ITR-2 filing opens for AY27: Who should file, common mistakes to avoid
The Income Tax Department has enabled ITR-2 filing for AY27 as experts warn investors and NRIs against costly filing errors
 "ITR-2 filing opens for AY27: Who should file, common mistakes to avoid")
The Income Tax Department has enabled online filing of ITR-2 for assessment year (AY) 2026-27, allowing people with capital gains, multiple properties, foreign assets and other complex income sources to begin filing returns for income earned in FY26.
While salaried taxpayers with straightforward income can continue using ITR-1, tax experts say many individuals still end up selecting the wrong form, particularly those with stock market gains, Restricted Stock Units (RSUs), Employee Stock Option Plan or Employee Stock Ownership Plan (ESOPs), or foreign investments.
Experts warn that filing the wrong return form can trigger defective return notices, delay refunds, and even lead to loss of tax benefits such as carry-forward of capital losses.
Who should file ITR-2?
ITR-2 is meant for individuals and Hindu Undivided Families (HUFs) who do not have business or professional income but earn through capital gains, multiple house properties, foreign assets, or overseas income.
“ITR-1 is meant only for resident individuals whose total income is up to Rs 50 lakh and comes from salary, up to two house properties, specified other sources, and limited long-term capital gains,” said Avinash Rawani, member of the law and representation committee at Chamber of Tax Consultants.
He explained that taxpayers must shift to ITR-2 if they have short-term capital gains, long-term capital gains exceeding Rs 1.25 lakh under Section 112A, foreign assets, foreign income, more than two house properties, or if they are non-residents, company directors, or holders of unlisted equity shares.
Mrinal Mehta, joint secretary at Bombay Chartered Accountants' Society, said many taxpayers wrongly assume that small equity gains can still be reported through ITR-1.
“The amount does not need to be large,the category itself changes the form requirement,” Mehta said.
He cited the example of a salaried software engineer earning Rs 2.8 lakh in long-term capital gains from mutual funds. Since the gains exceed Rs 1.25 lakh, the engineer must file ITR-2 and disclose details through Schedule 112A.
Similarly, NRIs earning rental or investment income in India cannot use ITR-1. Taxpayers owning three or more properties also become ineligible for ITR-1 regardless of income level.
Common mistakes taxpayers make
According to experts, a common error is salaried individuals continuing to use ITR-1 despite having stock market transactions.
“In the event of selection of incorrect ITR, the return will not be processed and a notice under Section 139(9) will be issued,” Rawani said.
If the taxpayer fails to rectify the defect within the prescribed timeline, the return may be treated as invalid. This can expose the filer to penalties, interest, and consequences applicable to non-filers.
Experts say taxpayers also frequently ignore foreign dividend income, overseas brokerage accounts, or ESOP-related disclosures while selecting forms.
Mehta noted that taxpayers with capital losses often overlook another critical issue — the ability to carry forward losses.
“Taxpayers with capital losses they wish to carry forward can do so only if the correct form is filed on time,” he said.
Foreign assets, RSUs and AIS reconciliation under sharper scrutiny
Tax professionals say AY2026-27 will see tighter scrutiny around reconciliation of data reported in AIS (Annual Information Statement), broker statements, foreign assets and capital gains schedules.
Rawani said taxpayers no longer need to split gains based on dates linked to the July 2024 capital gains tax rate changes, but reconciliation requirements have become stricter.
“Every broker contract note must broadly match AIS reporting. Mismatches are now a leading trigger for notices,” he said.
Foreign asset disclosures remain another major compliance area. Schedule FA requires resident taxpayers to disclose overseas bank accounts, RSUs, ESOPs and foreign investments on a calendar-year basis.
“Non-disclosure can attract penalties under the Black Money Act, even for relatively small amounts,” Rawani said.
Mehta pointed out that employees receiving RSUs from foreign employers often miss one of the multiple reporting layers involved.
He gave the example of a Bengaluru-based senior manager whose US-listed employer granted RSUs worth Rs 8 lakh. When the shares were later sold for Rs 9.5 lakh, the manager had to separately report the perquisite component in salary income, the capital gains in Schedule CG, and foreign holdings in Schedule FA.
“Missing any one of these disclosures can trigger a notice even if taxes are otherwise paid correctly,” Mehta said.
Why filing early matters this year
Experts strongly advise taxpayers, particularly investors, not to wait until the July-end deadline rush.
One major reason is the carry-forward of capital losses. Under tax rules, losses from shares, mutual funds or property can only be carried forward for future set-off if the return is filed within the due date.
Rawani illustrated this through the example of a salaried professional who booked a Rs 1.5 lakh short-term capital loss during the year. Filing ITR-2 before the deadline preserves the right to carry forward that loss for up to eight years. Missing the deadline can permanently wipe out that benefit.
Early filing also gives taxpayers more time to reconcile AIS mismatches, collect missing documents and avoid portal congestion near the deadline.
“The single most important step before filing is reconciling AIS line by line,” Mehta said. “The tax department already has this data — your ITR must match it.”
Experts added that filing early generally leads to faster refunds, especially for salaried individuals with excess TDS deductions and investors who faced TDS on dividends or fixed deposit interest.
The due date for filing ITR-1 and ITR-2 for individual taxpayers is July 31, while taxpayers filing ITR-4 without audit requirements can file until August 31.