Thousands of taxpayers returning to India after working abroad may no longer be eligible to file the simplified ITR-1 (Sahaj) for Assessment Year (AY) 2026-27 if they continue to hold foreign retirement benefit accounts or other reportable overseas assets.

According to the Income Tax Department, ITR-1 cannot be used by taxpayers who own specified foreign assets, have signing authority in an account outside India or earn income from a foreign source. Such taxpayers may instead have to file ITR-2, provided they do not have income from business or profession.

The clarification is particularly relevant for individuals returning to India after overseas assignments who continue to hold retirement benefit accounts such as a US 401(k), Individual Retirement Account (IRA) or similar foreign pension schemes.

Who is eligible to file ITR-1?

According to the Income Tax Department, ITR-1 is meant for resident individuals (other than Resident but Not Ordinarily Resident) having total income of up to ₹50 lakh from salary or pension, one or more specified sources, and subject to the prescribed eligibility conditions.

However, the department specifies that ITR-1 cannot be filed by a person who:

has any asset, including a financial interest in any entity, located outside India;has signing authority in any account outside India; orhas income from any source outside India.

In such cases, taxpayers generally have to file another applicable return form such as ITR-2, if they do not have business or professional income.

Also Read | Income-tax returns: How to access and submit your ITR-1 form on e-filing portal

According to ClearTax, overseas retirement benefit accounts such as 401(k)s, IRAs, pension funds and similar retirement plans are treated as foreign assets for income tax reporting purposes.

ClearTax explains that salaried taxpayers who hold foreign assets or earn foreign-source income and do not have business income generally need to file ITR-2 instead of ITR-1.

Which taxpayers need to file ITR-2?

According to ClearTax, ITR-2 is applicable to individuals and Hindu Undivided Families (HUFs) that do not have income from business or profession but are not eligible to file ITR-1 because of factors such as:

holding foreign assets;earning foreign-source income;having capital gains beyond the scope of ITR-1; orother specified reporting requirements.

Taxpayers having income from business or profession are generally required to file ITR-3 or another applicable return, depending on their circumstances.

What disclosures are required?

The Income Tax Department’s instructions for ITR-2 require eligible taxpayers to furnish details under various schedules, wherever applicable.

Also Read | LTCG below ₹1.25 lakh? Why you may still need to file your income tax returnSchedule FA, which captures details of foreign assets and financial interests outside India;Schedule FSI, which reports income earned from foreign sources; andSchedule TR, which is used for claiming relief for taxes paid outside India under applicable tax treaties.

In addition, taxpayers claiming Foreign Tax Credit (FTC) are required under the Income-tax Rules to furnish Form 67 within the prescribed timeline.

Why does your residential status matter?

According to the Income Tax Department’s instructions for ITR-2, the requirement to report foreign assets in Schedule FA applies to individuals who qualify as Resident and Ordinarily Resident (ROR) under the Income-tax Act.

The reporting requirement does not apply to taxpayers who are Non-Residents (NR) or Residents but Not Ordinarily Residents (RNOR).

ClearTax says taxpayers returning to India after working overseas should first determine their residential status before selecting the applicable ITR form, as the reporting requirements depend on whether they qualify as ROR, RNOR or NR.

What should taxpayers keep in mind?

According to ClearTax, taxpayers holding foreign assets or earning foreign income should carefully verify the applicable ITR form before filing their return, as filing an incorrect return could result in the return being treated as defective under the Income-tax Act.

The Income Tax Department’s notified return forms also require eligible taxpayers to furnish the prescribed disclosures relating to foreign assets and foreign-source income wherever applicable.