ITR-2 for AY 2026-27: Applicability, Key Changes and the Filing Framework under the Income-tax Act, 1961
The Central Board of Direct Taxes has notified the revised Form ITR-2 for Assessment Year 2026-27 vide Notification No. 46/2026 [G.S.R. 227(E)] dated 30 March 2026, issued in exercise of powers conferred by section 139 read with section 295 of the Income-tax Act, 1961. The notification, titled the Income-tax (Third Amendment) Rules, 2026, substitutes Form ITR-2 in Appendix-II of the Income-tax Rules, 1962, comes into force with effect from 31 March 2026 and applies to returns filed for AY 2026-27. The corresponding revisions to ITR-1 (Sahaj) and ITR-4 (Sugam) were notified separately vide Notification No. 45/2026 [G.S.R. 226(E)] of even date under the Income-tax (Second Amendment) Rules, 2026. The Directorate of Income Tax (Systems) has since released the ITR-2 validation rules (Version 1.0 dated 26 May 2026), and both the online mode and the Excel utility for ITR-2 are live on the e-filing portal.
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Governing Law: Income-tax Act, 1961 — Not the Income-tax Act, 2025
A point of recurring confusion this season deserves clarification at the outset. Although the Income-tax Act, 2025 and the Income-tax Rules, 2026 have come into force from 1 April 2026, the return for AY 2026-27 pertains to income earned during FY 2025-26 (1 April 2025 to 31 March 2026) and is therefore governed entirely by the Income-tax Act, 1961 and the Income-tax Rules, 1962. By virtue of section 536(2)(c) of the Income-tax Act, 2025, all proceedings relating to AY 2026-27 and earlier assessment years — including defective return notices under section 139(9), revised returns under section 139(5) and updated returns under section 139(8A) — continue under the 1961 Act. The provisions of the 2025 Act will apply only to income of Tax Year 2026-27 (FY 2026-27), for which returns fall due in 2027 in the forms to be notified under the Income-tax Rules, 2026. The e-filing portal will support compliances under both statutes simultaneously.
Who Should File ITR-2 for AY 2026-27
Form ITR-2 applies to individuals and Hindu Undivided Families not having income under the head “Profits and gains of business or profession”. In practical terms, the form is attracted where any of the following features exist:
1. Capital gains from sale of shares, mutual fund units, immovable property or any other capital asset — including any short-term capital gains, or long-term capital gains under section 112A exceeding Rs. 1,25,000;
2. Income from more than two house properties;
3. Total income exceeding Rs. 50 lakh;
4. Residential status of non-resident or resident but not ordinarily resident;
5. Foreign income, foreign assets, or signing authority in any account located outside India (Schedule FA disclosure);
6. Directorship in a company or holding of unlisted equity shares at any time during the previous year;
7. Brought-forward or carry-forward losses under any head;
8. Income from virtual digital assets reportable in Schedule VDA;
9. Agricultural income exceeding Rs. 5,000.
Where the assessee has income from business or profession (including partner’s remuneration or interest from a firm), ITR-3 applies; presumptive cases fall under ITR-4, subject to its conditions.
The Shifted Boundary with ITR-1
The eligibility perimeter of ITR-2 has narrowed this year because ITR-1 (Sahaj) has been widened. From AY 2026-27, a resident individual (other than not ordinarily resident) with total income up to Rs. 50 lakh may report income from up to two house properties in ITR-1 itself, as against one house property earlier. Further, long-term capital gains under section 112A up to Rs. 1,25,000 — with no brought-forward or carry-forward capital loss — can now be reported directly in ITR-1. Consequently, a salaried taxpayer whose only additional feature was a second house property or a modest equity LTCG, and who was hitherto compelled into ITR-2, may now remain in the simpler form. ITR-2 continues to be mandatory where there are three or more house properties, any short-term capital gains, LTCG beyond the threshold, capital losses to be set off or carried forward, or any of the other conditions enumerated above.
Key Changes in Form ITR-2 for AY 2026-27
| Area | Position for AY 2025-26 | Position for AY 2026-27 |
| Capital gains bifurcation | Separate reporting of transfers effected before and on/after 23 July 2024, consequent to the mid-year rate change under the Finance (No. 2) Act, 2024 | Date-wise bifurcation removed; the revised rate regime applies to the entire FY 2025-26 |
| Rate fields in Schedule CG | Fields for STCG under section 111A at 15% and LTCG under section 112A at 10% (pre-23 July 2024 transfers) retained | Legacy 15% and 10% fields deleted; section 111A gains taxed at 20% and section 112A gains at 12.5% beyond the Rs. 1,25,000 exemption |
| Buy-back of shares | Deemed dividend treatment under section 2(22)(f) for buy-backs on or after 1 October 2024 introduced | Dedicated row for capital loss on buy-back continues; the loss is allowable only where the corresponding deemed dividend is offered under “Income from other sources” |
| Schedule AL | Threshold raised from Rs. 50 lakh to Rs. 1 crore of total income | Rs. 1 crore threshold continues |
| Donations (sections 80G/80GGC) | Basic disclosure | Enhanced disclosure of donee particulars for verification of the claim |
| Revised return fee | No fee on revised returns | New field for fee on revised returns furnished after 31 December 2026 — Rs. 1,000 where total income does not exceed Rs. 5 lakh, Rs. 5,000 otherwise, as reflected in the CBDT e-filing validation rules |
| Aadhaar | Aadhaar Enrolment ID accepted in lieu of Aadhaar | Twelve-digit Aadhaar number mandatory; Enrolment ID no longer accepted |
Two of these changes merit elaboration.
Capital gains reporting. Since the whole of FY 2025-26 falls after 23 July 2024, the transitional split that complicated Schedule CG last year stands removed. All equity STCG under section 111A is chargeable at 20 per cent, and LTCG under section 112A at 12.5 per cent on the amount exceeding Rs. 1,25,000. For immovable property acquired before 23 July 2024 by resident individuals and HUFs, the option of computing tax at 12.5 per cent without indexation or 20 per cent with indexation, whichever is beneficial, continues to operate within the schedule. Acquisition and transfer dates, full value of consideration and cost details must reconcile with the Annual Information Statement, since capital gains mismatches remain the most frequent trigger for departmental communications.
Buy-back losses. For buy-backs effected on or after 1 October 2024, the entire consideration is taxable as deemed dividend in the shareholder’s hands, and the cost of acquisition crystallises as a capital loss. The form enforces the statutory linkage: the capital loss claim in Schedule CG survives validation only where the deemed dividend has been disclosed under Schedule OS. This treatment continues for AY 2026-27; the shift of buy-back proceeds to capital gains taxation is prospective, applying from FY 2026-27 under the new Act.
Due Dates and Consequences of Delay
| Compliance | Timeline for AY 2026-27 | Statutory consequence of default |
| Original return (non-audit) | 31 July 2026 | Interest under section 234A; fee under section 234F (Rs. 5,000; Rs. 1,000 where total income does not exceed Rs. 5 lakh) |
| Belated return u/s 139(4) | 31 December 2026 | Loss of carry-forward of losses (other than house property loss); regime-related restrictions |
| Revised return u/s 139(5) | 31 December 2026 without fee; thereafter with fee as per the notified field | Fee of Rs. 1,000/Rs. 5,000 as applicable |
| Updated return u/s 139(8A) | Up to 31 March 2031 (48 months from the end of AY 2026-27, per the Finance Act, 2025 amendment) | Additional tax ranging from 25% to 70% of aggregate tax and interest, depending on the year of filing |
The carry-forward consequence deserves particular emphasis for investors. Capital losses of FY 2025-26 — short-term or long-term — can be carried forward for eight assessment years only where the return is furnished within the section 139(1) due date. A belated ITR-2 permanently forfeits this benefit.
Verification, Reconciliation and Documentation
Before filing, the assessee should reconcile the pre-filled return with Form 26AS, AIS and TIS, broker capital gains statements, interest certificates and, where applicable, foreign asset statements. The validation rules published by the Directorate of Systems treat a large set of inconsistencies as Category A errors, which prevent upload of the return altogether — including mismatches between Schedule CYLA/BFLA figures and the corresponding schedules, and inconsistencies between the name, date of birth and PAN/Aadhaar databases. Brought-forward losses claimed in Schedule BFLA must agree with Schedule CFL of the earlier years’ returns. Residents holding foreign bank accounts, securities, immovable property or signing authority abroad must complete Schedule FA for the relevant reporting period, irrespective of whether any income arises therefrom; non-disclosure carries consequences under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
The choice of regime also requires deliberate attention. The new regime under section 115BAC(1A) is the default; an assessee opting for the old regime in ITR-2 does so within the return itself (Form 10-IEA being relevant to assessees with business income filing ITR-3/ITR-4). The comparison between regimes should be made after factoring capital gains — which are taxed at special rates under either regime — deductions available only under the old regime, and rebate eligibility under section 87A.
[Insert anonymised client illustration here — e.g., a salaried assessee with equity LTCG, one let-out property and a foreign brokerage account, showing form selection and schedule mapping.]
Transition Note
Assessees should maintain a clear separation between the two parallel compliance streams now in operation. The AY 2026-27 return in Form ITR-2 is filed under the Income-tax Act, 1961; simultaneously, from 1 April 2026, income of FY 2026-27 accrues under the Income-tax Act, 2025, for which TDS credits, advance tax instalments and documentation should be tracked under the new framework, with returns due in 2027 in the forms to be notified under the Income-tax Rules, 2026.
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Disclaimer: This article is for general informational purposes only and does not constitute professional advice or a formal opinion. While due care has been taken to ensure accuracy with reference to the applicable statutory provisions, notifications and material available on government portals as on the date of writing, readers are advised to refer to the relevant provisions of the Income-tax Act, 1961, the Income-tax Rules, 1962 and applicable CBDT notifications/circulars, and to consult a professional before acting on any information contained herein. The author accepts no liability for any loss arising from reliance on this article.
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