ITR Filing for Salaried Employees AY 2026-27: ITR-1 vs ITR-2, Form 16, AIS, New Regime and Old Regime

Introduction

For salaried employees, ITR filing may look simple because Form 16 is available. But many mistakes still happen.

Common questions include:

• Should I file ITR-1 or ITR-2?
• Is ITR-2 required only because I have a Demat account?
• How should Form 16 data be entered?
• Should I choose old tax regime or new tax regime?
• Can I change the regime at the time of ITR filing?
• What if I have dividend, bank interest or capital gains?
• What if I sold or new tax regime?
• Can I change the regime at the time of ITR filing?
• What if I have dividend, bank shares or mutual funds?

This article explains how salaried employees should file ITR for FY 2025-26 / AY 2026-27.

For ITR filing and tax regime comparison, visit TaxClear.in.

Step 1: Check AIS Before Selecting ITR Form

Before choosing the ITR form, first check your AIS and TIS.

AIS may show:

• salary;
• TDS;
• bank interest;
• dividend;
• mutual fund transactions;
• share transactions;
• capital gains information;
• TCS;
• other reported income.

Do not file ITR only on the basis of Form 16. AIS, TIS and Form 26AS should also be checked.

Official AIS guidance says AIS gives a comprehensive view of information a Tax Department and allows taxpayers to give feedback before filing the return. citeturn804530search2

Step 2: Does Having Demat Account Mean ITR-2 Is Required?

No.

Merely having a Demat account does not mean you must file ITR-2.

ITR-2 generally becomes relevant when there is a reportable capital gains transaction or other ITR-2 trigger.

Situation	ITR Impact
Demat account exists but no shares/mutual funds sold	ITR-2 not required only for this reason
Shares sold during year	Capital gains reporting required
Mutual funds redeemed	Capital gains reporting required
Short-term capital gain	ITR-2 generally required if no business income
LTCG u/s 112A above ₹1.25 lakh	ITR-2 generally required if no business income
Foreign shares/RSUs/ESOPs	ITR-2 generally required if no business income
F&O/intraday trading	ITR-3 generally required

Step 3: When Can Salaried Employees File ITR-1?

ITR-1 is for eligible resident individuals with simple income.

For AY 2026-27, ITR-1 may be used by eligible resident individuals having income from salary/pension, house property, other sources such as interest/family pension/divid up to ₹5,000, and LTCG u/s 112A up to ₹1.25 lakh, subject to other conditions. citeturn804530search2

ITR-1 Can Be Used If

Income Type	ITR-1 Eligibility
Salary income	Allowed
Pension income	Allowed
Bank interest	Allowed
Dividend income	Allowed
Family pension	Allowed
Agricultural income up to ₹5,000	Allowed
Income from house property	Allowed subject to form rules
LTCG u/s 112A up to ₹1.25 lakh	Allowed if otherwise eligible

When ITR-1 Cannot Be Used

ITR-1 cannot be used if the taxpayer has short-term capital gains, LTCG u/s 112A exceeding ₹1.25 lakh, foreign assets, signing authority outside India, foreign-source income, deferred ESOP tax, unlisted equity shares, broforward cases, business/professional income or total income exceeding ₹50 lakh. citeturn804530search2

Step 4: When Should Salaried Employees File ITR-2?

ITR-2 is generally used by salaried individuals who have no business/professional income but are not eligible for ITR-1.

Common ITR-2 Cases

Situation	Why ITR-2
Salary + short-term capital gain	ITR-1 not allowed
Salary + LTCG u/s 112A above ₹1.25 lakh	ITR-1 not allowed
Salary + sale of property	Capital gains schedule needed
Salary + foreign assets	Schedule FA reporting
Salary + foreign RSUs/ESOPs	Foreign asset reporting
Salary + unlisted equity shares	ITR-1 not allowed
Salary + total income above ₹50 lakh	ITR-2 generally required
Salary + brought-forward capital loss	ITR-2 required

Official ITR-2 guidance confirms that /HUFs not eligible for ITR-1 and not having income from business or profession. citeturn804530search1

Step 5: When Is ITR-3 Required?

If you have business or professional income, ITR-3 may be required.

For salaried employees, this commonly happens when they also have:

• F&O trading;
• intraday trading;
• freelancing income treated as business/professional income;
• consultancy receipts;
• business income.

Official guidance for individuals having business/professional income for AYTR-3 applies where income includes profits and gains of business or profession. citeturn804530search4

Quick ITR Form Selection Table

Case	Likely ITR Form
Salary + bank interest only	ITR-1
Salary + dividend + bank interest	ITR-1, if otherwise eligible
Salary + Demat account but no sale	ITR-1, if otherwise eligible
Salary + LTCG u/s 112A up to ₹1.25 lakh	ITR-1, if otherwise eligible
Salary + short-term capital gain	ITR-2
Salary + LTCG u/s 112A above ₹1.25 lakh	ITR-2
Salary + property sale	ITR-2
Salary + foreign RSUs/ESOPs	ITR-2
Salary + F&O/intraday	ITR-3
Salary + freelancing business income	ITR-3

Step 6: Filing ITR-1 Online

For ITR-1, go to:

Income Tax Portal → e-File → Income Tax Returns → File Income Tax Return

Then select:

• Assessment Year: AY 2026-27;
• Filing Mode: Online;
• Status: Individual;
• ITR Form: ITR-1;
• Filing reason: applicable reason.

Personal Information Section

Check:

• name;
• PAN;
• Aadhaar;
• mobile number;
• email;
• address;
• bank account;
• employment type.

For private-sector salaried employees, employment type is generally selected as “Others”, unless another category applies.

Step 7: New Tax Regime vs Old Tax Regime

For AY 2026-27, the new tax regime is the default regime. The Income Tax Department’s ITR-1 user manual says that for AY 2026-27, the new tax regime is default anthat certain deductions and exemptions are not available in the new tax regime. citeturn901519search1

Important Point for Salaried Employees

The regime selected with the employer in Form 16 is not always final for ITR filing.

A salaried employee without business income can generally compare both regimes and choose the better one while filing ITR, subject to due-date and applicable rules.

Official new-vs-old regime FAQs clarify that intimdoes not amount to exercising the option under Section 115BAC for ITR purposes. citeturn901519search7

When New Regime May Be Better

The new regime may be better where:

• total income is up to ₹12 lakh and rebate applies;
• deductions are low;
• no HRA benefit;
• no large 80C/80D/home loan deduction;
• taxpayer wants simple filing.

For AY 2026-27, official guidance confirms that resident indi up to ₹60,000 under the new regime if taxable income does not exceed ₹12 lakh. citeturn804530search5

When Old Regime May Be Better

Old regime may be better where the taxpayer has significant:

• HRA exemption;
• LTA exemption;
• Section 80C investments;
• Section 80D medical insurance;
• NPS deduction;
• home loan interest on self-occupied house property;
• education loan interest;
• other deductions allowed under old regime.

New Regime vs Old Regime Table

Point	New Regime	Old Regime
Default regime	Yes	No
Slab rates	Lower	Higher
Standard deduction for salary	Available
HRA	Generally not available
LTA	Generally not available
80C	Generally not available
80D	Generally not available
NPS employer contribution u/s 80CCD(2)	Available subject to limits
Home loan interest on self-occupied property	Generally not available
Best for	Low deductions
Old regime best for	High deductions/exemptions

Step 8: Enter Salary Details from Form 16

Form 16 is the main document for salary reporting.

Check:

• gross salary;
• exempt allowances;
• perquisites;
• profits in lieu of salary;
• standard deduction;
• professional tax, if any;
• taxable salary;
• TDS deducted;
• employer TAN.

Salary Reporting in New Regime

If Form 16 shows standard deduction of ₹75,000, it generally indicates that employer computed TDS under the new regime.

In new regime, salaried taxpayers mainly enter:

• gross salary;
• standard deduction;
• eligible employer NPS contribution, if any;
• other income such as bank interest/dividend;
• TDS credit.

HRA, LTA, 80C and 80D are generally not claimed under the new regime, subject to specific permitted exceptions.

Salary Reporting in Old Regime

If the taxpayer chooses old regime, they should review possible claims such as:

• HRA exemption;
• LTA exemption;
• standard deduction;
• professional tax;
• Section 80C;
• Section 80D;
• Section 80CCD(1B);
• Section 80TTA;
• home loan interest;
• other eligible deductions.

Claims must be supported by documents.

Step 9: Report Income from Other Sources

Do not ignore other income.

Common “Other Sources” income includes:

• savings bank interest;
• fixed deposit interest;
• dividend;
• family pension;
• income tax refund interest;
• other taxable receipts.

AIS may pre-fill some of this data, but taxpayers should verify it with bank statements and dividend reports.

Section 80TTA in Old Regime

Under old regime, deduction up to ₹10,000 may be available for savings bank interest under Section 80TTA, subject to conditions.

This is generally not available under the new regime.

Step 10: House Property Reporting

In the new regime, self-occupied home loan interest deduction is generally not useful because the set-off benefit is restricted.

However, if the taxpayer has rental income, house property details should be reported.

House Property Cases

Situation	Reporting
Self-occupied house, no rent	Report only if relevant/required
Let-out property	Rental income must be reported
Home loan on let-out property	Interest may be considered as per rules
Old regime with self-occupied home loan	Interest deduction may be useful
New regime with self-occupied home loan	Generally no benefit

Step 11: Tax Paid and TDS

Check the “Taxes Paid” section carefully.

It includes:

• TDS from salary;
• TDS from bank interest;
• TDS from rent/commission/other income;
• TCS;
• advance tax;
• self-assessment tax.

Match these with:

• Form 16;
• Form 26AS;
• AIS;
• TIS;
• challan receipts.

Step 12: Additional Tax Payable

If you report bank interest, dividend or capital gains not considered in Form 16, additional tax may become payable.

This is normal.

Pay self-assessment tax before submitting the return and ensure challan details are correctly reflected.

Step 13: Filing ITR-2

ITR-2 is more detailed than ITR-1 because it includes schedules such as:

• salary;
• house property;
• capital gains;
• other sources;
• Schedule FA, if applicable;
• Schedule CG;
• Schedule 112A;
• Schedule 115AD, if applicable;
• tax paid;
• deductions;
• verification.

ITR-2 Salary Schedule

In ITR-2, salary details are entered under Schedule Salary.

You may need to enter:

• employer details;
• employer TAN;
• gross salary;
• exempt allowances;
• perquisites;
• standard deduction;
• taxable salary.

Copy figures from Form 16 carefully. Do not randomly enter net salary.

Step 14: Capital Gains in ITR-2

If you sold shares, mutual funds, property, gold or any other capital asset, capital gains must be reported.

Capital gains require:

• sale date;
• purchase date;
• sale value;
• cost of acquisition;
• expenses on transfer;
• type of asset;
• holding period;
• STCG/LTCG classification;
• Schedule 112A details where applicable.

Capital Gains Table

Asset Sold	Schedule / Form Impact
Listed equity shares	Schedule CG / Schedule 112A
Equity mutual funds	Schedule CG / Schedule 112A where applicable
Debt mutual funds	Schedule CG
Property	Schedule CG
Gold	Schedule CG
Foreign shares	Schedule CG + Schedule FA, if resident and applicable
No sale, only holding	Capital gains not triggered, but foreign asset reporting may still apply

Step 15: Validate and Submit

Before submission:

1. validate all schedules;
2. compare tax under old and new regime;
3. check refund or tax payable;
4. check bank account;
5. verify TDS/TCS;
6. pay self-assessment tax if required;
7. preview return;
8. submit;
9. e-verify immediately.

ITR filing is not complete until it is verified.

Common Mistakes by Salaried Employees

Mistake	Risk
Filing only based on Form 16	AIS mismatch
Ignoring bank interest	Under-reporting
Ignoring dividend	Mismatch notice
Choosing ITR-1 despite STCG	Wrong form
Filing ITR-2 despite F&O	Wrong form; ITR-3 may be needed
Not reporting capital gains	Notice risk
Treating Demat account as automatic ITR-2 case	Unnecessary confusion
Not comparing regimes	Higher tax
Claiming old-regime deductions in new regime	Disallowance
Not entering challan details	Demand despite payment
Not e-verifying	Invalid return risk

Practical Example 1: Simple Salary Case

Mr. A has:

• salary income;
• bank savings interest;
• no capital gains;
• no foreign assets;
• no business income.

He may file ITR-1 if otherwise eligible.

Practical Example 2: Salary and Demat Account

Ms. B has a salary and a Demat account but did not sell any shares or mutual funds during the year.

She does not need ITR-2 merely because of holding shares.

She can file ITR-1 if otherwise eligible.

Practical Example 3: Salary and Mutual Fund Redemption

Mr. C has salary income and redeemed mutual funds during the year.

He must calculate capital gains and generally file ITR-2 if there is no business income.

Practical Example 4: Salary and F&O Trading

Ms. D has salary income and F&O loss.

She should check ITR-3 applicability because F&O is generally treated as business income.

Practical Example 5: Salary Below ₹12 Lakh

A resident salaried individual has taxable income below ₹12 lakh under the new regime and no special-rate income issue.

The new regime may result in nil tax due to Section 87A rebate, subject to eligibility.

Still, if TDS was deducted, ITR filing may be required to claim refund.

Documents Required for Salaried ITR Filing

Document	Purpose
Form 16	Salary and TDS
AIS	Reported income and transactions
TIS	Summary for return filing
Form 26AS	TDS/TCS/tax payment
Bank statement	Interest and other credits
Dividend statement	Dividend reporting
Broker capital gains report	Share/mutual fund gains
Home loan certificate	Interest/principal
Rent receipts	HRA claim
Insurance premium receipts	80C/80D
NPS statement	NPS deduction
Challan receipt	Self-assessment tax
Foreign asset statement	Schedule FA, if applicable

Old vs New Regime Decision Checklist

Question	If Yes, Check Old Regime
Do you claim HRA?	Yes
Do you have 80C investments up to ₹1.5 lakh?	Yes
Do you pay health insurance premium?	Yes
Do you have home loan interest?	Yes
Do you invest in NPS personally?	Yes
Is your income much above ₹12 lakh?	Compare both
Are deductions very low?	New regime may be better

TaxClear View

For salaried employees, correct ITR filing depends on three things:

1. correct form;
2. correct data;
3. correct regime.

Do not file ITR-1 blindly just because you are salaried.
Do not file ITR-2 merely because you hold shares.
Do not ignore capital gains if shares or mutual funds were sold.
Do not assume Form 16 has all income.

Before filing, compare AIS, TIS, Form 26AS and Form 16. Then compare old and new regime and file the correct ITR form.

Key Takeaways

• Salaried employees may file ITR-1 only if eligible.
• Demat account alone does not require ITR-2.
• Sale of shares or mutual funds may require ITR-2.
• F&O/intraday may require ITR-3.
• AIS should be checked before filing.
• Form 16 is important but not enough.
• New tax regime is the default regime for AY 2026-27.
• Employer regime selection is not always final for ITR filing.
• Resident individuals can get new-regime rebate up to ₹60,000 if taxable income does not exceed ₹12 lakh.
• Old regime may be better where HRA, 80C, 80D and home loan benefits are high.
• Report bank interest and dividend even if small.
• Validate and e-verify the return after filing.

Conclusion

ITR filing for salaried employees is simple only when the facts are simple.

For AY 2026-27, check AIS first, choose the correct ITR form, enter Form 16 data correctly, compare old and new regime, report other income and capital gains properly, and e-verify the return immediately.

For professional ITR filing, Form 16 review, AIS reconciliation, capital gains reporting and old-vs-new regime comparison, visit TaxClear.in.