Veda Vyasa classified Valmiki’s Ramayana and his own Mahabharata as Itihasas.
“Purana, Itivritta (history), Akhyayika (tales), Udaharana (illustrative examples), Dharmasastra (science of Dharma – righteous conduct), and Arthasastra (science of wealth – economics) are Itihasa.” as per Kautilya Arthasastra.
The Ramayana and the Mahabharata cover all the above listed subjects and therefore they are correctly classified as Itihasas.
So the term for plain history is ItiVritta. In modern Indian languages, the term Itihasa is used to mean history alone. Thus leading to a litle bit of confusion.
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