In this guide
Income tax becomes easier once you understand the sequence: identify the type of income, calculate taxable income, apply normal or special tax rates, subtract eligible rebates and prepaid taxes, and finally file the correct ITR. A practical understanding therefore needs to connect income heads, deductions, tax rates, TDS/TCS and return filing rather than treating them separately.
For AY 2026-27, income earned during FY 2025-26 continues to be governed by the Income-tax Act, 1961. The Income Tax Act, 2025 applies from 1 April 2026 to Tax Year 2026-27 onwards and replaces the previous-year/assessment-year terminology with “Tax Year.”
Five Heads of Income
Taxable income under the 1961 Act is broadly classified into five heads:
- Salary – salary, allowances, taxable perquisites and similar employment income.
- House Property – income from buildings and land appurtenant to them. Rent from vacant land is not automatically house-property income.
- Business or Profession – business profits, professional income and qualifying trading income.
- Capital Gains – gains from transferring assets such as shares, mutual funds, property or gold.
- Other Sources – interest, dividends, taxable gifts, winnings and other residual income.
Not every amount credited to your bank account is taxable income. Genuine loans, qualifying gifts and exempt receipts require separate examination.
Agricultural income is generally exempt under Section 10(1), although it can be considered for determining the tax rate on non-agricultural income through partial integration in specified cases.
New Tax Regime Slabs for AY 2026-27
The new regime is the default regime. The current slabs are:
| Taxable Income | Rate |
|---|---|
| Up to ₹4 lakh | Nil |
| ₹4–8 lakh | 5% |
| ₹8–12 lakh | 10% |
| ₹12–16 lakh | 15% |
| ₹16–20 lakh | 20% |
| ₹20–24 lakh | 25% |
| Above ₹24 lakh | 30% |
Salaried taxpayers under the new regime also have a ₹75,000 standard deduction, which is why a qualifying salaried resident can effectively have zero normal income tax at a gross salary of up to ₹12.75 lakh, subject to the applicable conditions.
For regime comparison and planning:
How Section 87A Rebate Works
For AY 2026-27, a resident individual under the new regime can claim a rebate of up to ₹60,000 where total income does not exceed ₹12 lakh.
Marginal relief is also available where income exceeds ₹12 lakh by a relatively small amount, so the additional tax does not exceed the additional income beyond ₹12 lakh.
But there is a crucial restriction: the enhanced rebate cannot be used against tax on special-rate income.
So “income below ₹12 lakh means zero tax” is not universally correct.
Normal Income vs Special-Rate Income
Different income can produce dramatically different tax even when the total amount earned is identical.
For example:
- Qualifying equity STCG under Section 111A: 20%
- Qualifying equity LTCG under Section 112A: 12.5% above the ₹1.25 lakh threshold
- Virtual Digital Asset/crypto income: 30%
- Lottery, gambling and similar winnings: 30%
This is why two taxpayers earning ₹12 lakh can have completely different final tax bills.
TDS: Tax Collected Before You Receive Income
TDS is not necessarily your final tax liability. It is tax deducted in advance and credited against your PAN.
For example, Section 194J can apply to professional or technical payments. From FY 2025-26, its threshold was increased to ₹50,000, with a 10% rate generally applying to professional fees and 2% to specified technical-service payments.
When filing your ITR, reconcile:
- Form 16;
- Form 26AS;
- AIS;
- TIS; and
- Your own bank and income records.
TCS Rules Also Need Current Numbers
TCS is collected on specified transactions and later becomes available as tax credit.
For FY 2025-26, an overseas tour programme package does not simply attract a flat 2% TCS. The current rate is generally 5% on payments up to ₹10 lakh and 20% on the amount exceeding ₹10 lakh.
Large reported transactions may also appear in tax-information systems, so the income disclosed in the return should be reconcilable with the taxpayer’s actual sources of funds.
Advance Tax Is Not Simply “Pay Everything by 31 March”
If estimated tax liability after TDS/TCS is ₹10,000 or more, advance-tax provisions can apply.
For ordinary taxpayers, cumulative instalments are generally:
- 15% by 15 June;
- 45% by 15 September;
- 75% by 15 December; and
- 100% by 15 March.
Failure can attract interest under the applicable provisions; it should not casually be described as an automatic “penalty.”
Who Must File an ITR?
Return filing can be mandatory even when tax payable is nil.
Special filing triggers include current-account deposits above ₹1 crore, foreign-travel expenditure above ₹2 lakh, electricity expenditure above ₹1 lakh, business turnover above ₹60 lakh, professional receipts above ₹10 lakh, specified TDS/TCS levels and savings-account deposits of ₹50 lakh or more.
There are also ITR-1 to ITR-7, not merely four income-tax return forms. The correct form depends on income type and taxpayer category.
Residential Status: 182 Days Is Not the Complete Rule
The common statement that “less than 182 days in India means NRI” is incomplete.
The general residency test also includes 60 days in the relevant year plus 365 days during the preceding four years, with special modifications for Indian citizens and Persons of Indian Origin. A 120-day rule and deemed-resident provisions can also apply in specified ₹15 lakh-plus cases.
Frequently Asked Questions
Is income up to ₹12 lakh always tax-free in AY 2026-27?
No. The Section 87A rebate applies subject to conditions and does not eliminate tax payable on special-rate income.
Can salary up to ₹12.75 lakh have zero tax?
A qualifying resident salaried taxpayer under the new regime can reach ₹12 lakh taxable income after the ₹75,000 standard deduction, allowing the Section 87A benefit.
Is TDS an additional tax?
No. TDS is generally prepaid tax that is adjusted against your final income-tax liability.
Does agricultural income never affect income tax?
It is generally exempt, but qualifying agricultural income can affect the rate applied to non-agricultural income through partial integration.
Is staying outside India for 183 days enough to become NRI?
Not automatically. Residential status must be tested under all applicable Section 6 conditions and exceptions.
