Overview — FY 2025-26 at a Glance
Financial Year 2025-26 (April 1, 2025 to March 31, 2026) corresponds to Assessment Year 2026-27. Returns for this year will be filed under the Income Tax Act, 1961 — the last full year before the Income Tax Act, 2025 takes effect from FY 2026-27. This makes FY 2025-26 particularly important for salaried taxpayers: the Finance Act, 2025 (Union Budget 2025, presented on 1 February 2025) introduced the most significant tax relief for the middle class in years, substantially raising the effective tax-free income threshold under the new regime.
Effective nil-tax income for salaried (new regime)
Standard deduction — new regime
Section 87A rebate — new regime
ITR due date — non-audit cases (AY 2026-27)
Key changes brought in by Finance Act, 2025 for salaried taxpayers
- New regime tax slabs revised: A completely restructured seven-slab progressive rate structure effective FY 2025-26, with nil tax up to ₹4 lakh and revised bracket widths throughout.
- Section 87A rebate enhanced: The rebate under the new regime has been increased to ₹60,000, effectively making total income up to ₹12 lakh tax-free. Combined with the ₹75,000 standard deduction, salaried employees with gross salary up to ₹12,75,000 pay zero tax under the new regime.
- Old regime unchanged: The old tax regime — with its full set of exemptions and deductions — continues to be available for FY 2025-26, though the new regime remains the default.
- NPS employer contribution deduction: The deduction for employer’s contribution to NPS under Section 80CCD(2) has been increased from 10% to 14% of salary for private sector employees, aligning with the government employee limit.
Old vs. New Tax Regime — Making the Right Choice
Since FY 2020-21, salaried employees have had the choice between two parallel tax regimes. From FY 2023-24 onwards, the new regime became the default — meaning unless you explicitly opt for the old regime, tax will be computed under the new regime. For FY 2025-26, this choice has become even more pivotal given the enhanced rebate and revised slabs under the new regime.
🔴 Old Regime (Optional — must be explicitly chosen)
- Higher tax rates at most income levels compared to new regime
- Standard deduction: ₹50,000 from salary
- HRA exemption fully available (Section 10(13A))
- LTA exemption available (Section 10(5))
- Chapter VI-A deductions — 80C (₹1.5L), 80D, 80E, 80G, 80TTA/TTB, etc.
- Home loan interest deduction under Section 24(b) — up to ₹2 lakh
- 80CCD(1B) — additional NPS deduction ₹50,000
- Professional tax deduction allowed (Section 16(iii))
- Best suited for: taxpayers with high 80C investments, home loans, HRA, and LTA
- Salaried: opt out at the time of intimating employer (generally April); can change at ITR filing
🟢 New Regime (DEFAULT — applies unless old regime chosen)
- Significantly lower tax rates across most brackets
- Standard deduction: ₹75,000 from salary ↑ from ₹50,000
- No HRA exemption (unless under Section 80GG for non-HRA employees)
- No LTA exemption
- Most Chapter VI-A deductions not available (80C, 80D, 80E, 80G all unavailable)
- Section 24(b) home loan interest not available for self-occupied property (available for let-out)
- 80CCD(2) employer NPS: deduction available up to 14% of salary ↑ from 10%
- Section 87A rebate: ₹60,000 — nil tax up to ₹12 lakh income
- Best suited for: taxpayers with low deductions / no home loan / moderate HRA
- New and young earners, and those in lower deduction brackets almost always benefit more
How to choose: The break-even analysis
The decision hinges on the total value of exemptions and deductions you can claim under the old regime. If your total eligible deductions exceed approximately ₹3.75 lakh (at higher income brackets), the old regime may still save more tax. However, for income up to ₹12.75 lakh with moderate or no deductions, the new regime yields zero tax, making it clearly superior. Always compute tax under both regimes before deciding — your CA or the IT portal’s tax calculator can assist. The regime can be changed at the time of filing the ITR (once) for salaried employees not having business income.
| Deduction / Exemption | Old Regime | New Regime | Impact |
|---|---|---|---|
| Standard deduction from salary | ₹50,000 | ₹75,000 | New regime gives ₹25,000 more |
| HRA exemption (Sec. 10(13A)) | Available | Not available | May be significant for metro residents |
| LTA / Leave Travel Allowance | Available | Not available | Up to ₹2 actual travel cost |
| 80C (PF, PPF, ELSS, LIC, tuition fees) | Up to ₹1,50,000 | Not available | Large impact for those with mandatory EPF + PPF |
| 80CCD(1B) — personal NPS contribution | ₹50,000 | Not available | Only available in old regime |
| 80CCD(2) — employer NPS contribution | Up to 14% of salary | Up to 14% of salary | Available in both — a key planning lever |
| 80D — health insurance premium | Up to ₹25,000 / ₹50,000 | Not available | Relevant for those with family floater policies |
| Section 24(b) — home loan interest (self-occupied) | Up to ₹2,00,000 | Not available | Very significant for home loan holders |
| Section 24(b) — home loan interest (let-out) | Actual interest | Actual interest | Available in both regimes for let-out property |
| Section 87A — Tax rebate | ₹12,500 (up to ₹5L income) | ₹60,000 (up to ₹12L income) | Dramatically better in new regime |
| Professional tax deduction (Sec. 16(iii)) | Actual amount paid | Not available | Minor — ₹2,400/year in most states |
Tax Slabs for FY 2025-26 (AY 2026-27)
| Income Slab (Total Income) | Tax Rate | Tax on Slab Amount | Notes |
|---|---|---|---|
| Up to ₹4,00,000 | NIL | — | Basic exemption — no tax |
| ₹4,00,001 – ₹8,00,000 | 5% | Up to ₹20,000 | |
| ₹8,00,001 – ₹12,00,000 | 10% | Up to ₹40,000 | |
| ₹12,00,001 – ₹16,00,000 | 15% | Up to ₹60,000 | Section 87A rebate covers tax up to ₹12L income |
| ₹16,00,001 – ₹20,00,000 | 20% | Up to ₹80,000 | |
| ₹20,00,001 – ₹24,00,000 | 25% | Up to ₹1,00,000 | |
| Above ₹24,00,000 | 30% | 30% on amount above ₹24L |
Zero tax for salaried employees up to ₹12,75,000 gross salary
Standard deduction of ₹75,000 reduces taxable income from ₹12,75,000 to ₹12,00,000. On ₹12 lakh income under the new regime, the aggregate tax works out to ₹60,000 (5% on ₹4L + 10% on ₹4L = ₹20,000 + ₹40,000). This is fully covered by the Section 87A rebate of ₹60,000 — resulting in zero net tax payable. Marginal relief provisions ensure there is no “cliff” at ₹12 lakh — additional tax above ₹12L income cannot exceed the incremental income.
| Category | Income Slab | Tax Rate | Notes |
|---|---|---|---|
| Below 60 years (Regular individual) |
Up to ₹2,50,000 | NIL | Basic exemption limit |
| ₹2,50,001 – ₹5,00,000 | 5% | 87A rebate available — nil tax up to ₹5L | |
| ₹5,00,001 – ₹10,00,000 | 20% | ||
| Above ₹10,00,000 | 30% | ||
| Senior Citizens (60–79 years) |
Up to ₹3,00,000 | NIL | Higher exemption limit |
| ₹3,00,001 – ₹5,00,000 | 5% | 87A rebate available | |
| ₹5,00,001 – ₹10,00,000 | 20% | ||
| Above ₹10,00,000 | 30% | ||
| Super Senior Citizens (80 years & above) |
Up to ₹5,00,000 | NIL | Highest exemption limit |
| ₹5,00,001 – ₹10,00,000 | 20% | No 87A rebate for 80+ on normal income | |
| Above ₹10,00,000 | 30% | ||
Old regime standard deduction: ₹50,000
Under the old regime, the standard deduction from salary income is ₹50,000 (Section 16(ia)). Entertainment allowance (Section 16(ii)) for government employees and professional tax (Section 16(iii)) are also deductible before arriving at taxable salary. The Section 87A rebate under the old regime is ₹12,500, available only when total income does not exceed ₹5 lakh.
| Total Income | Surcharge Rate | Applies To | Max. Marginal Rate (incl. surcharge + cess) |
|---|---|---|---|
| Up to ₹50 lakh | NIL | All individuals | 31.2% (30% + 4% cess) |
| ₹50 lakh – ₹1 crore | 10% | All individuals | 34.32% |
| ₹1 crore – ₹2 crore | 15% | All individuals | 35.88% |
| ₹2 crore – ₹5 crore | 25% | All individuals | 39.0% |
| Above ₹5 crore (new regime) | 25% | New regime only (capped at 25%) | 39.0% |
| Above ₹5 crore (old regime) | 37% | Old regime only | 42.744% |
Health & Education Cess: 4% on (tax + surcharge) — applicable under both regimes for all taxpayers. No deduction is allowed for cess paid. Marginal relief is available where surcharge exceeds the incremental income above the threshold.
Understanding Your Salary Structure
A typical salary package is not a single number — it comprises multiple components, each with a different tax treatment. Understanding this structure is the foundation of correct tax computation. Your employer’s payslip and Form 16 Part B will reflect these components.
| Salary Component | Section | Old Regime Tax Treatment | New Regime |
|---|---|---|---|
| Basic Salary | Sec. 17(1) | Fully taxable | Fully taxable |
| Dearness Allowance (DA) | Sec. 17(1) | Fully taxable | Fully taxable |
| House Rent Allowance (HRA) | Sec. 10(13A) / Rule 2A | Partially exempt — least of: (a) actual HRA, (b) 50%/40% of basic+DA, (c) rent paid minus 10% of basic+DA | Fully taxable — no exemption |
| Leave Travel Allowance (LTA) | Sec. 10(5) / Rule 2B | Exempt for actual travel cost within India — twice in a block of 4 years. Current block: 2022–25. | Fully taxable — no exemption |
| Special Allowance | Sec. 17(1) | Fully taxable (catch-all allowance) | Fully taxable |
| Children’s Education Allowance | Sec. 10(14) / Rule 2BB | Exempt: ₹100/month per child (max 2 children) = ₹2,400/year. Excess taxable. | Fully taxable |
| Children’s Hostel Allowance | Sec. 10(14) / Rule 2BB | Exempt: ₹300/month per child (max 2 children) = ₹7,200/year. Excess taxable. | Fully taxable |
| Transport Allowance (disability) | Sec. 10(14) | Exempt: ₹3,200/month for employees with disability | Exempt (retained) |
| Employee Provident Fund (EPF) — Employee Contribution | Sec. 80C | Deduction under 80C within ₹1.5 lakh limit | No 80C deduction; contribution still mandatory |
| EPF — Employer Contribution | Sec. 10(12) / 17(2)(vii) | Exempt up to 12% of salary; excess taxable as perquisite | Same — exempt up to 12% |
| NPS — Employer Contribution | Sec. 80CCD(2) | Deductible up to 14% of salary (basic + DA) | Same — deductible up to 14% ↑ from 10% |
| Gratuity received during service | Sec. 17(1)(iii) | Fully taxable as salary | Fully taxable |
| Gratuity on retirement / death | Sec. 10(10) | Exempt up to ₹20 lakh (government) / least of formula amount or ₹20 lakh (others) | Same exemption retained |
| Leave encashment on retirement | Sec. 10(10AA) | Exempt up to ₹25 lakh (non-government employees) | Same |
| VRS / Voluntary Retirement compensation | Sec. 10(10C) | Exempt up to ₹5 lakh (once in lifetime) | Same |
| Overtime / Bonus / Commission | Sec. 17(1) | Fully taxable as salary | Fully taxable |
| Standard Deduction | Sec. 16(ia) | ₹50,000 flat deduction from gross salary | ₹75,000 flat deduction ↑ from ₹50,000 |
HRA Exemption — Calculation & Common Mistakes
House Rent Allowance is the most widely claimed exemption under the old regime and is relevant only for the old regime filers. The exemption is the least of the following three amounts:
Actual HRA received
The HRA component as appearing in your salary slip / Form 16 for the period you were actually residing in rented accommodation.
50% / 40% of Basic + DA
50% if the rented accommodation is in a metro city (Mumbai, Delhi, Chennai, Kolkata). 40% for all other cities and towns.
Actual rent paid minus 10% of Basic + DA
The excess of rent paid over 10% of (Basic salary + Dearness Allowance). This effectively phases out the exemption as salary rises relative to rent.
HRA compliance — landlord PAN mandatory above ₹1 lakh rent/year
- If annual rent paid exceeds ₹1,00,000 (i.e., more than ₹8,333/month), the employee must furnish the landlord’s PAN to the employer to claim HRA exemption.
- If landlord does not have a PAN, the employee must furnish a declaration from the landlord to that effect.
- You cannot claim HRA exemption if you own a house in the same city where you reside on rent — the IT Department cross-checks property registration data.
- Paying rent to a spouse and claiming HRA is generally not accepted — treat such arrangements with caution.
- Rent receipts should be maintained as documentary evidence — though submission to employer is typically not mandatory, the AO may ask for them during assessment.
🎓 HRA + Home Loan — Can Both Be Claimed Simultaneously?
Yes — but only in specific circumstances. If you own a house in City A (where you have a home loan and are claiming interest deduction under Section 24(b)) but are working and renting in City B, you can claim both HRA exemption for City B rent and home loan interest deduction for City A property. This is a legitimate and commonly accepted position, provided you have genuine reasons for not occupying your own house. The AO may scrutinise such claims, so maintain documentary evidence of the compulsion to reside elsewhere.
Other Exempt Allowances — Old Regime
Apart from HRA and LTA, several other allowances carry partial or full exemptions under the old regime. These are prescribed under Section 10(14) read with Rule 2BB. Key exemptions relevant to most salaried employees are listed below.
| Allowance | Section / Rule | Exempt Amount | Condition |
|---|---|---|---|
| Children’s Education Allowance | Sec. 10(14)(ii) / Rule 2BB | ₹100 per month per child (max 2 children) | Actually incurred; child enrolled in educational institution |
| Hostel Expenditure Allowance | Sec. 10(14)(ii) / Rule 2BB | ₹300 per month per child (max 2 children) | Child in hostel; actual expenditure basis |
| Tribal/Schedule Area/Agency Area Allowance | Sec. 10(14)(ii) / Rule 2BB | Up to ₹200 per month | Employee posted in notified areas |
| Underground Mine Allowance | Sec. 10(14)(ii) / Rule 2BB | Up to ₹800 per month | Employees working in underground coal mines |
| Transport Allowance (physical disability) | Sec. 10(14)(ii) | ₹3,200 per month | Employee suffering from specified disability; commuting between residence and office |
| Uniform Allowance | Sec. 10(14)(i) | Actual uniform expenditure (within allowance) | Allowance for purchase and maintenance of official uniform; not casual clothes |
| Research / Academic Allowance | Sec. 10(14)(i) | Actual expenditure on research within allowance received | Academic or research institutions; actual expenditure basis |
| Helper / Assistant Allowance | Sec. 10(14)(i) | Actual amount spent on hiring assistant | Where allowance granted for duties requiring assistance |
| Leave Travel Concession (LTC) | Sec. 10(5) | Actual travel cost (economy air / AC first-class train) for 2 journeys in a 4-year block | Travel within India only; domestic tour; current block 2022–25 (5th block ends 31 Dec 2025); new block 2026–29 begins |
| Death-cum-Retirement Gratuity | Sec. 10(10) | Least of: 15 days’ salary × years of service; or ₹20 lakh; or actual amount received | Private sector employees under Payment of Gratuity Act; government employees — fully exempt |
Perquisites — Taxable Benefits from Employment
A perquisite is any benefit or amenity provided by the employer to the employee, directly or indirectly, in addition to or in lieu of salary. Perquisites are taxable as salary under Section 17(2). Some perquisites are taxable in all cases; others are taxable only in the hands of specified employees (i.e., directors or employees with salary above ₹50,000/month) or not taxable at all.
Rent-free or concessional accommodation
Value = 10% of salary (government employees: licence fee fixed rates). For concessional rent, value = 10% of salary minus rent recovered. If furnished, add 10% p.a. of furniture cost. Available in both regimes as a perquisite (taxable).
Company car for personal use
Perquisite value = ₹1,800–₹2,400/month (engine capacity dependent) for driver + car provided. If used exclusively for personal purpose, full running cost is taxable. If mixed use, the prescribed rates apply. Employer-provided car for official use only is not a perquisite.
Utilities (gas, electricity, water)
Perquisite value = actual cost to employer. If paid directly to provider, the actual amount paid is the perquisite value. Nominal reimbursements without actual benefit are not perquisites.
Free / subsidised education
Children’s education in school maintained by employer: exempt if cost per child does not exceed ₹1,000/month. Above that, the excess is a perquisite. Education of employee’s dependent in any other institution — actual cost or ₹1,000/month, whichever is lower, is exempt.
Medical facilities / reimbursement
Medical facility in employer’s hospital: fully exempt. Reimbursement for treatment in private hospital: taxable (the old ₹15,000 exemption was removed from FY 2018-19). However, employer-paid health insurance premium under 80D is available under old regime.
Telephone / mobile / internet
Mobile and internet expenses reimbursed for official use: not a perquisite. If employer provides mobile for both personal and official use, it is a non-monetary perquisite — treated as nil perquisite by CBDT in practice, subject to genuine business need.
ESOP — Employee Stock Option Plans: a frequently misunderstood perquisite
- On exercise of ESOP: Perquisite = Fair Market Value (FMV) on date of exercise minus exercise price paid. This is taxed as salary income in the year of exercise, subject to TDS by employer.
- On sale of shares allotted under ESOP: Capital gain = sale price minus FMV on date of exercise. Holding period for LTCG/STCG reckoned from date of exercise (not grant or vesting).
- Start-up ESOP deferral: For qualifying SEBI-registered start-ups, ESOP perquisite tax can be deferred to the earlier of: 5 years from exercise, sale of shares, or cessation of employment. The employer deducts TDS at the time of deferred trigger, not at exercise.
- Both ESOP perquisite value and subsequent capital gains must be reported in ITR — many employees file ITR-1 incorrectly for ESOP years; ITR-2 is mandatory when capital gains are involved.
Chapter VI-A Deductions — Old Regime
Chapter VI-A of the Income Tax Act provides a comprehensive set of deductions that reduce taxable income before tax is computed. These deductions are available only under the old regime (with the exception of Sections 80CCD(2) and 80JJAA, which are available in both regimes). For salaried employees, these deductions are the primary reason many continue to choose the old regime.
Investments & Payments
Includes: Employee’s own EPF / VPF contribution, PPF deposits, ELSS mutual fund (3-yr lock-in), LIC premium (own/spouse/children), NSC, 5-year tax-saving bank FD, tuition fees (2 children), principal repayment of home loan, Sukanya Samriddhi Yojana, Senior Citizens Savings Scheme.
Pension Fund Contribution
Contribution to LIC Jeevan Dhara, Jeevan Akshay or any other approved pension fund by an insurer. Clubbed within the overall ₹1.5 lakh ceiling of Section 80C.
NPS — Own Contribution
Employee’s own contribution to National Pension System (Tier I). Deductible up to 10% of salary (basic + DA). Included within the ₹1.5 lakh ceiling of Section 80CCE (80C + 80CCC + 80CCD(1) combined).
NPS — Additional Contribution
Additional deduction for employee’s own contribution to NPS Tier I — separate from and over and above the ₹1.5 lakh 80C ceiling. Combined with 80C, maximum deduction from salary = ₹2 lakh. Available only under old regime.
NPS — Employer Contribution
Deduction for employer’s contribution to employee’s NPS Tier I. Available under both old and new regime. This is one of the most valuable salary structuring tools — the entire employer NPS contribution is a deduction with no overall limit (up to 14%). From FY 2025-26, private sector limit raised to 14% (aligned with government employees).
Health Insurance Premium
Premiums paid for health insurance of self, spouse, and children: up to ₹25,000 (₹50,000 if self or spouse is senior citizen). Additional ₹25,000 (₹50,000 if parent is senior citizen) for parents’ health insurance. Maximum ₹1 lakh if both you and your parents are senior citizens. Cash payments not eligible — must be non-cash mode.
Education Loan Interest
Interest paid on education loan taken from a bank or approved institution for higher education of self, spouse, children, or a student for whom you are the legal guardian. Deductible for 8 years from the year of starting repayment. Only interest is deductible — not principal.
Home Loan Interest — Affordable Housing
Additional interest deduction on home loan for first-time buyers in affordable housing segment (stamp duty value up to ₹45 lakh). Over and above the ₹2 lakh Section 24(b) deduction. Loan must have been sanctioned between 1 April 2019 and 31 March 2022 — applicable for loans within that window still being repaid.
Donations to Approved Funds
Donations to PM Relief Fund, National Defence Fund, CMs Relief Fund — 100% without limit. Approved charitable trusts — 50% of qualifying donation (subject to 10% of adjusted gross total income cap). Cash donations above ₹2,000 disallowed. Obtain proper receipt with 80G registration number.
Savings Account Interest (below 60)
Deduction for interest earned on savings bank accounts (not FDs, not RDs) from banks, co-operative societies, and post offices. Not available to senior citizens (who use Section 80TTB instead).
Interest Income — Senior Citizens (60+)
For senior citizens — deduction on interest from savings accounts, fixed deposits, and recurring deposits from banks, co-operative societies, and post offices. Replaces Section 80TTA for those 60 and above. Very significant for retired salaried individuals with bank deposits.
Disability Deduction
For resident individuals who themselves suffer from a disability: ₹75,000 for normal disability (40%–79% impairment); ₹1,25,000 for severe disability (80%+ impairment). Medical certificate from prescribed medical authority required. Flat deduction — not dependent on actual expenditure.
🎓 Practitioner’s Tip — Section 80C Optimisation
- EPF employee contribution is automatically an 80C investment — most salaried employees forget to include it when computing their 80C total. Verify EPF annual statement.
- Home loan principal repayment goes into 80C — but only the portion going toward reducing the principal (not interest). EMI = principal + interest; check amortisation table.
- ELSS (tax-saving mutual fund) is the only 80C investment that also creates long-term wealth — ₹1.5 lakh annual limit, 3-year lock-in, potential market returns. Compare against LIC maturity value for the same outlay over the same period.
- Do not recommend 80C investments to clients who will clearly benefit more from the new regime — unnecessary lock-ins reduce liquidity without any tax benefit if the new regime is optimal.
Section 87A Rebate, Surcharge & Health and Education Cess
After computing the tax as per the applicable slabs, three further adjustments are made before arriving at total tax payable: the Section 87A rebate (income-based full relief), surcharge (on high incomes), and the Health and Education Cess of 4%.
Section 87A — New Regime (FY 2025-26)
Full rebate of up to ₹60,000 on tax computed under the new regime. Applicable when total income (after standard deduction, 80CCD(2) deduction, and any other allowable deductions under new regime) does not exceed ₹12,00,000. Effectively makes income up to ₹12 lakh zero-tax. Rebate cannot exceed the tax payable — it does not result in a refund.
Section 87A — Old Regime (FY 2025-26)
Full rebate of up to ₹12,500 on tax computed under the old regime. Applicable when total income (after all Chapter VI-A deductions) does not exceed ₹5,00,000. This is unchanged from the previous year. Effectively makes old regime income up to ₹5 lakh zero-tax.
Important: 87A Not Available on Special Rate Income
The Section 87A rebate is not available against tax on special-rate income — i.e., LTCG on equity shares / equity MFs under Section 112A, and short-term capital gains under Section 111A. Even if your total income is below ₹12 lakh, tax on LTCG/STCG above the threshold must still be paid. This is a frequently litigated issue — the CBDT has clarified the restriction several times.
Marginal Relief
Where income slightly exceeds a slab threshold (e.g., ₹12.10 lakh under new regime), the tax does not jump by the full slab increase. Marginal relief ensures the additional tax on the incremental ₹10,000 income cannot exceed ₹10,000. The IT portal’s tax computation automatically applies marginal relief — but verify manually for income just above ₹12 lakh, ₹50 lakh, and ₹1 crore.
Understanding Form 16 — Your Tax Certificate from the Employer
Form 16 is the TDS certificate issued by your employer under Section 203 of the Income Tax Act, 1961, read with Rule 31. It must be issued to all employees from whose salary TDS was deducted. Employers are required to issue Form 16 by 15 June following the end of the financial year (i.e., by 15 June 2026 for FY 2025-26). It has two parts:
📑 Form 16 — Part A
- Generated and downloaded from TRACES portal only — cannot be prepared manually
- Contains employer details: TAN, PAN, name, address
- Employee details: PAN, name
- Quarter-wise summary of TDS deducted and deposited with government
- TRACES certificate number (unique, verifiable by employee)
- Assessment year for which the certificate applies
- Verify: Sum of TDS across Q1–Q4 should match your Form 26AS / AIS entries for the same employer
📑 Form 16 — Part B
- Prepared by the employer — contains detailed computation of taxable salary
- Gross salary breakup: basic, HRA, special allowance, perquisites
- Exemptions claimed: HRA (Section 10(13A)), LTA (Section 10(5)), others
- Standard deduction: ₹75,000 (new) or ₹50,000 (old)
- Chapter VI-A deductions: 80C, 80D, 80CCD etc.
- Net taxable income, tax computed, rebate under 87A, surcharge, cess
- Balance tax payable / refund position at year-end
- Verify: Cross-check figures with salary slips for the full year
What to check in your Form 16 before filing ITR
- Confirm your PAN is correctly mentioned in both Part A and Part B. An error in PAN means the TDS credit may not reflect in your Form 26AS.
- If you changed jobs during FY 2025-26, you will receive Form 16 from each employer separately. You must consolidate income from both employers in your ITR — even if each employer computed TDS on their salary alone, the aggregate may push you into a higher bracket.
- If your employer has not considered your home loan interest (Section 24(b)) or other deductions properly, you can still claim the correct deduction in your ITR — the Form 16 figures are not final; you compute tax afresh in the ITR.
- Perquisite value (car, accommodation, ESOP) should be visible in Part B — verify the valuation is correct.
Which ITR Form Should a Salaried Employee Use?
Choosing the wrong ITR form is one of the most common errors by salaried taxpayers — particularly those who have income from capital gains, multiple house properties, or foreign assets. Filing in the wrong form results in a defective return notice under Section 139(9), requiring you to re-file within 15 days or the return is treated as not filed at all.
Sahaj — Simplest Form
Most Common
- Resident individual only (not NRI / RNOR)
- Salary or pension income
- Income from one house property (not more)
- Other sources: interest, dividends (not exceeding ₹50 lakh total income)
- Agricultural income up to ₹5,000
- Not eligible if: Director in company, holds unlisted shares, foreign assets/income, capital gains, income over ₹50 lakh, more than one house property
For more complex cases
Frequently Needed
- Salary / pension plus any of the following:
- Capital gains (sale of shares, MF, property)
- More than one house property
- Foreign assets / income (mandatory even if nil)
- Income from outside India
- Director in a company (even non-executive)
- Investment in unlisted equity shares
- Agricultural income above ₹5,000
- Total income above ₹50 lakh
- Not for business / professional income
Salary + Business/Profession
Complex
- Salary income plus income from business or profession
- Partner in a firm who is also drawing salary/remuneration from the firm — salary from firm is business income, not employment income
- Freelancers and consultants with F&O (futures & options) trading income must use ITR-3 (F&O is business income)
- All capital gains schedules available
- Balance sheet and P&L required if accounts maintained
Sugam — Presumptive Scheme
Special Cases
- Salary / pension income plus business income declared under Section 44AD or 44AE (goods transport), or professional income under Section 44ADA
- Total income up to ₹50 lakh
- Not eligible if: capital gains, more than one house property, foreign assets, or if opting for normal audit provisions
- Common for doctors, freelancers, or consultants with salary from one employer and small professional practice
Salaried employees who MUST use ITR-2 (not ITR-1)
- Any employee who sold shares, redeemed mutual funds, or sold property during FY 2025-26 — capital gains mandate ITR-2.
- Any employee who holds ESOPs of an unlisted company — must use ITR-2.
- Any employee who is a director in any company (even non-profit or family-held) — must use ITR-2.
- Any NRI or RNOR receiving salary in India — must use ITR-2.
- Any employee who received dividends and the total income exceeds ₹50 lakh — must use ITR-2.
- Any employee who has a foreign bank account, foreign immovable property, or has made any LRS investment abroad — must use ITR-2 and fill Schedule FA.
Step-by-Step ITR Filing for FY 2025-26
Collect all documents
Form 16 (Part A and Part B) from all employers. Bank interest certificates / passbooks. Home loan provisional certificate showing principal and interest split. PPF/LIC/NPS investment receipts. Rent receipts (with landlord PAN if rent > ₹8,333/month). Capital gains statement from broker / CAMS / KFintech. Property purchase/sale documents if applicable.
Download and verify AIS and Form 26AS
Log in to incometax.gov.in → Services → Annual Information Statement. Download AIS (full) and TIS (summary). Cross-check every entry: TDS from employer, bank interest, dividends, capital gains, property transactions, GST turnover. Submit online feedback for any incorrect entries. Ensure TDS credit in 26AS matches Form 16 Part A — any mismatch must be resolved with the employer before filing.
Decide tax regime — old or new
Compute tax under both regimes using the tax calculator on the IT portal or a professional tool. Compare net tax payable after all deductions under the old regime vs. net tax under the new regime. Factor in: standard deduction difference (₹75K vs ₹50K), 87A rebate difference (₹60K vs ₹12.5K), and the value of deductions you would forgo (80C, HRA, home loan interest, 80D). Choose the regime that results in lower total tax.
Select the correct ITR form
Based on your income profile (see ITR form selection section above), determine whether you need ITR-1, ITR-2, ITR-3, or ITR-4. If in doubt — use ITR-2; it covers all scenarios applicable to salaried individuals without business income. Filing a more comprehensive form than required is never wrong; filing a simpler form when a more detailed one is required is a defect.
Fill the ITR online using the e-filing portal
Go to incometax.gov.in → File Income Tax Return → AY 2026-27 → Online mode. The portal pre-fills salary data from Form 16, TDS data from Form 26AS, and investment data from AIS — review and edit as necessary. Enter income from all sources: salary, house property (if any), capital gains (if any), other sources. Claim all eligible deductions. The portal computes tax automatically.
Pay any outstanding tax demand (Self-Assessment Tax)
If the tax computed exceeds TDS already deducted, you must pay the balance as Self-Assessment Tax using Challan ITNS 280 on the IT portal before filing the return. Interest under Section 234A (for late filing) and Section 234B (advance tax shortfall) will apply on the unpaid tax. The SAT challan number must be entered in the ITR before submission.
Submit and e-verify the ITR
After filling and reviewing all sections, submit the ITR. The return is not complete until it is e-verified within 30 days of filing. E-verification options: Aadhaar OTP (instant, recommended), Net banking OTP, DEMAT account EVC, Bank ATM EVC, or Digital Signature Certificate (DSC). If not e-verified within 30 days, the return is treated as if it was never filed. Physical ITR-V (print, sign, send to CPC Bengaluru) is available but not recommended.
Track refund / acknowledge processing
After e-verification, the return goes to CPC Bengaluru for processing. You will receive an Intimation under Section 143(1) — either confirming no demand/no refund, confirming a refund, or raising a demand. Refunds are credited directly to your pre-validated bank account linked with your PAN. Most returns are processed within 7–30 days. If a refund is not received within 90 days, check refund status on the portal or NSDL portal.
Key dates for FY 2025-26 (AY 2026-27)
- 15 June 2026: Employer must issue Form 16 to employees
- 31 July 2026: Due date for ITR filing — individuals and HUFs not subject to audit (non-audit cases)
- 31 October 2026: Due date for taxpayers subject to tax audit under Section 44AB
- 31 December 2026: Last date to file a belated return (with late filing fee u/s 234F: ₹1,000 if income ≤ ₹5L; ₹5,000 if income > ₹5L)
- 31 December 2026: Revised return can be filed up to this date to correct any mistakes in the original return
- 2 years after end of AY: Updated return (ITR-U) available up to 31 March 2029 for AY 2026-27, subject to additional tax
Worked Example — Tax Computation FY 2025-26
The following illustration covers a mid-career salaried professional — Mr. Rajan Mishra, aged 38, employed with a private limited company in Bhubaneswar — to demonstrate tax computation under both regimes for FY 2025-26. His salary package and financial profile are as follows:
Salary Profile
Basic: ₹80,000/month · DA: ₹10,000/month · HRA: ₹25,000/month · Special allowance: ₹20,000/month. Total CTC ≈ ₹16.2 lakh/year.
Rent & Housing
Pays rent of ₹18,000/month in Bhubaneswar. Has a home loan on an under-construction flat (possession next year) — no Section 24(b) benefit this year.
Investments & Other Income
EPF employee: ₹66,480/year. PPF: ₹50,000. Health insurance: ₹20,000. Bank FD interest: ₹22,000. NPS employer contribution: 5% of basic+DA = ₹54,000.
🔴 Old Regime Computation
🟢 New Regime Computation
Verdict: New regime saves ₹95,478 in this case
Old Regime Tax: ₹2,06,706 · New Regime Tax: ₹1,11,228 · Saving: ₹95,478. Despite forgoing HRA exemption, 80C, and 80D deductions worth approximately ₹1.90 lakh under the old regime, the revised new regime slabs and higher standard deduction make the new regime dramatically better at this income level. The break-even point (where old and new regimes equalise) for this income level would require total deductions of approximately ₹4+ lakh — which is unusual without a home loan. Note: This is an illustration only. Compute your own tax based on actual figures.
