Non-ITR-1 Returns Rise to 62% as Income Sources Diversify

Income Tax return filing trends in Assessment Year (AY) 2026-27 indicate that more Indians are earning income beyond traditional salaries, reflecting growing participation in equity markets, independent work, business activities and diversified investments. A report by ClearTax shows that non-ITR-1 returns accounted for 62% of total filings in AY 2026-27, compared with 53% in AY 2025-26 and 40% in AY 2024-25.

The findings suggest that income patterns are becoming more diverse, particularly among younger taxpayers. More individuals are reporting capital gains, business income, freelancing earnings and other sources, making their tax returns more complex than those based primarily on salary income.

The ClearTax report is based on a sample of 4.5 lakh users from the platform’s total user base. Its findings point to changes in how taxpayers earn, invest and report their income.

Non-ITR-1 Filings Increase Over Three Assessment Years

The share of non-ITR-1 returns has increased steadily over the past three assessment years. These returns are generally used by taxpayers whose income or financial circumstances do not fit the relatively simpler ITR-1 category.

ITR-2 and ITR-3, which cover taxpayers with income from sources such as capital gains, business and profession, together accounted for 57.2% of filings in AY 2026-27. Their combined share stood at 36.2% in AY 2024-25.

ITR-3 also recorded a notable increase. Its share rose by 7.8 percentage points from 20.6% in AY 2025-26, bringing it close to ITR-2, which accounted for 28.8% of filings in AY 2026-27.

The shift indicates that a growing section of taxpayers is reporting financial activity that involves more than regular employment income. It also reflects the increasing importance of accurate reporting of investment returns and earnings from independent professional activities.

Young Professionals Drive Growth in Multiple Income Sources

One of the key findings of the report is the growing participation of younger Indians in investment and independent income-generating activities.

ClearTax recorded a 47% increase in self-filers reporting income from investments, business, freelancing or cryptocurrency in AY 2026-27 compared with AY 2022-23. The share of self-filers reporting at least two of these non-salary income sources increased from 3.5% to 24% over the same period.

Archit Gupta, founder and CEO of ClearTax, said young professionals entering equity markets and taking up independent work, alongside households diversifying their investments, were contributing to a broader wealth-creation trend.

He added that more taxpayers were reporting multiple income streams and increasingly complex financial portfolios. This suggests that investment activity and independent work are becoming more prominent parts of household income patterns.

Under-25 Taxpayers Increasingly File Complex Returns

Taxpayers below the age of 25 recorded a significant shift towards more complex income tax returns. In AY 2026-27, 75% of self-filers in this age group filed complex returns, including ITR-2, ITR-3 and ITR-4. The corresponding share was 60% in AY 2025-26.

Within this group, the share of ITR-3 filings increased from 28% to 44%, while ITR-1 filings declined from 41% to 25% over the same period.

Young taxpayers also recorded an increase in ITR-4 filings, which are generally used by eligible taxpayers opting for the presumptive taxation scheme. Their share rose from 8.9% in AY 2024-25 to 15.2% in AY 2026-27, an increase of 6.3 percentage points.

The findings indicate that some younger taxpayers are entering the tax system with income from business, professional activities and investments rather than relying exclusively on salaries.

Young Investors Also Report Capital Market Losses

Greater participation in financial markets also brings investment risks and tax-reporting responsibilities. Among taxpayers below 25 who reported capital gains or losses, 37% reported a loss in AY 2026-27. This compared with 21% among taxpayers above 60 years of age.

The figures highlight the importance of understanding how investment gains and losses should be reported. Market participation does not always result in profits, and taxpayers need to maintain accurate records of their transactions and account for applicable tax rules.

The report also emphasised the need for younger investors to understand the tax implications of their market activity, including the correct reporting of capital gains and losses.

Older Taxpayers Continue to Participate in Equity Markets

Investment income is not limited to younger taxpayers. The report found that 40% of taxpayers above 60 years of age reported capital gains in AY 2026-27, compared with 35% among those aged between 40 and 50.

This suggests that accumulated savings continue to remain invested in financial markets even after regular employment income declines. Retired and older taxpayers may therefore have tax obligations linked to investments alongside pension, interest or other income sources.

The findings also show that financial market participation spans different age groups, although the nature and sources of income may vary according to an individual’s stage of life.

More Women Report Capital Gains and Higher Income

Women taxpayers also recorded an increase in investment-related income reporting. The share of women filers reporting capital gains through ITR-2 rose to 30.5% in AY 2026-27 from 26.1% in AY 2025-26.

The report also found an increase in the share of women self-filers earning more than Rs 50 lakh. This proportion reached 5.1% in AY 2026-27, compared with 3.7% in the previous assessment year.

These changes point to a wider range of reported financial activity among women taxpayers, including participation in investments and higher-income categories.

What the Changing ITR Pattern Means for Taxpayers

The growing share of non-ITR-1 returns reflects a shift in the way many Indians earn and manage money. Salaries remain an important source of income, but investments, freelancing, business activities and other earnings are becoming more visible in tax filings.

For taxpayers, multiple income streams can make return preparation more complicated. Different types of income may be subject to different reporting requirements, while investment transactions can require careful record-keeping to ensure that gains and losses are declared accurately.

Young investors entering equity markets and individuals taking up independent professional work may need to pay particular attention to the applicable income tax rules and the return form suited to their circumstances.

The ClearTax findings are based on the platform’s user sample and should not automatically be treated as a complete picture of all Indian taxpayers. Nevertheless, the trends provide an indication of how income sources and tax-filing patterns are changing among the users covered by the report.

As more households diversify their earnings and investments, tax compliance is increasingly becoming part of broader personal financial planning rather than simply an annual exercise linked to salary income.