Income Tax Filing in India (2026): Complete FAQ on ITR-1 vs ITR-2, AIS Verification, Deadlines & Defective Notices

Last updated: July 24, 2026 | 13-minute read

Quick Summary: Filing your Income Tax Return (ITR) in India requires selecting the correct statutory form (ITR-1 Sahaj, ITR-2, ITR-3, or ITR-4), reconciling all transaction entries against your Annual Information Statement (AIS) and Form 26AS, and verifying tax computations under the default New Tax Regime (Section 115BAC) versus the Old Tax Regime. This comprehensive FAQ covers every essential tax compliance question for salaried employees, equity investors, and freelancers.

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+---------------------------------------------------------------------------------------------------+
|                        INDIAN INCOME TAX COMPLIANCE & ITR SELECTION ENGINE                        |
+---------------------------------------------------------------------------------------------------+
                                                  │
         ┌────────────────────────────────────────┼────────────────────────────────────────┐
         ▼                                        ▼                                        ▼
+──────────────────────────+             +──────────────────────────+             +──────────────────────────+
| SALARIED ONLY (ITR-1)    |             | CAPITAL GAINS (ITR-2)    |             | BUSINESS & F&O (ITR-3)   |
| • 1 House Property       |             | • Stock & Mutual Fund Trd|             | • F&O Trading Turnover   |
| • Total Income < ₹50 Lakh|             | • Multiple Properties    |             | • Freelance / Consulting |
| • Zero Capital Gains     |             | • Foreign Assets / ESOPs |             | • Presumptive u/s 44ADA  |
+──────────────────────────+             +──────────────────────────+             +──────────────────────────+
         │                                        │                                        │
         └────────────────────────────────────────┼────────────────────────────────────────┘
                                                  ▼
+---------------------------------------------------------------------------------------------------+
| SYNTHESIS: Accurate AIS/TIS Reconciliation Preventing Section 139(9) Defective Return Notices      |
+---------------------------------------------------------------------------------------------------+

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❓ Frequently Asked Questions (Master Tax Guide)

1. Which ITR Form Should I File for FY 2025–26 (AY 2026–27)?

• ITR-1 (Sahaj): For resident individuals with total income up to ₹50 Lakh derived exclusively from Salary/Pension, one self-occupied House Property, and Other Sources (bank interest, dividends up to exemption limits). Cannot be used if you sold stocks or mutual funds!
• ITR-2: Mandatory for individuals having Capital Gains from selling listed shares, mutual funds, gold, or real estate, individuals holding foreign assets (e.g., US stocks, foreign bank accounts), or those with unlisted company shares and directorships.
• ITR-3: Mandatory if you trade in Futures and Options (F&O) or Intraday equity trading (which the Income Tax Department classifies as business / speculative business income).
• ITR-4 (Sugam): For small businesses, professionals, and freelancers opting for presumptive taxation under Section 44AD, 44ADA, or 44AE.

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|                           ITR FORM DECISION FLOWCHART                                             |
+---------------------------------------------------------------------------------------------------+
 Do you have Capital Gains from Stocks/Mutual Funds or Foreign Assets?
                 │
         ┌───────┴───────┐
         ▼               ▼
       [YES]           [NO]
         │               │
         ▼               ▼
    [File ITR-2]    Do you trade Futures & Options (F&O) or have Business Income?
                         │
                 ┌───────┴───────┐
                 ▼               ▼
               [YES]           [NO]
                 │               │
                 ▼               ▼
            [File ITR-3]    [File ITR-1 (Sahaj)]
+---------------------------------------------------------------------------------------------------+

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2. What is the Difference Between Form 26AS, AIS, and TIS?

• Form 26AS: Reflects only tax deducted at source (TDS), tax collected at source (TCS), and advance tax/self-assessment tax paid.
• Annual Information Statement (AIS): A comprehensive master ledger containing data from banks, stock exchanges, registrars, and mutual fund houses detailing all savings account interest, stock sales turnover, dividend payouts, foreign remittances, and high-value credit card payments.
• Taxpayer Information Summary (TIS): The condensed, aggregated summary value derived directly from the AIS used for auto-populating fields in your ITR form.

⚠️ CRITICAL COMPLIANCE RULE: Never file your ITR based solely on Form 16. Always download and review your AIS on the e-filing portal to ensure all dividend income and capital gains match your reported numbers.

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3. What Happens If I Miss the July 31 ITR Filing Deadline?

If you miss the July 31 deadline for non-audit individual taxpayers:

1. Belated Return (Section 139(4)): You can file a belated return up to December 31 of the Assessment Year.
2. Late Filing Penalty (Section 234F): A penalty of ₹5,000 applies (reduced to ₹1,000 if total taxable income is below ₹5 Lakh).
3. Interest on Unpaid Tax (Section 234A): Interest at 1% per month is charged on any outstanding net tax liability.
4. Loss of Loss-Carry-Forward: You cannot carry forward capital losses (short-term or long-term equity/F&O losses) to offset future gains if you file after July 31!

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4. How is Dividend Income Taxed in India?

Dividend income from Indian companies and mutual funds is added directly to your gross total income and taxed at your applicable slab rate under "Income from Other Sources."

• Companies deduct 10% TDS under Section 194 if total annual dividend paid to a resident individual exceeds ₹5,000.
• You can claim credit for this TDS in your ITR filing against your total tax liability.

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5. What is a Section 139(9) Defective Return Notice and How Do I Fix It?

A defective return notice is issued automatically by the Centralized Processing Center (CPC) when there is an internal inconsistency in your filing (e.g., claiming TDS credit without declaring the corresponding income, gross mismatch with AIS turnover, or filing ITR-1 while holding capital gains).

• Time to Respond: You have 15 days from the receipt of the email notice to file a revised response under Section 139(9).
• How to Resolve: Log in to the income tax portal $\to$ Pending Actions $\to$ e-Proceedings $\to$ Submit Revised JSON / XML correcting the flagged error.

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📊 Summary Comparison: Tax Slab Reference Sheet

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|                         NEW VS OLD REGIME QUICK TAX COMPARISON SHEET                              |
+---------------------------------------------------------------------------------------------------+
| Parameter / Threshold        | New Tax Regime (Default Sec 115BAC)| Old Tax Regime                |
+------------------------------+------------------------------------+-------------------------------+
| Standard Deduction           | ₹75,000                            | ₹50,000                       |
| Zero Tax Threshold (Rebate)  | Up to ₹7.75 Lakh (u/s 87A)         | Up to ₹5.00 Lakh              |
| Section 80C Deduction        | Not Allowed                        | Allowed up to ₹1.50 Lakh      |
| Section 80D Health Insurance | Not Allowed                        | Allowed up to ₹1.00 Lakh      |
| HRA Rent Exemption           | Not Allowed                        | Allowed u/s 10(13A)           |
| Maximum Surcharge Rate       | 25% (on HNI income >₹5 Cr)         | 37% (on HNI income >₹5 Cr)    |
+---------------------------------------------------------------------------------------------------+

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📌 The Bottom Line & Actionable Tax Checklist

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|                              TOPIC SLUG ALIGNED ACTIONABLE TAKEAWAYS                              |
+---------------------------------------------------------------------------------------------------+
| Topic Slug                     | Core Actionable Compliance Rule                                  |
+--------------------------------+------------------------------------------------------------------+
| income-tax-filing-india-faq    | File before July 31 to preserve your capital loss carry-forward. |
| itr-form-selection-guide       | Use ITR-2 if you sold any mutual funds/stocks during the year.   |
| annual-information-statement-ais| Download AIS/TIS first to reconcile bank interest and dividends. |
| tax-deduction-deadlines        | Pay advance tax installments on time (June 15, Sep 15, Dec 15). |
| defective-notice-rectification | Rectify Section 139(9) notices within 15 days on e-filing portal.|
+---------------------------------------------------------------------------------------------------+

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Disclosure: This FAQ is published for informational and educational purposes. Always consult a qualified Chartered Accountant (CA) for personalized tax advisory.