Income Tax in India — FY 2025-26 (AY 2026-27) Complete Overview

Who must file an income tax return (Section 139)

Filing an Income Tax Return (ITR) is the annual statutory obligation for taxpayers to report their income, claim deductions, and settle tax liabilities. Under Section 139(1) of the Income Tax Act, you must mandatorily file an ITR if your Gross Total Income (before claiming Chapter VI-A deductions like 80C and 80D, or exemptions under Section 54) exceeds the basic exemption limit.

For FY 2025-26 (AY 2026-27), the basic exemption limits are:

• New regime: ₹4,00,000 (for all individuals regardless of age).
• Old regime: ₹2,50,000 for individuals below 60; ₹3,00,000 for senior citizens (60–79); ₹5,00,000 for super senior citizens (80+).

Additionally, irrespective of income, filing is mandatory if you meet any of the following economic indicators during the financial year:

1. Depositing more than ₹1 crore in one or more current accounts.
2. Incurring expenditure exceeding ₹2 lakh on foreign travel for yourself or another person.
3. Paying an electricity bill exceeding ₹1 lakh.
4. Holding assets outside India or possessing signing authority in any account located outside India (applicable to Resident and Ordinarily Residents).
5. Having total TDS/TCS deducted/collected of ₹25,000 or more (₹50,000 for senior citizens).
6. Depositing ₹50 lakh or more in savings bank accounts.

For execution support, see the ITR Filing service.

Income Tax Act 2025 — current status

A historic shift in India’s direct tax framework was initiated via the Union Budget 2025, paving the way for the new Income Tax Act 2025 to replace the six-decade-old Income Tax Act, 1961. Designed to streamline compliance and reduce statute bloat by adopting a simpler drafting style without dense cross-referencing, the new Act is scheduled to come into operational effect on 1 April 2026.

While the new Act reorganises chapters and replaces terms like “Assessment Year” with “Tax Year”, the core tax policies, slabs, and rates established in the Finance Act 2025 apply for the transition. For FY 2025-26 (AY 2026-27), taxpayers compute their liabilities per the provisions outlined below. Assessments and proceedings relating to periods before 1 April 2026 will be governed by the transitional provisions of the new legislation. Verify against the latest CBDT clarifications closer to the effective date.

Tax slabs — old vs new regime (FY 2025-26)

The Finance Act 2025 significantly overhauled the New Tax Regime, cementing its status as the default option for all taxpayers. The new regime offers expanded basic exemption limits and wider slabs to ease the tax burden on the middle class. Taxpayers can still opt for the Old Tax Regime if it yields a lower tax due to specific investments and housing loans.

Side-by-side slab rates for an individual (below 60 years) for FY 2025-26 (AY 2026-27):

Income bracket	New regime (default)	Old regime (optional)
Up to ₹2,50,000	NIL	NIL
₹2,50,001 to ₹4,00,000	NIL	5%
₹4,00,001 to ₹5,00,000	5%	5%
₹5,00,001 to ₹8,00,000	5%	20%
₹8,00,001 to ₹10,00,000	10%	20%
₹10,00,001 to ₹12,00,000	10%	30%
₹12,00,001 to ₹16,00,000	15%	30%
₹16,00,001 to ₹20,00,000	20%	30%
₹20,00,001 to ₹24,00,000	25%	30%
Above ₹24,00,000	30%	30%

Note: Under the old regime, the basic exemption limit is ₹3,00,000 for senior citizens and ₹5,00,000 for super senior citizens. Under the new regime, the ₹4,00,000 basic exemption applies universally.

To analyse which framework minimises your tax outflow based on your specific salary and deduction profile, see New vs Old Tax Regime Comparison.

Section 87A rebate (the zero-tax threshold under new regime)

Section 87A provides a direct reduction in the final income tax liability for resident individuals. The most dramatic change for FY 2025-26 is the expansion of this rebate under the new tax regime.

• Under the new regime: the rebate cap has been raised to ₹60,000 for resident individuals whose total taxable income does not exceed ₹12,00,000. If your income is exactly ₹12,00,000, your tax computed per the new slabs is ₹60,000, which the rebate wipes out entirely. For a salaried individual, the standard deduction of ₹75,000 means a gross salary of up to ₹12,75,000 can still result in zero tax.
• Under the old regime: the rebate remains static at ₹12,500 for resident individuals whose total taxable income does not exceed ₹5,00,000.

Marginal relief applies under the new regime if income slightly exceeds ₹12,00,000, ensuring the tax payable does not exceed the income earned above the threshold.

Standard deduction + surcharge + cess

Beyond the slabs and rebates, the final liability is shaped by deductions, surcharges, and the health & education cess.

Standard deduction:

• New regime: ₹75,000 (salaried and pensioners).
• Old regime: ₹50,000.
• Family pensioners: ₹25,000 or 1/3rd of the pension (whichever is lower) under the new regime.

Surcharge: Surcharge is levied on the tax amount (not on income) for high-net-worth individuals.

• New regime surcharge cap: 25% (applicable on income above ₹2 crore). The 37% rate was abolished under the new regime.
• Old regime surcharge cap: 37% (applicable on income above ₹5 crore).
• Surcharge on capital gains (STCG/LTCG) is capped at 15% across both regimes.

Health & Education Cess: a flat 4% cess is added to the computed income tax plus surcharge across all regimes and brackets.

ITR form selection (ITR-1 to ITR-7)

Selecting the correct ITR form is critical; filing the wrong form renders your return defective under Section 139(9). The CBDT categorises forms based on taxpayer profile and income sources.

Form	Applicable to	Key restrictions / inclusions
ITR-1 (Sahaj)	Resident individuals	Total income up to ₹50 lakh. Income from salary, one house property, other sources, and agriculture (up to ₹5,000). Cannot be used with capital gains, business income, or foreign assets.
ITR-2	Individuals + HUFs	Income > ₹50 lakh, capital gains, multiple house properties, foreign assets, or directorship in a company. Cannot be used for business/professional income.
ITR-3	Individuals + HUFs	Contains income from business or profession. Required for partners in a firm or traders dealing in F&O (derivatives).
ITR-4 (Sugam)	Individuals, HUFs + firms (except LLP)	Total income up to ₹50 lakh. Utilising presumptive taxation under Sections 44AD, 44ADA, or 44AE.
ITR-5	Firms, LLPs, AOPs, BOIs	Entities not qualifying as individuals, HUFs, or companies.
ITR-6	Companies	All companies except those claiming exemption under Section 11 (charitable/religious trusts).
ITR-7	Trusts, political parties, etc.	Persons including companies required to file returns under Section 139(4A/4B/4C/4D).

Major deductions (old regime only): 80C, 80D, 80E, 24(b), HRA, LTA, etc.

If you opt for the old regime, you can shrink your taxable base by claiming exemptions and Chapter VI-A deductions. These are strictly disallowed under the new regime (except the employer’s contribution to NPS under 80CCD(2), which is available in both).

• Section 80C / 80CCC / 80CCD(1): capped at ₹1,50,000. Covers PPF, EPF, ELSS mutual funds, LIC premiums, tuition fees, and principal repayment of home loans.
• Section 80CCD(1B): additional ₹50,000 deduction exclusively for NPS self-contribution.
• Section 80D: medical insurance premiums. Up to ₹25,000 for self/family, plus ₹25,000 for parents (₹50,000 if parents are senior citizens). Maximum total: ₹75,000.
• Section 24(b): interest repayment on housing loans. Capped at ₹2,00,000 for self-occupied properties.
• Section 80E: total interest paid on education loans for higher studies (no monetary cap; claimable for 8 years).
• HRA (House Rent Allowance): exemption under Section 10(13A) — lower of actual HRA received, rent paid minus 10% of basic salary, or 50%/40% of basic salary (metro/non-metro).
• LTA (Leave Travel Allowance): exemption for domestic travel costs, claimable twice in a block of 4 years.

Capital gains taxation (post-July 2024 framework)

The Finance (No. 2) Act 2024 dramatically simplified the capital gains regime, effective for sales executed after 23 July 2024. The changes focus on equalising rates across asset classes and eliminating the indexation benefit for long-term assets.

1. Listed equity + equity mutual funds:

• STCG [Sec 111A]: holding period ≤ 12 months. Rate increased from 15% to 20%.
• LTCG [Sec 112A]: holding period > 12 months. Rate 12.5% (increased from 10%). The annual exemption was enhanced from ₹1,00,000 to ₹1,25,000.

2. Real estate (land + building):

• Holding period > 24 months qualifies as long-term.
• New regime rate: flat 12.5% without indexation.
• Grandfathering clause: for real estate acquired by an individual or HUF before 23 July 2024, the taxpayer can choose the more beneficial calculation: 12.5% without indexation OR 20% with indexation.

3. Gold + unlisted shares:

• Holding period > 24 months qualifies as long-term.
• Rate: flat 12.5% without indexation. (STCG is taxed at applicable slab rates.)

4. Debt mutual funds:

• For debt mutual funds acquired on or after 1 April 2023, gains are treated as short-term regardless of holding period and are taxed at the investor’s applicable slab rate. No LTCG benefit.

Presumptive taxation — Sections 44AD / 44ADA / 44AE

Sections 44AD, 44ADA, and 44AE allow small businesses and professionals to declare income at a prescribed rate, exempting them from detailed book maintenance (Section 44AA).

• Section 44AD (small businesses): applicable to resident individuals, HUFs, and partnership firms (excluding LLPs). Declare a minimum of 8% of turnover as profit (reduced to 6% for digital receipts).
  • Threshold: up to ₹2 crore. Enhanced to ₹3 crore if cash receipts do not exceed 5% of total gross receipts.
• Section 44ADA (professionals): applicable to specified professionals (CA, doctor, lawyer, engineer, architect, accountant, IT consultant, etc.). Declare a minimum of 50% of gross receipts as profit.
  • Threshold: up to ₹50 lakh. Enhanced to ₹75 lakh if cash receipts do not exceed 5% of total gross receipts.
• Section 44AE (transporters): applicable to taxpayers owning ≤ 10 goods carriages at any time during the year. Income: ₹1,000 per ton per month for heavy goods vehicles; ₹7,500 per month for light goods vehicles. No aggregate turnover limit.

Tax audit (Section 44AB)

When a business or profession scales beyond certain thresholds, the Income Tax Act mandates an independent audit by a practising Chartered Accountant.

Thresholds triggering a tax audit:

1. Professionals: gross receipts exceeding ₹50 lakh.
2. Businesses: total sales / turnover / gross receipts exceeding ₹1 crore.
   • Digital exemption: the threshold for businesses is expanded to ₹10 crore provided aggregate cash receipts ≤ 5% AND aggregate cash payments ≤ 5%.
3. Presumptive opt-outs: taxpayers who opt out of presumptive taxation (44AD/44ADA) before the 5-year lock-in ends, and whose total income exceeds the basic exemption limit, must undergo a tax audit.

TDS, advance tax, self-assessment payment

The Indian tax-collection system operates on a “pay-as-you-earn” mechanism via TDS and Advance Tax.

Tax Deducted at Source (TDS): Payers (employers, banks, clients) deduct tax at source before crediting income. Deposited with the Government against your PAN. For the full rate map, see TDS overview.

Advance Tax (Section 208): If estimated final tax liability (after TDS/TCS) is ₹10,000 or more, you must pay advance tax. Senior citizens without business/professional income are exempt.

• 15% by 15 June
• 45% by 15 September
• 75% by 15 December
• 100% by 15 March

(For taxpayers under 44AD/44ADA, 100% must be paid in a single instalment by 15 March.) Failure attracts penal interest under Sections 234B and 234C.

Self-Assessment Tax: any shortfall remaining after TDS and Advance Tax must be paid as self-assessment tax before filing the ITR.

Form 26AS / AIS / TIS — pre-filled data

The Income Tax Department aggregates financial data linked to your PAN from banks, mutual funds, registries, and employers. Before filing, reconcile your data against these documents:

• Form 26AS: acts as your tax passbook. Reflects all TDS deducted on your behalf, TCS collected, advance tax paid, and high-value transactions.
• Annual Information Statement (AIS): a broader dashboard capturing almost every financial transaction — interest from savings and FDs, dividend payouts, mutual fund purchases/sales, foreign remittances, property transactions.
• Taxpayer Information Summary (TIS): a simplified, aggregated summary of the AIS data, presenting consolidated category-wise values used to pre-fill the ITR.

If there is a discrepancy between your records and the AIS, submit feedback on the e-filing portal to correct it. Otherwise the department assumes the AIS data is accurate, often triggering an automated notice under Section 143(1).

Deadlines + Section 234F penalty

Due dates for AY 2026-27:

• 31 July 2026: standard deadline for individuals, HUFs, AOPs, and BOIs whose accounts do not require an audit.
• 31 October 2026: deadline for taxpayers (and working partners of firms) whose accounts require a tax audit under Section 44AB.
• 30 November 2026: deadline for taxpayers engaging in specified international or domestic transfer-pricing transactions (requiring a report under Section 92E).

Late filing penalties: If you file a Belated Return (Section 139(4)) after the due date but before 31 December of the Assessment Year, a late filing fee under Section 234F is levied:

• ₹5,000 if total income exceeds ₹5,00,000.
• ₹1,000 if total income is ₹5,00,000 or below.

In addition to 234F, penal interest of 1% per month is levied on unpaid tax under Section 234A. Reconcile against Form 26AS / AIS / TIS and file before the deadline. For cross-tax compliance, see the GST overview.