Which ITR Form to File for AY 2026-27 (Salaried High Earners)
You earn ₹15L+, your Form 16 is in, and the portal cheerfully pre-fills ITR-1. Click "proceed" and you may have just filed a defective return. For AY 2026-27 the form rules shifted in your favour on two counts and against you on several others — and the trap that catches most high earners isn't the slab math, it's the form they pick in the first 30 seconds.
Summary
| Your situation | Right form | Why |
|---|---|---|
| Salary + up to 2 homes, LTCG ≤ ₹1.25 lakh | ITR-1 | New AY 2026-27 expansion |
| Any STCG, or LTCG over ₹1.25 lakh | ITR-2 | Gains beyond the 112A limit |
| Vested RSUs/ESPP or any foreign asset | ITR-2 | Schedule FA is mandatory |
| Carry-forward capital loss | ITR-2 | Losses bar ITR-1 |
| Total income over ₹50 lakh | ITR-2 | ITR-1 caps at ₹50 lakh |
| F&O, intraday or freelance income | ITR-3 (or ITR-4) | Treated as business income |
What changed in ITR-1 for AY 2026-27 (and what didn't)
Two house properties now allowed
Earlier a second flat — even a vacant one — pushed you into ITR-2. From AY 2026-27, ITR-1 accepts income from up to two house properties, as long as you carry no house-property loss forward. A let-out second home with its Section 24(b) home-loan interest deduction now fits inside Sahaj.
Small LTCG finally fits ITR-1
For the first time, long-term capital gains under Section 112A (listed equity and equity mutual funds) up to ₹1.25 lakh can be reported in ITR-1 — exactly the 112A tax-free threshold. Redeem old equity fund units with ₹1 lakh of long-term gain and you can still file Sahaj. One condition: zero brought-forward or carry-forward capital losses anywhere in your return.
The lines that still throw you out
ITR-1 stays off-limits the moment you have a single short-term capital gain, LTCG above ₹1.25 lakh, unlisted shares (startup ESOPs, AIF units), a company directorship, total income above ₹50 lakh, or — the one that quietly catches salaried tech and MNC staff — any foreign asset.
The high-earner trap: RSUs and Schedule FA
If your employer is a US or foreign-listed parent, your vested RSUs and ESPP shares are foreign assets. That single fact triggers Schedule FA and makes ITR-2 mandatory — even if you never sold a share and earned ₹0 from them.
Two details people miss:
- Schedule FA runs on the calendar year (1 January–31 December 2025), not the financial year. Shares that vested in December 2025 count for this return.
- Skipping the disclosure is not a rounding error. Non-disclosure of foreign assets carries a penalty of up to ₹10 lakh per year under the Black Money (Undisclosed Foreign Income and Assets) Act, 2015 — separate from, and far larger than, the tax involved.
Hold even one vested foreign share and ITR-2 is not optional.
When even ITR-2 isn't the right form
ITR-2 covers salary, capital gains of any size, multiple homes and foreign assets — but not business income. If you traded futures and options, did intraday equity, or earned consulting/freelance fees during FY 2025-26, that income is treated as business income, and you file ITR-3. F&O losses are business losses worth carrying forward, but only ITR-3 lets you do it. Pure presumptive freelancers under Section 44ADA with receipts up to ₹50 lakh can use the simpler ITR-4 instead — but never ITR-4 if you hold foreign assets.
What picking the wrong form actually costs
File ITR-1 when you owed ITR-2 and the return is flagged defective under Section 139(9). You get 15 days to respond. Miss that window and the return is treated as never filed — which means the late-filing fee under Section 234F (up to ₹5,000), interest under Section 234A on any dues, a frozen refund, and the loss of any capital-loss carry-forward you were counting on. A form you picked in half a minute can take months to unwind.
Real example: Salaried, ₹34L CTC, Bengaluru
Priya has salary, ₹80,000 of LTCG from equity funds, ₹40,000 of STCG, and US RSUs worth ₹6 lakh that vested in 2025.
| Item | If she files ITR-1 | Correct: ITR-2 |
|---|---|---|
| Return status | Defective u/s 139(9) | Valid |
| LTCG ₹80,000 (112A) | Allowed | Allowed |
| STCG ₹40,000 | Can't be reported → defect | Reported in Schedule CG |
| RSUs ₹6 lakh | Not disclosed | Schedule FA filed |
| Foreign-asset penalty risk | Up to ₹10 lakh | ₹0 |
| Refund of ₹47,000 | Held / lapses | Processed in weeks |
The ₹80,000 LTCG on its own would have kept her in ITR-1. The ₹40,000 STCG and the RSUs are what force ITR-2 — and the RSUs are the expensive half to get wrong.
What to do this week
- List every income source for FY 2025-26: salary, interest, dividends, capital gains (short and long), rent, and foreign shares.
- If you see any STCG, LTCG above ₹1.25 lakh, unlisted shares, or a carry-forward loss, start with ITR-2 — not the pre-filled ITR-1.
- Open your demat and broker statements and check for foreign (US) holdings, including unsold RSUs and ESPP. If any exist: ITR-2 plus Schedule FA, no exceptions.
- Reconcile the pre-filled form against your AIS and Form 26AS before submitting. The portal's default form is a suggestion, not a verdict.
File once, file right
The deadline is 31 July 2026, and the price of the wrong form isn't a slap on the wrist — it's a 139(9) notice, a frozen refund, and, for foreign assets, a penalty that dwarfs the tax. The form takes thirty seconds to choose and months to fix. Choose it on purpose.
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