Income tax is a direct tax the Central Government levies on the income you earn in a financial year (1 April to 31 March). It applies to individuals, HUFs, firms and companies, and is administered by the Income Tax Department under the CBDT. For FY 2025-26 the new regime is the default: a salaried person pays nil tax up to about Rs 12.75 lakh (Rs 12 lakh rebate under Section 87A + Rs 75,000 standard deduction). You report your income and pay any balance by filing an Income Tax Return (ITR), usually due 31 July.
From AY 2026-27, the Income-tax Act, 2025 replaces the six-decade-old Income-tax Act, 1961. It re-drafts and renumbers the law for simplicity (for example, Section 80C is renumbered as Section 123) but keeps the core structure — heads of income, slabs, deductions and the two regimes — broadly the same.
The Five Heads of Income
Every rupee you earn is classified under one of five heads. The total of all heads is your Gross Total Income; after deductions it becomes your Total Taxable Income.
| Head of Income | What it Includes | Key Deductions |
|---|---|---|
| Salary | Wages, pension, HRA, LTA, allowances, perquisites | Standard deduction Rs 75,000 (new) / Rs 50,000 (old), HRA (old) |
| House Property | Rent from owned property; deemed rent rules | 30% standard deduction + home-loan interest u/s 24(b) |
| Business / Profession | Self-employment, freelance, practice, company profits | Business expenses, depreciation, presumptive 44AD/44ADA |
| Capital Gains | Profit on sale of shares, MF, property, gold | Exemptions u/s 54/54F; LTCG/STCG rates apply |
| Other Sources | FD interest, dividends, lottery, gifts > Rs 50K | Section 57 expenses; some exempt u/s 10 |
Gross Total Income minus Chapter VI-A deductions (80C, 80D, etc.) = Total Taxable Income, on which slab rates apply.
Deductions such as Section 80C (Rs 1.5 lakh), 80D, 80CCD(1B) and home-loan interest u/s 24(b) are available almost entirely under the old regime. The default new regime gives lower slab rates plus a higher Rs 75,000 standard deduction and the Rs 12 lakh 87A rebate instead of these deductions.
Financial Year vs Assessment Year
Two dates trip up every beginner. The Financial Year (FY) is when you earn; the Assessment Year (AY) is the following year, when that income is assessed and you file the ITR.
Financial Year — you EARN
- Runs 1 April to 31 March
- Current: FY 2025-26 (Apr 2025–Mar 2026)
- Form 16, Form 26AS & TDS all refer to the FY
- Income is actually earned in this window
Assessment Year — you FILE
- The year right after the FY
- FY 2025-26 is assessed in AY 2026-27
- ITR is filed and balance tax paid here
- Non-audit ITR due date: 31 July 2026
PAN — Your Permanent Account Number
A PAN is a 10-character alphanumeric ID (format AAAAA1111A) issued by the Income Tax Department. It is mandatory for filing an ITR, for large financial transactions and for linking your entire tax record. PAN must be linked with Aadhaar — an unlinked PAN becomes inoperative, and an ITR cannot be filed with an inoperative PAN.
Don't have a PAN yet, or need it linked with Aadhaar?
Apply / fix PAN →Income Tax Slabs & the Two Regimes
For FY 2025-26 the new regime is the default and carries wider, lower slabs. You may still opt for the old regime if your deductions are high. Both add a 4% health & education cess (and surcharge on higher incomes).
| Taxable Income (New Regime) | Rate |
|---|---|
| Up to Rs 4,00,000 | Nil |
| Rs 4,00,001 – Rs 8,00,000 | 5% |
| Rs 8,00,001 – Rs 12,00,000 | 10% |
| Rs 12,00,001 – Rs 16,00,000 | 15% |
| Rs 16,00,001 – Rs 20,00,000 | 20% |
| Rs 20,00,001 – Rs 24,00,000 | 25% |
| Above Rs 24,00,000 | 30% |
Section 87A rebate makes tax nil up to Rs 12 lakh taxable income (cap Rs 60,000). With the Rs 75,000 standard deduction, a salaried person pays nil up to about Rs 12.75 lakh. Source: incometax.gov.in.
New regime (default)
- Lower, wider slabs above
- Standard deduction Rs 75,000 (salaried)
- 87A rebate up to Rs 12L taxable income
- Most 80C/80D-type deductions NOT allowed
- Surcharge capped at 25% (37% rate removed)
Old regime (optional)
- Breaks at Rs 2.5L / 5L / 10L
- Standard deduction Rs 50,000 (salaried)
- 87A rebate up to Rs 5L (Rs 12,500)
- 80C, 80D, 24(b) home-loan interest allowed
- Best when total deductions are high
The new regime usually wins for those with few deductions; the old regime can win if you have a big 80C claim plus home-loan interest and 80D. Run both before you file — a wrong choice can cost you thousands.
Not sure which regime saves you more?
Compare regimes →How Income Tax is Calculated & Paid
Tax is collected through the year — TDS on salary and other payments, and advance tax in instalments (15 Jun / 15 Sep / 15 Dec / 15 Mar) if your tax payable is Rs 10,000 or more. Any shortfall is paid as self-assessment tax before filing; excess is refunded. See what is TDS and Form 16.
Salary Rs 12,00,000 · New regime
Salary Rs 16,00,000 · New regime
These are illustrative new-regime figures for a salaried resident with no other income or deductions. Use our income tax calculator for your exact numbers, or see the full income tax slabs.
- PAN linked with Aadhaar
- Form 16 from employer (if salaried)
- Form 26AS & AIS reviewed
- Bank interest & dividend details
- Capital-gains statements (if any)
- 80C/80D proofs (old regime)
- Home-loan interest certificate (old regime)
- Regime chosen after comparing
- ITR filed by 31 July 2026
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Get ITR Filing Help →Income Tax — Frequently Asked Questions
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