ITR-2 Filing Open: Avoid Costly NRI, Investor Tax Errors

The Income Tax Department has enabled the online filing of ITR-2 for assessment year (AY) 2026-27. This form is essential for individuals and HUFs earning income from capital gains, multiple house properties, foreign assets, or overseas sources, who do not have business income. Salaried individuals with straightforward income can continue using ITR-1, provided their income sources are limited to salary, up to two house properties, and specified other sources with limited capital gains.

Experts highlight common errors where taxpayers, particularly investors and NRIs, wrongly select ITR-1 despite having stock market transactions, Restricted Stock Units (RSUs), Employee Stock Option Plans (ESOPs), or foreign investments. Filing the wrong form can lead to a defective return notice under Section 139(9), potentially invalidating the return and incurring penalties or interest if not rectified promptly. Non-residents earning income in India or those owning three or more properties are also ineligible for ITR-1.

This AY27, scrutiny is heightened for reconciling Annual Information Statement (AIS) data with broker statements, foreign asset disclosures, and capital gains. Mismatches between contract notes and AIS reporting are a significant trigger for tax notices. Schedule FA requires detailed disclosure of foreign bank accounts, RSUs, ESOPs, and foreign investments on a calendar-year basis, with non-disclosure potentially attracting penalties under the Black Money Act.

Tax professionals strongly recommend filing returns early, ideally before the July 31st deadline. Early filing is crucial for taxpayers wishing to carry forward capital losses from shares, mutual funds, or property, a benefit lost if the return is filed after the due date. It also allows more time for AIS reconciliation, document collection, and avoids the portal congestion experienced near the deadline, potentially leading to faster refunds.