from a firm.
Surana says that having PGBP income plays a key role in choosing the right income tax return form: typically, an individual or HUF with this type of income will file ITR-3. ITR-4 is only applicable if the income is computed under the presumptive taxation provisions of Sections 44AD, 44ADA or 44AE and all its conditions, including the Rs 50-lakh total income ceiling.
Also read: Employee wrongly reported Rs 65.21 lakh VRS payout in ITR, lost tax relief; ITAT Pune rules the amount is not taxable and grants him reliefayout in ITR, lost tax relief; ITAT Pune rules the amount is not taxable and grants him relief
Capital gains
Capital gains arise from the transfer of capital assets such as shares, mutual funds, immovable property, bonds, jewellery and other investments.
Depending upon the nature and holding period of the asset, the gains may be classified as short-term or long-term. For AY 2026-27, ITR-1 and ITR-4 permit only eligible long-term capital gains under Section 112A up to Rs 1.25 lakh, subject to all other conditions.
Surana says: “Other capital gains generally require ITR-2 where the taxpayer has no PGBP income and ITR-3 where business or professional income is also present.”
Income from other sources
Income from Other Sources (IFOS) is the residual head and includes income that is taxable but does not fall under the other four heads. Common examples include bank interest, dividend income, family pension, taxable gifts, interest on securities, lottery winnings, betting income and certain other receipts.
Ordinary interest, dividend or family-pension income may be reported in ITR-1 or ITR-4 where their respective conditions are satisfied.
Surana says: “Special-rate or complex income, such as lottery, betting or race-horse winnings, generally requires ITR-2 where there is no PGBP income and ITR-3 where PGBP income is also present.”
The combination of incomes determines the ITR form
For example, salary, bank interest and income from up to two house properties may qualify for ITR-1 if the taxpayer satisfies its Rs 50 lakh income limit and other conditions. Adding capital gains beyond the limited Section 112A gains permitted in ITR-1 would generally shift the taxpayer to ITR-2.
Salary, house-property income, capital gains and IFOS can all be reported in ITR-2 so long as there is no PGBP income. Once business or professional income is added, ITR-3 would ordinarily become applicable.
However, where the business or professional income is computed presumptively and the taxpayer satisfies all the simplified-form conditions, ITR-4 may be used.
Accordingly, ITR selection must be based on the taxpayer’s complete income profile rather than any one source of income. Total income exceeding Rs 50 lakh, residential status, foreign assets or income, directorship, unlisted shares, carried-forward losses, special-rate income and similar disclosures may make ITR-1 or ITR-4 unavailable even if the nature of income otherwise appears to be covered.
Can ITR-1 now be used to report two house properties?
Starting from AY 2026-27, you can now use ITR-1 to report income from up to two house properties, instead of just one like before.
But remember, you still need to meet all other ITR-1 requirements. This means you have to be a resident individual (not RNOR), your taxable income should be up to Rs 50 lakh and you can’t have any business income, disqualifying capital gains, foreign assets/income or any losses that need to be carried forward.
Surana says: “Where income from more than two properties is involved, or carry-forward of a house-property loss is required, ITR-2 should generally be used.”
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