Income tax is a direct tax the central government levies on the income you earn in a financial year — from salary, business, property, capital gains and other sources. For FY 2025-26 (AY 2026-27) the new regime is the default: a Section 87A rebate makes tax NIL up to ₹12,00,000 taxable income, so a salaried person pays zero tax up to about ₹12.75 lakh after the ₹75,000 standard deduction.
Who Administers Income Tax in India?
Income tax is now governed by the Income-tax Act, 2025 — the consolidated, renumbered successor to the Income-tax Act, 1961, applicable from AY 2026-27. It is administered by the Central Board of Direct Taxes (CBDT) under the Department of Revenue, Ministry of Finance. All filings, payments and communications happen on the official portal incometax.gov.in.
Tax is charged on the income of a financial year (FY) and assessed in the following assessment year (AY). So income earned between 1 April 2025 and 31 March 2026 (FY 2025-26) is assessed in AY 2026-27, with returns generally due by 31 July 2026.
Want your return filed correctly the first time?
File Your ITR →The Five Heads of Income
All income is grouped under five heads. Your Gross Total Income is the sum across all heads (after set-off of losses); deductions are then subtracted to reach Net Taxable Income.
| Head of Income | What it Covers | Examples |
|---|---|---|
| 1. Salaries | Remuneration for employment | Salary, HRA, bonus, gratuity, pension |
| 2. House Property | Income from owning property | Rent received; home-loan interest deduction |
| 3. Business / Profession | Profits from trade, commerce or a profession | Shopkeeper profit, freelancer fees, CA/doctor income |
| 4. Capital Gains | Profit on sale of capital assets (STCG / LTCG) | Shares, mutual funds, property, gold |
| 5. Other Sources | Residual head — income not in the above | FD/savings interest, dividends, lottery, gifts > ₹50,000 |
Gross Total Income − deductions = Net Taxable Income, on which slab rates apply.
How Income Tax Is Calculated
After slab tax, add a 4% Health & Education Cess (and surcharge if income exceeds ₹50 lakh), subtract the Section 87A rebate, then subtract TDS and advance tax already paid. The balance is tax payable — or a refund if you paid excess. Try our income tax calculator to estimate it.
New Tax Regime Slabs — FY 2025-26 (AY 2026-27)
The new regime is the default for FY 2025-26. These are the slab rates for individuals (a ₹75,000 standard deduction applies to salary/pension income):
| Taxable Income | Tax Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Add 4% Health & Education Cess. Surcharge applies above ₹50L (capped at 25% in the new regime). Full table at /income-tax-slabs.
The Section 87A rebate makes tax NIL up to ₹12,00,000 of taxable income under the new regime. A salaried person also gets a ₹75,000 standard deduction, so gross salary up to about ₹12.75 lakh can attract zero tax. Above that, the rebate no longer applies and normal slab tax is due (with marginal relief just past ₹12L).
Salaried · ₹12.75L gross (new regime)
Salaried · ₹16L gross (new regime)
See the exact tax on your salary for AY 2026-27.
Open the Calculator →Old Regime vs New Regime
The new regime has lower slab rates but almost no deductions. The old regime is optional — it keeps Chapter VI-A deductions (80C, 80D etc.) and HRA, with a ₹50,000 standard deduction and 87A rebate up to ₹5 lakh.
New regime (default)
- Lower slab rates; nil up to ₹4L
- 87A rebate → nil tax up to ₹12L taxable
- ₹75,000 standard deduction
- Most deductions (80C, HRA) not allowed
- Best if you invest/claim little
Old regime (optional)
- Slabs: 2.5L nil / 5% / 20% / 30%
- 87A rebate up to ₹5L taxable
- ₹50,000 standard deduction
- 80C, 80D, HRA, home-loan interest allowed
- Best with large deductions/rent/home loan
| Taxable Income (Old Regime) | Tax Rate |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Old-regime basic exemption is ₹3L for seniors (60–80) and ₹5L for super-seniors (80+). Add 4% cess.
Pick the NEW regime if
- You have few deductions or investments
- You want the ₹12L nil-tax benefit
- You prefer simpler, lower flat slabs
- You don't pay rent / have no home loan
Pick the OLD regime if
- You max out 80C/80D and other deductions
- You claim large HRA or home-loan interest
- Your deductions exceed the new-regime saving
- You have significant Chapter VI-A claims
Not sure which regime saves you more?
Compare Old vs New →ITR Forms — Who Files Which
An Income Tax Return (ITR) is your annual declaration of income, deductions and tax paid, filed on incometax.gov.in — usually due by 31 July of the assessment year. Pick the form that matches your income:
| ITR Form | Who Should File |
|---|---|
| ITR-1 (Sahaj) | Resident individual · salary/pension + one house property + other sources · total income up to ₹50L |
| ITR-2 | Individuals/HUFs with capital gains but no business income |
| ITR-3 | Individuals/HUFs with business or professional income |
| ITR-4 (Sugam) | Presumptive taxation (44AD/44ADA/44AE) · income up to ₹50L |
| ITR-5 / 6 / 7 | Firms/LLPs/AOPs · companies · trusts & specified entities |
Filing is mandatory once income exceeds the basic exemption limit, and in specified cases (refunds, foreign assets, large deposits) even at zero tax.
When Filing Is Mandatory
- Total income exceeds the basic exemption limit
- You want a TDS refund
- You hold foreign assets or foreign income
- Bank deposits over ₹1 crore in the year
- Foreign travel spend over ₹2 lakh
- Electricity bills over ₹1 lakh
- You are a company or firm (always)
- You have carry-forward losses to preserve
Under the new regime a salaried person up to ~₹12.75 lakh pays no tax, but filing an ITR can still be mandatory — e.g. to claim a TDS refund, if you hold foreign assets, or if you cross the specified high-value transaction thresholds. When in doubt, file.
Frequently Asked Questions
Related TaxClue services
File Your Income Tax Return the Right Way
From choosing the right regime and form to maximising deductions and claiming refunds, TaxClue's CA-led team files your income tax return accurately for FY 2025-26 — 100% online, across India.