Every tax filing season brings new updates, but Assessment Year (AY) 2026-27 introduces some of the most significant changes to ITR-1 (Sahaj) and ITR-2 in recent years.

The Income Tax Department has expanded the eligibility criteria for ITR-1, allowing more taxpayers with relatively simple financial profiles to use the simpler return form. At the same time, ITR-2 has been updated with revised capital gains reporting, additional disclosure requirements, and changes designed to improve reporting accuracy.

For Chartered Accountants, tax practitioners, and accounting firms managing multiple clients, understanding these changes is essential. Choosing the wrong return form can delay processing, trigger notices, or require revised returns, all of which create additional work for both practitioners and clients.

This guide explains the major changes in ITR-1 and ITR-2 for AY 2026-27, who should use each form, and the practical steps accountants can take to ensure a smoother filing season.

Why These Changes Matter

Every year, tax professionals spend considerable time reviewing client information to determine the correct Income Tax Return (ITR) form before filing begins.

This year, that decision has become more important because the eligibility criteria for ITR-1 have changed significantly.

Many taxpayers who previously had to file ITR-2 may now qualify to file ITR-1 instead, making the filing process simpler. However, this also means practitioners must carefully evaluate each client's income profile instead of relying on previous years' filing patterns.

A client who filed ITR-2 last year may not necessarily need to do so this year, and vice versa.

Understanding ITR-1 and ITR-2

Before reviewing the changes, it's useful to understand the purpose of each form.

What is ITR-1 (Sahaj)?

ITR-1 is designed for resident individuals with relatively straightforward income sources.

For AY 2026-27, taxpayers can generally use ITR-1 if they:

• Have total income up to ₹50 lakh.

• Earn income from salary or pension.

• Have income from up to two house properties.

• Have eligible long-term capital gains under Section 112A up to ₹1.25 lakh.

• Do not have foreign assets or foreign income.

The expanded eligibility means more individual taxpayers can now use this simpler return form.

What is ITR-2?

ITR-2 is meant for individuals and Hindu Undivided Families (HUFs) with more complex income structures.

It generally applies when taxpayers:

• Have income exceeding ₹50 lakh.

• Own more than two house properties.

• Have foreign assets or foreign income.

• Earn complex capital gains, including real estate, crypto assets, or gains exceeding the ITR-1 limits.

• Fall into specific reporting categories such as certain directors or holders of unlisted equity shares.

Although ITR-2 requires more disclosures, it provides the flexibility needed for taxpayers with diverse income sources.

Major Changes in ITR-1 for AY 2026-27

The biggest story this year is the expansion of ITR-1.

Here are the most important updates.

1. Two House Properties Now Allowed

Previously, many taxpayers had to shift to ITR-2 simply because they owned more than one residential property.

For AY 2026-27, eligible taxpayers can now report income or loss from up to two house properties while continuing to use ITR-1.

Why This Matters

This change simplifies return filing for many salaried individuals who own a self-occupied home along with another residential property.

2. Long-Term Capital Gains Can Be Reported in ITR-1

Retail investors also benefit from the revised eligibility rules.

Eligible taxpayers can now report Long-Term Capital Gains (LTCG) under Section 112A within ITR-1, provided the gains are up to ₹1.25 lakh and other eligibility conditions are satisfied.

Earlier, even relatively small equity gains often required taxpayers to move to ITR-2.

3. Unrealised Rent Gets Its Own Field

ITR-1 now includes a dedicated field for reporting unrealised rent.

Instead of adjusting this information through broader rent disclosures, taxpayers can now report it separately, making the return more structured and transparent.

4. Foreign Assets Still Require ITR-2

Although ITR-1 has become more inclusive, it continues to exclude taxpayers with foreign assets, foreign income, or those claiming certain international tax relief provisions.

Tax professionals should pay special attention to clients who:

• Hold overseas investments

• Own foreign bank accounts

• Receive RSUs or ESOPs from overseas employers

• Have foreign retirement accounts

These taxpayers will generally continue filing ITR-2.

What's New in ITR-2?

While ITR-1 received broader eligibility, ITR-2 has also undergone several important structural updates.

Revised Capital Gains Reporting

The capital gains schedules have been updated to align with the latest tax framework.

Older reporting fields reflecting previous tax rates have been removed, while reporting has been simplified around the revised applicable rates.

In addition, taxpayers can now report certain corporate share buyback losses through dedicated reporting fields.

These changes are particularly relevant for practitioners handling investors, high-net-worth individuals, and clients with diversified investment portfolios.

Universal Changes Applicable to Both ITR-1 and ITR-2

Apart from the form-specific updates, the Income Tax Department has introduced several changes that apply across both ITR-1 and ITR-2. These updates are aimed at improving data accuracy, reducing mismatches, and making it easier to verify information against the Annual Information Statement (AIS).

1. Better Reporting of Interest Income

Interest income can no longer be grouped under a broad "Other Sources" category in certain cases.

Taxpayers are now required to separately disclose interest earned from Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs). This helps improve the accuracy of reporting and enables better verification with information already available to the Income Tax Department.

Practical Tip

Before filing, reconcile interest income with your AIS and supporting statements to ensure there are no reporting mismatches.

2. Stricter Reporting for Donations

Taxpayers claiming deductions under Sections 80G or 80GGC will now need to provide more detailed information.

Additional details such as the bank IFSC and transaction reference number may be required while claiming eligible deductions.

Practical Tip

Ask clients to retain donation receipts and payment proofs well before the filing season instead of requesting them at the last minute.

3. Representative Assessee Declaration

Both forms now include a dedicated field indicating whether the return is being filed by a representative assessee, guardian, or legal representative.

While this change may not affect every taxpayer, practitioners handling returns for minors, senior citizens, or legal heirs should ensure this information is completed correctly.

4. Additional Contact Information

The updated forms also provide fields for recording secondary contact details, including:

• Secondary mobile number

• Secondary email address

• Secondary address

Although this appears to be a small change, having alternate contact details can help ensure smoother communication if the Income Tax Department needs to reach the taxpayer.

ITR-1 vs ITR-2: A Quick Comparison

Choosing the correct return form is one of the first, and most important, steps in the filing process.

When in doubt, always evaluate the client's complete financial profile rather than assuming the same return form used in previous years will continue to apply.

Pre-Filing Checklist for Tax Professionals

A little preparation before filing can prevent unnecessary revisions, notices, and delays.

Here's a practical checklist to follow before submitting any return.

Download AIS and TIS

Cross-check all income reported by the taxpayer with the Annual Information Statement (AIS) and Taxpayer Information Summary (TIS).

Look for discrepancies involving:

• Interest income

• Dividend income

• Capital gains

• TDS credits

Reconcile Form 26AS

Compare Form 26AS with:

• Form 16

• Form 16A

• Client records

• Bank statements

Ensuring all TDS credits match before filing can help avoid refund delays and tax demands.

Validate Bank Account Details

Before filing, confirm that the client's nominated bank account has been validated on the Income Tax e-filing portal.

An unvalidated account can delay or prevent the processing of income tax refunds.

Review Exempt Income

Many taxpayers forget to disclose exempt income because it isn't taxable.

However, items such as eligible PPF interest or agricultural income (where applicable) should still be reported wherever required.

Confirm Tax Regime Selection

The New Tax Regime continues to be the default option.

Clients wishing to opt for the Old Tax Regime and claim eligible deductions should ensure the appropriate option is exercised before filing, wherever applicable.

Common Mistakes to Avoid

Even experienced taxpayers can make avoidable mistakes during the filing season.

Here are some of the most common ones:

1. Choosing the Wrong ITR Form

Don't assume last year's return form still applies. Review the latest eligibility criteria before beginning the filing process.

2. Ignoring AIS Mismatches

Income reported by banks, mutual funds, employers, and other institutions should always be reconciled with the taxpayer's records before filing.

3. Forgetting Foreign Asset Reporting

Clients holding overseas investments, RSUs, foreign bank accounts, or other foreign assets should ensure the appropriate return form is used and all required disclosures are made. Failure to report foreign assets can have serious consequences under applicable laws.

4. Waiting Until the Last Week

Leaving return preparation until the final few days increases the chances of missing documents, overlooking discrepancies, or making avoidable errors.

Encourage clients to begin the documentation process well before the filing deadline.

Best Practices for a Smooth ITR Filing Season

A successful filing season isn't just about submitting returns on time; it's about having standardized processes that improve accuracy, reduce last-minute stress, and create a better experience for clients.

Here are a few best practices every accounting firm should consider:

1. Start Client Communication Early

Don't wait until the filing deadline is around the corner.

Send clients a checklist of required documents well in advance, along with timelines for submission. Early communication reduces last-minute follow-ups and gives both you and your clients enough time to resolve discrepancies.

2. Standardize Your Filing Workflow

Create a consistent process for every client, including:

• Document collection

• AIS and Form 26AS reconciliation

• Tax regime confirmation

• Form selection

• Internal review

• Client approval

• Return filing

Standardized workflows reduce errors and make it easier to manage large volumes of returns during peak season.

3. Keep Clients Informed

A simple update like "Your documents have been reviewed" or "Your return is ready for approval" goes a long way in building trust and reducing unnecessary follow-up calls.

4. Review Before You Submit

Before filing any return, verify:

• Personal details

• PAN and Aadhaar information

• Bank account details

• Tax regime selection

• Income disclosures

• Deductions claimed

• Supporting documents

A final review can prevent costly mistakes and revised returns.

How Technology Can Help

As the number of clients grows, managing the filing season manually becomes increasingly challenging.

Technology can help accounting firms:

• Organize client information in one place

• Track return preparation status

• Assign work across team members

• Automate reminders for pending documents

• Store supporting documents securely

• Improve collaboration

• Reduce manual administrative work

Rather than replacing professional expertise, technology helps create more efficient and consistent workflows.

How AkountSmart Helps

Managing hundreds of tax returns requires more than technical knowledge; it requires organization.

AkountSmart helps accounting firms streamline their filing season with features designed for day-to-day practice management.

Client Management

Maintain client records, communication history, and important documents in one centralized location.

Task Management

Track the progress of every return, assign responsibilities, and monitor pending activities so nothing slips through the cracks.

Automated Reminders

Reduce the time spent chasing clients by automatically sending reminders for:

• Missing documents

• Pending approvals

• Return filing deadlines

• Payment confirmations

PDF Tools

Handle tax documents more efficiently by organizing and managing PDFs used throughout the filing process.

AI Invoice Processing

Where applicable, reduce repetitive data entry and improve document handling through AI-powered invoice processing.

Together, these features help firms stay organized during the busiest months of the year while freeing up more time for client advisory and review.

Frequently Asked Questions

1. Who can file ITR-1 for AY 2026-27?

Resident individuals with total income up to ₹50 lakh who meet the prescribed eligibility conditions, including the updated rules for house properties and eligible long-term capital gains, can generally file ITR-1.

2. When should I file ITR-2 instead of ITR-1?

ITR-2 is generally applicable if you have more complex income sources, such as higher capital gains, foreign assets or income, more than two house properties, or income exceeding the ITR-1 eligibility limits.

3. Why should accountants review AIS before filing?

AIS helps verify income reported by various institutions and allows practitioners to identify mismatches before filing the return.

4. Can I continue using the same ITR form as last year?

Not necessarily. Since the eligibility criteria have changed for AY 2026-27, every client's financial profile should be reviewed before selecting the return form.

5. What is the due date for filing ITR-1 and ITR-2 for AY 2026-27?

For non-audit individual taxpayers, the due date is 31 July 2026, unless extended by the government.

6. How can accounting firms manage the filing season more efficiently?

By standardizing workflows, communicating with clients early, using checklists, reconciling information before filing, and leveraging technology to automate routine administrative tasks.

Key Takeaways

• AY 2026-27 introduces significant changes to both ITR-1 and ITR-2.

• More taxpayers may now qualify to use ITR-1 under the revised eligibility rules.

• Selecting the correct ITR form is the first step toward accurate filing.

• Reconciling AIS, Form 26AS, and supporting documents before filing helps reduce errors and notices.

• Early client communication and standardized workflows improve filing efficiency.

• Technology can simplify practice management, especially during peak filing season.

A quick reminder: This guide is intended to simplify the latest ITR updates. If you're ever in doubt about a specific provision or its interpretation, it's always best to refer to the latest provisions of the Income-tax Act, applicable Rules, CBDT notifications, circulars, and official guidance. These should always be your final point of reference.