Income Tax in India — The Basics
Income tax in India is a tax levied by the Central Government on the income earned by individuals, Hindu Undivided Families (HUFs), firms and companies during a financial year. For salaried individuals, it is your employer's legal obligation to deduct TDS (Tax Deducted at Source) from your monthly salary — but the final calculation and filing of your Income Tax Return (ITR) remains your responsibility.
The financial year (FY) for tax purposes runs from April 1 to March 31. When people say "FY 2025-26," they mean income earned between April 1, 2025 and March 31, 2026. The Assessment Year (AY) for this would be AY 2026-27 — the year in which the income is assessed and returns are filed.
July 31, 2026: ITR filing deadline for individuals (no audit required). March 31, 2026: Deadline for 80C investments, insurance premiums and other deductions to count in FY 2025-26. March 15, 2026: 4th instalment of advance tax.
Old Tax Regime vs New Tax Regime — The Full Comparison
As of FY 2025-26, India has two income tax regimes. The new regime is now the default — you must actively opt out to choose the old regime. Here are the slabs for both:
New Tax Regime — FY 2025-26 (Default)
| Annual Income | Tax Rate |
|---|---|
| Up to ₹3,00,000 | Nil |
| ₹3,00,001 – ₹7,00,000 | 5% |
| ₹7,00,001 – ₹10,00,000 | 10% |
| ₹10,00,001 – ₹12,00,000 | 15% |
| ₹12,00,001 – ₹15,00,000 | 20% |
| Above ₹15,00,000 | 30% |
Under the new regime, standard deduction is ₹75,000 for salaried employees (increased in Budget 2024). Section 87A rebate makes income up to ₹7 lakh effectively tax-free (after standard deduction, effectively ₹7.75 lakh).
Old Tax Regime — FY 2025-26
| Annual Income | 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% |
The old regime allows deductions under 80C (up to ₹1.5 lakh), HRA, home loan interest, NPS (80CCD), standard deduction (₹50,000) and more. Higher deductions mean lower taxable income and potentially lower tax.
Which Regime is Better For You?
The decision comes down to the total value of deductions you can genuinely claim. A simple rule of thumb:
- New regime wins if your total deductions are under ₹3.75 lakh
- Old regime wins if your total deductions are above ₹4.5 lakh (especially with home loan interest + HRA + NPS)
- The break-even point varies by income level — use a tax calculator for your exact numbers
For most salaried individuals earning ₹8–15 lakh per year without a home loan, the new regime typically results in lower or equal tax. For those with a home loan, high HRA and maximum 80C utilisation, the old regime often saves more — especially above ₹15 lakh income.
Key Tax Deductions — FY 2025-26
These deductions are only available under the old tax regime. The new regime offers almost no deductions (only standard deduction of ₹75,000 and employer NPS under 80CCD(2)).
Section 80C — ₹1.5 Lakh Limit
The most-used deduction. The total limit is ₹1,50,000 per year, and it includes a wide range of qualifying investments and expenditures:
- Employee Provident Fund (EPF) contribution
- Public Provident Fund (PPF) deposits
- ELSS Mutual Funds (Equity Linked Savings Scheme)
- NSC (National Savings Certificate)
- Life Insurance Premium
- Children's Tuition Fees (up to 2 children)
- Principal repayment on home loan
- 5-year bank tax-saving FD
- Sukanya Samriddhi Yojana (SSY) deposits
Section 80CCD(1B) — Additional ₹50,000 (NPS)
This is unique to the National Pension System (NPS) and is over and above the ₹1.5 lakh 80C limit. Investing ₹50,000 in NPS Tier 1 annually saves ₹15,600 in tax for someone in the 30% slab (plus cess). This is the most efficient deduction available beyond 80C.
Section 80D — Health Insurance Premium
- Self + family (below 60): up to ₹25,000
- Self + family (above 60): up to ₹50,000
- Parents (below 60): additional ₹25,000
- Parents (above 60): additional ₹50,000
- Maximum total: ₹1,00,000 in high-age scenarios
HRA — House Rent Allowance
If your employer gives you HRA and you live in a rented house, you can claim HRA exemption. The exempt amount is the minimum of: (a) actual HRA received, (b) rent paid minus 10% of basic salary, or (c) 50% of basic salary (metro cities) / 40% (non-metro). Many employees leave significant HRA exemptions unclaimed simply by not submitting rent receipts to their employer by January each year.
Section 24(b) — Home Loan Interest
Interest paid on a home loan for a self-occupied property is deductible up to ₹2,00,000 per year under the old regime. For a let-out property, the entire interest is deductible (with some conditions). This is one of the strongest reasons the old regime is better for home loan borrowers.
TDS on Salary — Understanding Form 16
Your employer deducts TDS (Tax Deducted at Source) from your monthly salary based on your projected annual tax liability. This deduction is based on the regime you inform your employer about — typically at the start of the financial year in April.
Form 16 is the TDS certificate issued by your employer after March 31 each year. It has two parts:
- Part A: Total TDS deducted and deposited with the government (verify this against your 26AS)
- Part B: Salary breakup, exemptions claimed, deductions and computation of taxable income
If TDS exceeds your actual tax liability (happens when you claim more deductions in ITR than declared to employer), you get a refund. If it's less, you pay the balance when filing ITR — potentially with interest.
Capital Gains Tax on Investments — Budget 2024 Update
Budget 2024 brought significant changes to capital gains taxation effective from July 23, 2024:
| Asset | Short-Term (STCG) | Long-Term (LTCG) | Holding for LTCG |
|---|---|---|---|
| Equity / Equity MF | 20% (from Jul 23, 2024) | 12.5% above ₹1.25L | 12 months |
| Debt MF / Bonds | At slab rate | At slab rate | No LTCG benefit |
| Gold ETF / Gold MF | At slab rate | 12.5% (no indexation) | 24 months |
| Property | At slab rate | 12.5% (no indexation) | 24 months |
| Unlisted Shares | At slab rate | 12.5% | 24 months |
Indexation benefit (cost inflation adjustment) was removed for all assets from Budget 2024 — now at 12.5% flat without indexation. ₹1.25 lakh LTCG exemption applies to equity and equity MF per financial year.
Advance Tax — Who Needs to Pay
If your total tax liability exceeds ₹10,000 in a financial year (after deducting TDS), you must pay advance tax in four instalments:
- June 15: 15% of estimated tax
- September 15: 45% (cumulative)
- December 15: 75% (cumulative)
- March 15: 100% (cumulative)
This applies to salaried employees with significant income from other sources (interest, rental income, capital gains, freelance work), freelancers, business owners and anyone with income not subject to TDS.
Missing advance tax deadlines attracts interest under Section 234B (1% per month on shortfall) and Section 234C (1% per month for short payment at each installment). On a ₹5 lakh tax liability, this can amount to ₹15,000–₹30,000 in avoidable interest.
ITR Filing — The Essentials
Filing an Income Tax Return is mandatory if your gross income exceeds the basic exemption limit — ₹2.5 lakh under the old regime, ₹3 lakh under the new regime. Even if your income is below the threshold, filing ITR is advisable for:
- Claiming TDS refund
- Documenting income for visa applications, home loans and credit cards
- Carrying forward capital losses (only possible if ITR is filed on time)
Which ITR Form to Use?
- ITR-1 (Sahaj): Salaried individuals with income under ₹50 lakh, one house property, no business income
- ITR-2: More than one property, capital gains, foreign income or assets, income above ₹50 lakh
- ITR-3: Business or professional income (including freelancers)
- ITR-4 (Sugam): Presumptive taxation under 44AD/44ADA — business/professional income up to ₹50 lakh
Frequently Asked Questions
Which tax regime is better — old or new for FY 2025-26?
For most salaried individuals without a home loan earning ₹8–15 lakh, the new regime typically results in equal or lower tax due to the ₹75,000 standard deduction and Section 87A rebate. For those with home loan interest, high HRA and maximum 80C + NPS deductions, the old regime often saves more. Use a tax calculator with your exact numbers.
What is the income tax slab for ₹10 lakh salary in FY 2025-26?
Under the new regime: taxable income = ₹10 lakh minus ₹75,000 standard deduction = ₹9.25 lakh. Tax = ₹20,000 (5% on ₹3–7L) + ₹22,500 (10% on ₹7–9.25L) = ₹42,500 plus 4% cess = ₹44,200. Under the old regime with full 80C and NPS: taxable income could be ₹6.75 lakh, tax = ₹20,000 + ₹35,000 = ₹55,000 minus rebate — typically old regime is worse here without more deductions.
Is income up to ₹7 lakh tax-free in the new regime?
Effectively yes. The Section 87A rebate under the new regime makes tax liability zero for taxable income up to ₹7 lakh. With the ₹75,000 standard deduction, a salaried person earning up to ₹7.75 lakh gross pays zero income tax under the new regime in FY 2025-26.
What is the deadline to file ITR for FY 2025-26?
The due date for ITR filing for salaried individuals (where audit is not required) for AY 2026-27 is July 31, 2026. After this deadline, you can still file a belated return up to December 31, 2026 with a late fee (₹1,000 for income under ₹5 lakh, ₹5,000 otherwise).
How much 80C should I invest?
The 80C limit is ₹1.5 lakh. EPF contributions already count towards this limit — check your payslip. Most salaried employees in the 20%+ slab benefit from maximising 80C. The best 80C options are: ELSS (12–15% expected returns, 3-yr lock-in), PPF (7.1% tax-free, 15-yr lock-in) and existing EPF contributions.