ITR-2 Form: Who Should File and When

ITR-2 Form: Who Should File and When

Direct answer: ITR-2 is the income tax return for individuals and Hindu Undivided Families (HUFs) who earn salary, capital gains, income from multiple house properties, or foreign income — but have no income from a business or profession. For Assessment Year 2026-27 (AY 2026-27), covering income earned between 1 April 2025 and 31 March 2026, this is the correct form for salaried employees with investments, ESOP holders in unlisted companies, non-residents with Indian-source income, and anyone holding a foreign bank account or asset. The standard due date is 31 July 2026.

Who Must File ITR-2 — and Who Must Not

Getting the form right is not a formality. Filing the wrong return makes the return defective under Section 139(9), which the department can treat as a non-filing. Start by mapping your income sources against the eligibility table below.

Use ITR-2 if you are:

• A resident, non-resident (NR), or resident but not ordinarily resident (RNOR) individual or HUF with income from salary, pension, or family pension
• A taxpayer with capital gains from any source — listed shares, equity or debt mutual funds, immovable property, unlisted shares, or virtual digital assets (VDA)
• An owner of more than one house property, whether self-occupied, let-out, or deemed let-out
• A director in any company, listed or unlisted
• A holder of unlisted equity shares at any time during FY 2025-26, including ESOPs or sweat equity from a startup
• A resident with foreign assets or foreign income, including foreign bank accounts, foreign equity, insurance policies abroad, or signing authority in a foreign account — Schedule FA is mandatory
• A resident with agricultural income above Rs. 5,000 (since ITR-1 permits only up to Rs. 5,000)
• Anyone with total income above Rs. 50 lakh, where Schedule AL (Assets and Liabilities) kicks in

Do NOT use ITR-2 if you are:

• Earning income from a business or profession under any head — switch to ITR-3 (for individuals/HUFs with business income) or ITR-4 Sugam (for presumptive income under Sections 44AD, 44ADA, 44AE)
• A firm, LLP, or company — those use ITR-5, ITR-6, or ITR-7 respectively
• A salaried individual with simple income — one employer, one house property, no capital gains, total income below Rs. 50 lakh — ITR-1 Sahaj is sufficient and faster to file

The dividing line is clean: the moment capital gains of any amount, a second house property, a foreign bank account, or an unlisted-share holding enters the picture, ITR-2 is the only valid choice for an individual.

Key Schedules in ITR-2 and What Each One Covers

ITR-2 for AY 2026-27 is a long form, but most taxpayers need only a subset of its schedules. Know which ones apply to you before you sit down to file.

Schedule CG — Capital Gains

This is the most complex schedule for most taxpayers. It has separate sections for:

• STCG (Short-Term Capital Gains): Assets held 12 months or less for listed equity; 24 months or less for property and unlisted shares; 36 months or less for debt mutual funds
• LTCG (Long-Term Capital Gains): The mirror image — assets held beyond those thresholds
• Grandfathering for listed equity: For shares and equity mutual funds acquired before 31 January 2018, Schedule CG requires the Fair Market Value (FMV) as of that date to compute grandfathered cost under Section 112A

Each capital asset class is reported in a separate sub-section. Do not club listed equity gains with property gains — the rates differ and the department's AIS data will cross-check both.

Schedule OS — Other Sources

Dividends, interest on savings accounts and fixed deposits, family pension (taxable portion), winnings from lotteries and online games, and income from undisclosed sources all land here. For AY 2026-27, dividends on domestic and foreign shares are fully taxable at slab rates — the earlier DDT exemption is gone. TDS on dividends under Section 194 should be pre-filled from AIS; verify it matches your actual receipts.

Schedule HP — House Property

For multiple properties, each property is disclosed separately. Key rules to remember:

• A maximum of two self-occupied properties can be claimed as nil-annual-value for AY 2026-27
• For a let-out property, 30% standard deduction on net annual value applies, plus actual home-loan interest without limit
• For a self-occupied property, home-loan interest deduction is capped at Rs. 2,00,000 per year under the old regime; nil under the new regime

Schedule FA — Foreign Assets

This schedule is not optional. Any resident taxpayer (Resident and Ordinarily Resident — ROR) who holds a foreign bank account, foreign equity, foreign insurance policy, or any other foreign asset must disclose it fully in Schedule FA. The disclosure covers account numbers, peak balances, income credited, and the country code. Errors or omissions here expose you to prosecution under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, with a minimum penalty of Rs. 10 lakh per asset and potential criminal liability. Treat this schedule with passport-level care.

Schedule VDA — Virtual Digital Assets

Effective FY 2022-23, all gains from crypto, NFTs, and other virtual digital assets are taxable at a flat 30% under Section 115BBH, with no deductions except the cost of acquisition. TDS at 1% under Section 194S is deducted by exchanges for transactions above the threshold. In Schedule VDA, you disclose each type of VDA, the date of acquisition and transfer, consideration received, and cost. If you traded on multiple exchanges or made peer-to-peer transfers, reconcile all of them — the AIS now receives transaction-level data from exchanges.

Schedule AL — Assets and Liabilities

If your total income for FY 2025-26 exceeds Rs. 50 lakh, Schedule AL is mandatory. It requires disclosure of immovable property, movable property (including jewellery, vehicles, and bank balances), and liabilities. This is a snapshot as on 31 March 2026 — not a comprehensive wealth statement — but omissions here have triggered scrutiny notices.

Regime Choice in ITR-2: New vs Old for AY 2026-27

The new tax regime under Section 115BAC is the default for AY 2026-27. If you do nothing, the system will compute your tax under the new regime.

Key parameters under the new regime (as per Finance Act 2025):

Under the new regime, most deductions and exemptions — HRA, LTA, 80C, 80D, home-loan interest on self-occupied property — are not available. If your deductions under the old regime are substantial (typically Rs. 3.75 lakh or more), the old regime may still deliver a lower tax liability.

How to Switch to the Old Regime in ITR-2

ITR-2 filers have no business income, so they do not need to file Form 10-IEA. You simply select the old regime within the ITR-2 return itself, and the change is valid for that year. You can switch back the following year.

The practical test: Compute tax under both regimes after plugging in your actual deductions — 80C investments, health insurance premium, HRA, home-loan interest. The regime producing the lower net tax payable is the right choice. Many individuals with home loans on self-occupied property and significant 80C investments will still find the old regime advantageous even with the new rebate.

Capital Gains Rates for AY 2026-27: The Numbers That Matter

Budget 2024 (Finance Act 2024, effective 23 July 2024) revised capital gains rates across the board. These rates apply in full for FY 2025-26 (AY 2026-27).

Note: Indexation for property acquired before 23 July 2024 was restored by an amendment — taxpayers can choose whichever computation gives a lower tax. Use the ITR-2 computation tool on the e-filing portal to compare.

Worked Example: Salaried Professional with ESOP, Listed Equity Gains, and a Foreign Account

Background: Arjun is a senior manager at an MNC. In FY 2025-26 his income sources were:

1. Salary: Rs. 22,00,000 (after employer's PF contribution; Form 16 received)
2. ESOP exercise and sale — listed shares of employer (BSE-listed): 500 shares exercised at Rs. 800 (FMV on date of exercise); sold at Rs. 1,400 per share after holding 15 months
3. Listed equity mutual fund redemption: LTCG of Rs. 1,80,000 across multiple folios
4. Savings account interest: Rs. 18,000
5. Foreign bank account in Singapore: Balance USD 12,000; interest of USD 400 credited

Step 1: ESOP taxation

• Perquisite on exercise = (FMV Rs. 800 − Exercise Price Rs. 300) × 500 shares = Rs. 2,50,000 → Added to salary in Form 16 by employer; taxed at slab rates
• Capital gain on sale = (Sale Price Rs. 1,400 − FMV Rs. 800) × 500 shares = Rs. 3,00,000
• Holding period from exercise date to sale: 15 months → LTCG under Section 112A
• Taxable LTCG = Rs. 3,00,000

Step 2: Mutual fund LTCG

• Gross LTCG from MFs: Rs. 1,80,000
• Total LTCG from all equity instruments (ESOP shares + MFs) = Rs. 3,00,000 + Rs. 1,80,000 = Rs. 4,80,000
• Less: Section 112A exemption (Rs. 1,25,000)
• Taxable LTCG = Rs. 3,55,000 @ 12.5% = Rs. 44,375

Step 3: Total income and regime comparison

• Gross total income (new regime): Rs. 22,00,000 salary − Rs. 75,000 standard deduction + Rs. 3,55,000 LTCG + Rs. 18,000 other sources = Rs. 24,98,000
• Tax on LTCG: Rs. 44,375 (always taxed at 12.5%, regime choice does not apply to LTCG under Section 112A)
• Tax on balance Rs. 21,43,000 at new regime slabs: as notified; he computes both regimes in the portal

Step 4: Schedule FA

• Foreign account in Singapore must be disclosed in Schedule FA with: IBAN/account number, name of institution, peak balance, closing balance on 31 March 2026, and interest income of USD 400 converted at RBI reference rate. This interest (approx. Rs. 34,000 at Rs. 84/USD) is also included in Schedule OS.

Result: Arjun must file ITR-2. Form ITR-1 is ruled out by the capital gains and foreign account. ITR-3 is unnecessary — no business income. A mistake here (e.g., filing ITR-1 and omitting Schedule FA) would expose him to Section 148A inquiry and Black Money Act risk.

Schedule FA and VDA: The Two Disclosures That Carry Legal Teeth

Why Schedule FA Cannot Be an Afterthought

The Central Board of Direct Taxes (CBDT) receives automatic information under FATCA, CRS, and bilateral treaties. The department knows about foreign accounts before you file your return. Filing without Schedule FA, or filing with incomplete balances, is no longer a paperwork oversight — it is a disclosed mismatch and will generate a notice.

Minimum penalty under the Black Money Act: Rs. 10,00,000 per undisclosed foreign asset, plus tax and surcharge. Willful non-disclosure is a prosecutable offence.

What you need to fill Schedule FA correctly:

• Account number and SWIFT/BIC of the foreign bank
• Name and address of the bank or financial institution
• Peak balance during the calendar year (not financial year — it is CY 2025 for FY 2025-26 purposes)
• Closing balance on 31 December 2025
• Income accrued and income offered to tax in India

VDA: 30% With No Escape Routes

Section 115BBH leaves no room for deduction or set-off. You cannot set off a VDA loss against any other income. You cannot carry forward a VDA loss to future years. If you made a profit on Bitcoin and a loss on an altcoin in the same year, you cannot net them — each transaction is taxable on its gain, and losses from one VDA cannot offset gains from another.

Practical implication: If you traded on international exchanges that do not appear in your AIS, you must still disclose the transactions. The department is building its VDA transaction database; under-reporting will surface in future assessments.

The AY 2026-27 Filing Workflow: Seven Concrete Steps

Follow this sequence to file ITR-2 without surprises.

1. Download AIS, TIS, and Form 26AS from www.incometax.gov.in → e-File → Income Tax Return → View AIS. The Annual Information Statement (AIS) contains dividends, capital gains reported by brokers/registrars, interest, and foreign remittances. The Tax Information Summary (TIS) gives you consolidated figures.

1. Collect Form 16 (Part A and Part B) from your employer. Part A is TDS data; Part B is the salary breakup. Cross-verify the TDS figure in Part A against 26AS traces.

1. Obtain broker capital gains statements (the detailed P&L, not just the contract notes). For equity mutual funds, download the CAMS/KFintech consolidated account statement. Reconcile every line against AIS.

1. Compute capital gains asset-class-wise: listed equity, unlisted shares, property, VDA. Apply the correct rate and holding period to each. For property, if acquired before 23 July 2024, run both the indexed (20%) and non-indexed (12.5%) computations and pick the lower tax.

1. Fill foreign asset details. Keep bank statements, balance certificates, and interest certificates from foreign institutions in a separate folder. You will need them if the return is selected for scrutiny.

1. Choose the regime within the ITR-2 form: go to the Part B-TI section, compute taxable income under both regimes, and select the lower. For ITR-2 filers, this selection is sufficient — no separate Form 10-IEA required.

1. Validate, submit, and e-verify within 30 days. E-verification options: Aadhaar OTP (instant), net banking, or demat account OTP. If you do not e-verify within 30 days of submission, the return is treated as invalid — the department has moved away from the old 120-day window. Physical ITR-V to CPC Bengaluru remains the option only if you have no digital verification access.

Due Dates and Consequences of Missing Them

Section 234F late-filing fee:

• If total income exceeds Rs. 5 lakh: Rs. 5,000
• If total income does not exceed Rs. 5 lakh: Rs. 1,000

Interest under Section 234A accrues at 1% per month (or part of a month) on the unpaid tax from the due date until filing. This is separate from 234F and applies even if you file on 1 August instead of 31 July.

Common Mistakes That Generate Notices

1. Filing ITR-1 when ITR-2 was required. A single LTCG transaction or a foreign bank account makes ITR-1 invalid. The department processes Form 26AS and AIS data centrally — mismatches trigger automated defect notices under Section 139(9).

2. Omitting unlisted shares from Schedule CG. ESOPs exercised in private companies, shares received in a startup for services, and shares acquired in rights issues from unlisted entities must all appear in Schedule CG. The department receives allotment data from MCA filings.

3. Reporting dividend only as TDS credit without including income. TDS at 10% under Section 194 was deducted, so the credit appears in 26AS. But the gross dividend must also be added to Schedule OS. Filing only the TDS credit without the income creates a mismatch.

4. Ignoring the 87A rebate cap on special-rate incomes. Section 87A rebate is not available against tax on LTCG under Section 112A, STCG under Section 111A, and VDA income under Section 115BBH — even if total income is within the rebate threshold. Many taxpayers compute a nil tax liability incorrectly because of this cap.

5. Not e-verifying. A submitted but unverified return is a non-return. Set a calendar reminder for 30 days after the submission date.

6. Misreporting Schedule FA with INR instead of the foreign currency. AIS will show remittances but the foreign bank balance must be stated in the relevant foreign currency. INR conversion for income purposes uses the State Bank of India telegraphic transfer buying rate for the last day of the month preceding the tax payment date.

7. Treating equity ESOP gain as entirely salary. The perquisite at exercise is salary (taxed by the employer). The further appreciation from exercise to sale is a capital gain and must appear in Schedule CG, not in salary. Mixing these up understates capital gains.

Key Takeaways

• ITR-2 is mandatory the moment you have capital gains, a foreign asset, an unlisted shareholding, or more than one house property — regardless of how small the amount.
• The due date is 31 July 2026. File before this date to preserve loss carry-forward rights and avoid 234F fees and 234A interest.
• New tax regime is default for AY 2026-27; you switch to the old regime inside the return itself, no separate Form 10-IEA needed for ITR-2 filers.
• LTCG on listed equity is 12.5% above Rs. 1,25,000; STCG on listed equity is 20% — both revised by Finance Act 2024. Use the correct rates in Schedule CG.
• Schedule FA is legally non-negotiable for ROR taxpayers with any foreign asset. Omission is a Black Money Act exposure, not a mere penalty.
• Section 87A rebate does not reduce tax on LTCG (112A), STCG (111A), or VDA (115BBH) — a common and costly misunderstanding when computing nil liability.
• E-verify within 30 days of submission; an unverified return is treated as if it was never filed.