What is Income Tax? Slabs, Regimes, Types & Guide for FY 2026-27

Income tax is the most popular direct tax levied by the government. The Central Board of Direct Taxes holds the authority to govern the effective implementation of the levy and collection of income tax in India. Individuals are taxed according to their slab rates, which increase as income rises. Taxpayers can claim deductions, exemptions, set off losses, and avail other beneficial provisions to reduce their tax liability.

Key Highlights:

• Individuals can choose the most beneficial regime between the old and new tax regimes to optimise their taxes.
• While the old regime offers a plethora of deductions, the new regime has relaxed slab rates with limited deductions.
• Certain income, such as long-term capital gains, income from the sale of crypto assets, betting income, lottery winnings, etc., is taxed at special rates.

What is Income Tax?

Income tax precisely means tax levied on the income earned by the assessee during the relevant financial year. 

Who should pay Income Tax?

As per section 2 of the Income Tax Act, 1961, every person who is liable to pay tax or any other sum under this Act is termed the assessee. An assessee can be categorised under the following legal status:

1. Individual
2. Hindu Undivided Family
3. Association of Persons
4. Body of Individuals
5. Trusts
6. Partnership firms
7. Co-operative societies
8. Companies
9. Local authority
10. Artificial Juridical Person

What is the Income Tax Act?

As per Article 265 of the Indian Constitution, no tax can be levied except under the authority of law. The calculation of income, eligibility, and manner of claiming deductions and exemptions, tax rates, and other levies such as surcharge, cess, due dates, penal provisions, etc., are dealt with under the provisions of the Income Tax Act, 1961. 

However, due to numerous amendments over half a decade, along with the inclusion and exclusion of many sections, the Act is voluminous, complex, and difficult to navigate. This has led to the implementation of the Income Tax Act 2025, effective from 01st April, 2026.

Income Tax Return

What is ITR?

ITR stands for Income Tax Return. All the taxpayers who are required to fie their returns as per the provisions should choose the most appropriate ITR form, depending on various factors like their residential status, income level, income sources, asset holdings, legal status, etc.

Who is not required to file ITR?

The following types of persons are not required to file ITR as per the provisions of the Income Tax Act.

1. Taxpayers whose income falls within the basic exemption limit, and therefore not chargeable to tax:
   1. Under the old regime - ₹2.5 lakhs (different limits apply for senior and super senior citizens)
   2. Under the new regime - ₹4 lakhs

1. Taxpayers aged more than 75 years, whose pension income is already subject to TDS, and who have no other income other than pension and interest income from the concerned bank.

Types of ITR Forms

• ITR-1: For resident individuals with a taxable income within ₹50 lakhs. Business income and taxable capital gains income are not eligible.
• ITR-2: For individuals and HUF having capital gain income, crypto income, more than ₹50 lakhs. Business income not included.
• ITR-3: For individuals and HUF with business income 
• ITR-4: For individual residents opting for the presumptive taxation scheme, with an income less than or equal to Rs. 50 lakhs.
• ITR-5: For partnership firms, LLPs, AOPs, and BOIs
• ITR-6: For companies
• ITR-7: For specified charitable institutions

Documents Required to file ITR

The following documents are highly recommended to be used as reference during the process of ITR filing. 

1. Form 16
2. Form 26AS
3. Annual Information Statement (AIS)
4. Bank statements (for reconciling interest)
5. Supporting documents for deduction claims
6. Bank account details

The aforesaid documents are broadly required in the ITR filing process, and they may differ according to the assessee’s income structure and other disclosure requirements.

ITR Due Date

All the assessees are required to file the ITR on or before the applicable due dates. Non-compliance with the applicable due dates can lead to late fee, interest, and other adverse consequences. The following are the applicable due dates:

Deductions under the Income Tax Act

There are various deductions available under the Act, generically against the gross total income, and also specifically against the income earned. The following are the popular deductions available under the Income Tax Act.

• Section 80C: Up to ₹1.5 lakh can be claimed as a deduction, against specified investments.
• Section 80CCD(1B): Additional contribution of ₹50,000 to the specified pension can be claimed as a deduction. 
• Section 80CCD(2): Employer’s contribution to NPS can be claimed, up to 10% of basic pay under the old regime, and 14% under the new regime.
• Section 80D - Deduction on health insurance and medical expenses can be claimed under Section 80D. 
• Section 80E -Interest paid on a loan taken for higher education.
• Section 24 - Taxpayer can claim a deduction for interest on a home loan under Section 24.
• Section 80TTA and Section 80TTB - Deduction on savings bank interest income (Section  80TTB allows deduction on senior citizens' interest income)

Calculation of Tax

For individuals and HUF, tax is calculated according to the applicable slab rates. The tax slabs and rates under the old and new tax regimes are described below:

Old Tax Regime Slabs and Rates

Further relaxations apply for senior and super senior citizens.

New Tax Regime Slabs and Rates

Special Tax Rates

As already mentioned, the following income attracts taxes at special rates.

Computation of Income

The following illustrative table presents the computation of income and tax payable.

Income Tax Payment

Apart from collection of tax at the time of filing the returns (Self-Assessment Tax), there are other mechanisms which the Act prescribes for tax collection. They are mentioned below:

Tax Deducted at Source (TDS)

This is the most effective form of tax collection; the tax is deducted at the source, and the payer deducts TDS and remits it to the government directly.

Advance Tax

When the estimated tax liability of the assessee crosses ₹10,000 for the financial year, the assessee is liable to pay advance tax every quarter. The amount of advance tax payable and the due dates are explained in the table below:

Self-Assessment Tax

If the assessee is liable to pay taxes, over and above the TDS deducted against the specified income, and advance tax already paid, it can be paid at the time of filing the returns, as self-assessment tax.