AY 2026-27 decision tree for ITR-1 (Sahaj), ITR-2, ITR-3 and ITR-4 (Sugam): income heads, ₹50 lakh ceiling, LTCG u/s 112A up to ₹1.25 lakh, director/unlisted-share disqualifiers, and when presumptive filers must leave Sugam.
By Kanoons Editorial Team · 12 min read · Last verified 2026-10-06
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Summary
For Assessment Year 2026-27 (income of FY 2025-26), pick the form from the income heads and disqualifiers, not from habit. ITR-1 (Sahaj) is the simplified resident-individual form up to ₹50 lakh with a narrow income mix (now including limited section 112A LTCG). ITR-4 (Sugam) is the optional presumptive form. Everything with regular business income lands on ITR-3; non-business complexity that breaks Sahaj lands on ITR-2. Verified against ITD’s AY 2026-27 return-applicable page and Notification No. 45/2026 (ITR-1 / ITR-4) on 6 October 2026.
- Ask first: do you have business / professional income? If yes → ITR-4 (if presumptive-eligible) or ITR-3.
- If no business income: try ITR-1; any Sahaj disqualifier → ITR-2.
- Sahaj / Sugam ceiling: total income ₹50 lakh (excluding the permitted section 112A LTCG slice up to ₹1.25 lakh in the form design).
- Directors, unlisted shares, foreign assets, 194N TDS, ESOP deferral, brought-forward losses → not ITR-1 / ITR-4.
- File via ITR Filing if the decision tree is unclear.
Decision tree (practical order)
1. Any income under “Profits and gains of business or profession”? - Yes, and you opt for presumptive taxation under 44AD / 44ADA / 44AE, meet the ₹50 lakh / residency tests, and clear Sugam disqualifiers → ITR-4 (optional) or ITR-3. - Yes, otherwise → ITR-3. 2. No business income. Check every ITR-1 disqualifier on the ITD help page / Notification 45/2026 schedule. - All clear and income mix fits Sahaj → ITR-1. - Any fail → ITR-2.
Do not start from “I filed Sahaj last year.” A single ESOP deferral, a demat unlisted allotment, or a foreign bank account flips the form.
Form snapshot — AY 2026-27
| Form | Who | Typical income mix | Hard stops |
|---|---|---|---|
| ITR-1 Sahaj | Resident individual (not RNOR) | Salary/pension; up to two house properties (per Notif. 45/2026 form header); other sources; LTCG u/s 112A ≤ ₹1.25 lakh; agri ≤ ₹5,000; total income ≤ ₹50 lakh | Director; unlisted equity shares; STCG; 112A above cap; foreign assets / signing authority / foreign income; TDS u/s 194N; ESOP tax deferral; brought-forward / carry-forward loss; income above ₹50 lakh |
| ITR-2 | Individual / HUF not eligible for ITR-1 | Salary, house property, capital gains, other sources — no business PGBP on this form’s primary path | Use when Sahaj fails and there is no business income requiring ITR-3 |
| ITR-3 | Individual / HUF with PGBP | Proprietorship / profession with regular books; partners; complex business | Default business form when Sugam is unavailable or declined |
| ITR-4 Sugam | Resident individual / HUF (not RNOR) or resident firm (not LLP) | Presumptive PGBP under 44AD / 44ADA / 44AE + eligible salary / HP / other sources / 112A ≤ ₹1.25 lakh; total income ≤ ₹50 lakh | Same family of disqualifiers as Sahaj (director, unlisted shares, foreign assets, ESOP deferral, losses, agri > ₹5,000, etc.). Optional even when eligible |
Primary texts: Notification No. 45/2026 (ITR-1 & ITR-4 substituted for AY 2026-27 from 31 March 2026); ITD help page for salaried individuals AY 2026-27; ITR-3 notified separately (e.g. Notification No. 47/2026 on incometaxindia.gov.in).
Worked examples
- Salaried resident, one home loan property, FD interest, no shares trading, income ₹18 lakh → usually ITR-1.
- Same person, plus equity delivery STCG → ITR-2 (short-term capital gain blocks Sahaj).
- Resident freelancer on 44ADA, gross receipts ₹40 lakh, total income ₹22 lakh, no directorship → ITR-4 (or ITR-3 if they prefer full particulars).
- Partner in a partnership firm receiving share of profit → business-head exposure → ITR-3 (Sugam is not the partner’s profit-share form in ordinary practice).
- Startup founder who is a company director with only salary → not ITR-1; use ITR-2 (or ITR-3 if there is also PGBP).
Regime choice sits beside the form choice
The new regime is the default. Non-business taxpayers can switch regimes in the return (filed by the section 139(1) due date). Business / professional taxpayers who want the old regime must furnish Form 10-IEA by that due date — ITD’s AY 2026-27 help page restates the once-in-a-lifetime re-entry rule for business cases. Form choice (1/2/3/4) does not replace regime choice. See New vs old regime.
Mid-article CTA: File the correct ITR with us → Cross-sell: Tax Planning, Advance tax services.
Checklist before you pick Sahaj or Sugam
- Residential status confirmed (resident and ordinarily resident for Sahaj/Sugam individual path)
- AIS / Form 26AS scanned for 194N, foreign remittance, property, and capital-gain entries
- Cap table / MCA records checked for directorship and unlisted holdings
- ESOP plan checked for deferred tax reporting
- Loss carry-forwards from last year’s ITR reviewed
- Total income vs ₹50 lakh ceiling recomputed after exemptions
For deadline and late-fee mechanics, see ITR due dates and penalties and Missed ITR deadline. For presumptive eligibility that unlocks Sugam, see 44AD / 44ADA guide.
Regulatory watch
ITR schemas are notified each assessment year. Do not reuse AY 2025-26 assumptions for AY 2026-27 — Notification 45/2026 expressly widens Sahaj/Sugam capital-gains handling for section 112A up to ₹1.25 lakh and states two house properties on the ITR-1 header. Always open the live form utility on the e-filing portal before locking a client’s form code.
From tax year 2026-27, the Income-tax Act, 2025 governs income; return-form evolution will follow that Act’s Rules. Treat AY 2026-27 (FY 2025-26) as still anchored to the 1961-Act form notifications cited above.
Primary sources
- ITD — Returns applicable for salaried individuals, AY 2026-27
- Notification No. 45/2026 — ITR-1 & ITR-4
- Notification No. 47/2026 — ITR-3
- incometax.gov.in e-Filing portal
Disclaimer
General information only — not legal or tax advice. Kanoons is not a law firm or accounting firm. Form eligibility is fact-specific; confirm against the notified ITR and the e-filing utility for the assessment year you are filing. See our Disclaimer.
Frequently asked questions
Who can file ITR-1 (Sahaj) for AY 2026-27?
Per Notification No. 45/2026 and the Income Tax Department’s AY 2026-27 help page, ITR-1 is for a resident individual (other than not ordinarily resident) with total income up to ₹50 lakh from salary/pension, up to two house properties, other sources (interest etc.), long-term capital gains under section 112A up to ₹1.25 lakh, and agricultural income up to ₹5,000 — and who is not caught by the listed disqualifiers (company director, unlisted equity shares, foreign assets, section 194N TDS, ESOP tax deferral, brought-forward losses, etc.).
When should I use ITR-2?
ITR-2 is for individuals and HUFs who have income under heads other than profits and gains of business or profession and who are not eligible for ITR-1 — for example capital gains beyond the ITR-1 window, more complex house-property situations, foreign assets, or total income above ₹50 lakh.
When is ITR-3 required?
ITR-3 is the form for individuals and HUFs with income under profits and gains of business or profession who are not filing the optional presumptive ITR-4 — including partners in firms, proprietors maintaining regular books, and anyone with business income who fails an ITR-4 eligibility condition.
Who can file ITR-4 (Sugam)?
Resident individuals / HUFs (other than RNOR) and resident firms other than LLPs, with total income up to ₹50 lakh, whose business or professional income is computed under sections 44AD, 44ADA or 44AE, plus the eligible salary / house property / other sources / section 112A LTCG window. ITR-4 is optional — eligible assessees may still file ITR-3.
Can a company director file ITR-1 or ITR-4?
No. Both Sahaj and Sugam expressly exclude an individual who is a director in a company or who held unlisted equity shares during the year. Those facts push the return to ITR-2 or ITR-3 as otherwise applicable.