ITR-1 or ITR-4? Choosing the wrong tax return form may trigger notices

ITR-1 and ITR-4 filing begins: How choosing the wrong income tax return form can trigger notices and delays

The Income Tax Department has enabled online filing and released Excel utilities for ITR-1 and ITR-4 for Assessment Year 2026-27, allowing eligible taxpayers to begin filing returns for 2025-26 (FY26).

 

However, tax experts have warned that selecting the wrong return form, often done to simplify filing, can result in defective return notices, delayed refunds and even scrutiny queries later.

 

With more salaried individuals now earning side income through freelancing, consulting, content creation and online work, experts say taxpayers should focus on the nature of income rather than just total income while choosing the correct form.

 

Who should file ITR-1 and who should choose ITR-4?

ITR-1, also known as Sahaj, is meant largely for resident salaried individuals and pensioners with relatively simple income structures.

 

 

“ITR-1 should ideally be used by resident individuals whose income is limited to salary or pension, one or up to two house properties, and other sources such as interest or family pension,” said Pranav Sai S, tax expert at ClearTax.

 

He added that the form is not meant for taxpayers with business or professional income, foreign assets or complex capital gains.

 

On the other hand, ITR-4, or Sugam, is meant for resident individuals, Hindu Undivided Families and firms other than LLPs that opt for presumptive taxation under Sections 44AD, 44ADA or 44AE.

 

“Salary or pension income generally fits ITR-1, while business, professional, consulting, content creator, commission or side-income under presumptive taxation generally fits ITR-4,” said Sudhir Kaushik, cofounder and chief executive officer at Taxspanner (a Zaggle company).

 

Experts noted that doctors, consultants, freelancers, shopkeepers and small traders commonly fall under ITR-4 if they choose presumptive taxation.

 

Why taxpayers are making mistakes

According to tax experts, one of the most common filing errors is salaried taxpayers ignoring freelance or side-business income while choosing ITR-1.

 

“The most common mistake is filing ITR-1 even though the taxpayer has business, freelance or professional income,” said Sai. “This can make the return defective and may trigger a notice, tax demand or interest.”

 

Kaushik pointed out that many taxpayers also wrongly classify professional income as “income from other sources” merely to continue filing the simpler ITR-1 form.

 

Other common errors include:

 

·         Ignoring capital gains or multiple property restrictions

 

·         Not reporting interest or dividend income properly

 

·         Using ITR-4 without qualifying for presumptive taxation

 

·         Failing to reconcile AIS, TDS and bank data before filing

 

“These errors can result in defective return notices, delayed refunds or scrutiny queries,” Kaushik said.

 

Real-life example: Why side income matters

Experts say the issue is becoming more common as salaried professionals increasingly earn through freelancing, consulting or digital platforms.

 

Kaushik shared the example of a salaried employee earning Rs 18 lakh annually who also earns Rs 4 lakh from freelance consulting or content creation. Such a taxpayer may incorrectly file ITR-1 assuming the additional earnings qualify as “other income”.

 

“Since freelance or creator income is treated as professional income, ITR-4 may generally apply under presumptive taxation,” he said, adding that such mismatches are now easily detected through AIS and TDS reporting systems.

 

Sai cited a similar case of a salaried software engineer earning freelance income on the side but filing ITR-1 because salary formed the majority of earnings.

 

“Since freelance income is not salary income, the filing may not match AIS or Form 26AS, and the taxpayer can later receive a defective-return notice asking for correction,” he said.

 

Key checks taxpayers should not ignore this year

Experts said taxpayers should carefully review updated eligibility conditions before filing returns for AY 2026-27.

 

Sai noted that taxpayers can now report up to two house properties in eligible simplified return forms, depending on conditions.

 

He also advised taxpayers to review new disclosure requirements related to bank balances, unrealised rent and donation-related details wherever applicable.

 

Both experts stressed the importance of verifying Form 16, AIS, TIS and prefilled data before submission.

 

“Taxpayers with foreign assets, crypto or complex capital gains should verify eligibility for simplified ITR forms,” Kaushik said.

 

Filing through Excel utility? Follow these precautions

The offline Excel utility allows taxpayers to fill returns without staying connected to the portal continuously, but experts say caution is necessary.

 

Sai advised taxpayers to first download the correct utility for AY 2026-27 and verify they are using the right form before entering data.

 

Kaushik recommended reconciling PAN, Aadhaar, bank details, TDS entries and AIS data before generating the JSON file.

 

Experts also advised taxpayers to:

 

·         Validate every sheet carefully before generating the return file

 

·         Avoid outdated utilities or partially saved files

 

·         Upload the JSON under the correct PAN and assessment year

 

·         Complete e-verification immediately after filing

 

“The safest approach is to choose the form based on the nature of income, not just the income amount,” Sai said. “Most filing errors happen when taxpayers focus only on salary size or turnover and ignore the actual source of income.”