Picking the wrong ITR form is the #1 reason salaried Indians get Income Tax notices. The form you file depends on your income sources, not your tax slab. This guide walks through the decision tree, deadlines, and the 8 errors that trigger automated mismatches with AIS/TIS systems.
The 4 most-common ITR forms
| Form | Who files | Income types covered |
|---|---|---|
| ITR-1 (Sahaj) | Salary income up to ₹50L | Salary + one house property + other sources (interest, dividends) up to ₹50L total |
| ITR-2 | Salaried with capital gains / foreign income / multiple houses | Salary + capital gains + multiple houses + foreign assets — NO business income |
| ITR-3 | Anyone with business or professional income | Business income + F&O income + intraday trading + freelance / consulting + capital gains |
| ITR-4 (Sugam) | Presumptive income (small business / freelance under 44AD/44ADA) | Business income on presumptive basis, salary income, one property |
The decision tree
- Do you have business / freelance / F&O / intraday income?
- Yes, under 44AD/44ADA presumptive = ITR-4
- Yes, regular books = ITR-3
- No = continue
- Do you have capital gains (equity/MF/property/gold)?
- Yes = ITR-2
- No = continue
- Do you own more than one residential property?
- Yes = ITR-2
- No = continue
- Do you have foreign assets / foreign income?
- Yes = ITR-2 (with Schedule FA disclosure)
- No = continue
- Is your salary income under ₹50 lakh and you have no above conditions?
- Yes = ITR-1 (Sahaj)
- No = ITR-2
Capital gains — F&O / Intraday trap
Most retail traders think their F&O profit is capital gains. It's NOT — F&O income is BUSINESS income under the Income Tax Act. Same for intraday equity trading.
- F&O income: Business income → ITR-3
- Intraday equity: Speculation business → ITR-3
- Delivery equity (held overnight+): Capital gains → ITR-2
Tax audit (Section 44AB) is triggered if F&O turnover > ₹10 crore (post Budget 2020 amendment). Most retail F&O traders are nowhere near this threshold but must still file under ITR-3 with business income head.
Key deadlines (FY 2025-26 / AY 2026-27)
- July 31, 2026: ITR filing deadline (no audit cases — most salaried)
- October 31, 2026: Audit cases (business with turnover > ₹10 crore in F&O, ₹1 crore in regular business)
- December 31, 2026: Belated return deadline (with ₹5K penalty + 1% interest/month)
- January 31, 2027: Revised return final deadline
AIS / TIS / Form 26AS — the new world
Since 2021, the IT department maintains Annual Information Statement (AIS) and Tax Information Summary (TIS) with EVERY high-value transaction reported by banks, brokers, MFs, etc:
- FD interest paid by banks
- Dividends paid by listed companies
- Mutual fund redemptions
- Equity capital gains (broker reporting)
- Property sale registrations
- Credit card spending above ₹10 lakh / year
- Foreign remittances above ₹7 lakh / year
Filing ITR without matching AIS data triggers automated mismatch notices. Download AIS from income tax portal BEFORE filing, reconcile every line, then file.
The 8 most common ITR mistakes
1. Skipping equity LTCG below ₹1.25 lakh exemption
Even if gain is below exemption, you must DISCLOSE it. Skipping disclosure when AIS shows the gain = notice. Disclose + claim exemption = clean.
2. Mismatching FD interest with AIS
Bank reports FD interest in AIS. Many salaried earners only declare interest from primary bank, miss secondary bank or NRO/NRE accounts. AIS mismatch = notice.
3. Not reporting savings bank interest
Saving account interest is taxable beyond ₹10K (₹50K for senior under 80TTB). Most people miss this. Banks report to AIS regardless.
4. Choosing wrong regime
New regime is default. Old regime needs explicit selection in form. Many old-regime filers (with home loan + 80C + HRA) accidentally file under new regime and pay more tax.
5. Missing employer NPS (80CCD(2)) deduction
Employer NPS contribution should be deducted from gross salary. Many ITRs miss this — manual addition required in Schedule S.
6. Not declaring foreign equity / RSUs
US RSU vesting, ESOP exercise, foreign equity holdings must be disclosed in Schedule FA (Foreign Assets). Penalty for non-disclosure: ₹10 lakh.
7. Treating F&O as capital gains
Filing F&O in capital gains schedule of ITR-2 instead of business income in ITR-3 = wrong form selection. Triggers notice asking for clarification.
8. Missing house property loss adjustment
Home loan interest above ₹2 lakh creates “loss from house property” — set off against other income up to ₹2 lakh. Many salaried filers miss this and pay extra tax.
Filing methods
- Free (DIY): Income Tax e-filing portal (incometax.gov.in). Works for ITR-1 and ITR-2 if you know what you're doing.
- Tax software: ClearTax, Quicko, TaxBuddy. ₹500-2000 for ITR-2; ₹2000-5000 for ITR-3.
- CA-assisted: ₹3000-15000 depending on complexity. Mandatory for ITR-3 with F&O + audit threshold.
For salaried with only equity LTCG: DIY ITR-2 is fine. For F&O / business income: use a CA or specialised tax filer.
Refund timing
After filing + e-verification (within 30 days using Aadhaar OTP or net banking):
- Refund typically processed within 2-4 weeks for clean filings
- Refund credited directly to pre-validated bank account
- Interest at 0.5% per month from April 1 if refund delayed beyond October
Use the Income Tax calculator to estimate tax + refund. Pair with the Capital Gains calculator for the schedule numbers.