income tax is governed by the Income Tax Act, 1961, and is administered by the Income Tax Department under the Central Board of Direct Taxes (CBDT). It is paid directly by the taxpayer and calculated based on the individual’s or entity’s income, age, residential status, and type of income. The system follows a progressive tax structure, ensuring those who earn more contribute more. In this article, we’ll walk you through all the important topics of Income Tax in India.
ITR Due Date Extension
The due date for ITR filing has been extended to 15th September 2025 from the original due date of 31st July 2025.
What is Income Tax?
- Income tax is levied on the income earned by the taxpayer in the relevant financial year.
- Income tax is classified as a direct tax as it is borne by the taxpayer himself and the tax burden cannot to passed on further like indirect taxes.
- Every taxpayer (assessee as referred to in the Income Tax Act) who satisfies specified conditions is required to mandatorily file a tax return by law.
- Failure to file tax returns can attract penalties, interest and scrutiny from the tax department.
- India follows a progressive tax rate for individuals i.e., the rate of tax increases with an increase in the assessee’s income.
- Income tax implications differs on the basis of the legal entity of the taxpayer, age of the tax payer, residential status and the nature of the income earned.
Income Tax Law in India
- The Constitution of India clearly states that tax can be imposed only under the provisions of any law. Any tax that is levied by the government which is not covered under any law is unconstitutional.
- All the rules regarding levy and collection of income tax in India are governed by the Income Tax Act of 1961.
- Income tax is covered under union list, the area which is directly under the control of the central government. Only the Parliament has the power to make laws for collection of Income Tax.
- Every year the Finance Bill presented during the Budget session introduces changes to the Act to improve tax compliance by introducing and deleting various sections. These changes are called amendments to the Act.
- Amendments to the Income Tax Act are brought into force through the Finance Act.
- Apart from the IT Act, the other components of the income tax law are income tax rules, circulars, notifications, and case laws. All of these help in the implementation of income tax law and the collection of taxes.
Income Tax Department
- The Income Tax Department is a government agency.
- The Act empowers the Income Tax Department to collect direct tax on behalf of the Government of India.
- The Ministry of Finance manages the revenue functions of the Government of India. The finance ministry has given the task of administration of direct taxes, like Income Tax, etc., to the Central Board of Direct Taxes (CBDT).
- The CBDT is one of the parts of the Department of Revenue in the Ministry of Finance. The CBDT administers direct tax laws through the IT Department.
Types of Taxpayers
- According to the Income Tax Act, everyone in India who earns taxable income, has to file income tax returns.
- The person whose income is considered for tax is called assessee.
- The Income Tax Act has classified assessees into various categories. Different tax rules apply to different types of assessees.
Below are the categories of taxpayers:
- Individuals
- Hindu Undivided Family (HUF)
- Firms
- Companies
- Association of Persons(AOP)
- Body of Individuals (BOI)
- Local Authority
- Artificial Judicial Person
Some assessees are mandatorily required to file an ITR if they satisfy certain conditions.
Residential Status
The scope of income of an assessee that is subject to tax is determined based on their residential status. On the basis of residential status the assessees can be classified as:
- Resident and Ordinarily Resident
- Resident but Not Ordinarily Resident
- Non-Resident
The following table specifies the income that will be subject to tax for different types of assessees based on their residential status:
| Income Type | Residential Status | ||
| Resident and Ordinarily Resident (ROR) | Resident but not-Ordinarily Resident (RNOR) | Non-Resident (NR) | |
| Income received in India | Taxable | Taxable | Taxable |
| Accrued income in India | Taxable | Taxable | Taxable |
| Income accrues from outside India, but the profession or business is in India. | Taxable | Taxable | Non-taxable |
| Income accrues from outside India | Taxable | Non-taxable | Non-taxable |
| The untaxed past foreign income brought into the country. | Non-taxable | Non-taxable | Non-taxable |
Types of Income – What are the 5 Heads of Income?
For tax calculation, we should properly classify whatever income that we earn under the appropriate heads as prescribed under the act. All kinds of income that is taxable under this act is broadly classified under the following five major heads.
| Head of Income | Nature of Income covered |
| Income from Salary | Income earned from salary and pension is taxable under this head of income. |
| Income from House Property | Income earned from renting a house property is taxable under this head of income. |
| Income from Business and Profession | Profits earned by self-employed individuals, businesses, freelancers or contractors come under business income. Income of professionals like life insurance agents, Chartered Accountants, doctors and lawyers who have their own practice, and tuition teachers are taxable under this head. |
| Income from Capital Gains | Income from the sale of a capital asset such as mutual funds, shares, property, jewellery, etc, is taxable under this head of Income. |
| Income from Other Sources | Income which does not fall under above 4 heads. Examples include savings account interest, fixed deposits interest and winning in lotteries. |
Deductions under the Income Tax Act
- If the tax payers make certain investments, or incur certain expenditure, the amount of investment of expense can be reducted from the income and the only net income would be subject to tax. This is called the concept of deduction.
- Further, if the income earned is of a specific nature, or from a specific source, deduction is diretly allowed by the act on such income.
- Therefore, deductions under the act can eb given on the basis of investments made, expenses incurred or income earned. Read more to find out the popular forms of deductions available under the act.
Popular Deductions
A taxpayer can save tax by planning taxes in advance. A taxpayer can do tax planning by investing in tax-saving instruments. It helps in reducing the income tax liability.
Section 80C Deductions
- Section 80C to 80U of the Income Tax Act allows a deduction for certain expenditures and investments from the total income
- Some of the popular Section 80C investments options to claim deduction are:
| Popular Section 80C Investments | |||||
| Particulars | ELSS | PPF | NSC | 5-Year Tax Saving FD | SCSS |
| Section 80C Benefit | Yes | Yes | Yes | Yes | Yes |
| Type of Investment | Equity | Fixed Income | Fixed Income | Fixed Income | Fixed Income |
| Lock-in Period | 3 Years | 15 Years | 5 Years | 5 Years | 5 Years |
| Maximum Investment | No Max Limit | Rs 1.5 lakh | No Max Limit | Rs 1.5 lakh | Rs 30 lakh |
*ELSS and NSC have no upper investment limit. However, you get a combined tax benefits under Section 80C only up to Rs 1.5 lakh per financial year.
- The taxpayer can claim a deduction of up to Rs. 1,50,000 for contributions made towards the National Pension Scheme (NPS) under section 80C.
- An additional Rs. 50,000 deduction can be claimed under Section 80CCD(1B).
- The taxpayer can also claim a deduction for the Employer’s NPS contribution under Section 80CCD(2) up to 14% of salary.
Health Insurance and Medical Expense Deduction
- Apart from the Section 80C deduction, a taxpayer can also take a tax benefit under Section 80D for health insurance premium and medical expenditure incurred for self, family and parents.
- Deduction up to Rs.25,000 is available for the tax payer and his family.
- In case of senior citizens, Rs.50,000 deduction is available.
- Deductions under this section can be claimed only if the payments are made in specified electronic mode.
- For preventive health check-up, deduction can be made even if payment is made through cash.
The following table is helpful for understanding the maximum limit of deduction available under section 80D.
| Deduction Claimed for | Maximum Limit of Deduction (Rs) | |||
| Self & Family (Rs) | Parents (Rs) | Preventive Health Check-up (Rs) | Total (Rs) | |
| Self +Family | 25,000 | – | 5,000 | 25,000 |
| Self + Family + Parents | 25,000 | 25,000 | 5,000 | 50,000 |
| Self + Family + Parents – (when parents are senior citizens) | 25,000 | 50,000 | 5,000 | 75,000 |
| Self + Family + Parents – (when both the assessee and his parents are senior citizens) | 50,000 | 50,000 | 5,000 | 1,00,000 |
Therefore, it can be inferred that a maximum deduction of Rs.1 lakh rupees can be claimed under section 80D.
Education Loan Deduction
- Under Section 80E, the taxpayer can claim a deduction for the interest paid on loan taken for higher education.
- There is no limit to claiming such a deduction in the income tax return.
- But this deduction can only be claimed when the loan taken is for higher education of self, spouse or children.
Home Loan Deduction
- Under Section 24, the taxpayer can claim a deduction for interest paid on a home loan during the relevant financial year.
- The deduction amount will depend upon whether the house is self-occupied or let out.
- The taxpayer can also claim a deduction of the principal amount of the loan under Section 80C up to Rs 1.5 lakh.
| Deduction on | For Old Regime | For New Regime | ||
| Maximum Allowed (for Self-Occupied House Property) | Maximum Allowed (for Property on Rent) | Maximum Allowed (for Self-Occupied House Property) | Maximum Allowed (for Property on Rent) | |
| Stamp duty and registration + principal | Rs 1,50,000 within the overall limit of Section 80C | Rs 1,50,000 within the overall limit of Section 80C | No Deduction | No Deduction |
| Deduction on home loan interest under Section 24 | Rs 2 lakh | No cap (but rental income must be shown in the income tax return). Further, the maximum loss from house property is capped at Rs 2 lakhs | No deduction | No cap (but rental income must be shown in the income tax return). |
| Deduction for first-time homeowners under Section 80EE *certain conditions apply | Rs 50,000 | – | No deduction | No deduction |
Deduction for Interest Income
- The taxpayer can also claim a deduction for interest on savings deposits from banks under Section 80TTA of the Income Tax Act. Individuals can claim up to Rs 10,000 deduction under the said section.
- For senior citizens, deduction under Section 80TTB can be provided up-to Rs.50,000.
Computation Of Income
The process of calculating taxable income after taking into account the income from all the five heads (salary, house property, capital gains, business or profession, and other sources), exemptions, deductions, rebates, set off of losses, etc., is called computation of income. After the computation of income, the taxpayer can compute the income tax liability as per the Income Tax Act.
Here is a quick guideline you can probably follow to compute taxes due on your income:
- List down all your income – be it salary, rental income, capital gains, interest income or profits from your business or profession.
- Exclude incomes that are exempt under the act.
- Claim all applicable deductions and exemptions available under every head of income. E.g., claim a standard deduction of Rs 50,000 from salary income, claim municipal taxes from rental income, claim business-related expenses from your business turnover, etc.
- Claim applicable deductions from your total income, e.g. the Section 80 deductions like 80C, 80D, 80TTA, 80TTB, etc.
- Please note that deductions and exemptions are different though it sounds similar. Exemption is not at all considered for to the income computation of the taxpayer. Whereas in deduction, it needs to be added to income first and shown as a reduction in income computation.
- You will now arrive at your taxable income.
- Check the tax slab you fall under and accordingly arrive at your income tax.
- As applicable, calculate rebate u/s 87A and deduct it from the income tax.
- Calculate cess at 4% on the tax payable after rebate.
- Tax already paid – like TDS, advance tax etc., can be deducted from net tax payable to arrive at balance tax payable.
The government keeps introducing and altering tax slabs, schemes and tax benefits, so it’s a good idea to keep up with the Budget. For calculation of income tax , please refer to income tax calculator
Calculation of Tax
Tax Slabs
- Tax liability is calculated based on slab rates. Tax slab rates increase with an increase in income.
- Imagine a staircase, it rises at a point and remains flat until a certain point, and rises again. Slab rates are similar.
- Tax rates are fixed for income until certain point, and it rises after the income crosses the limit prescribed. This is also called progressive taxation.
- Tax is calculated in slab rates for individuals and HUF predominantly. For assessees like companies and trusts, tax is calculated on a flat rate.
Old Income Tax Regime
Tax slab rates applicable for Individual taxpayers below 60 years for the Old tax regime are as below:
| Income Range | Tax rate | Tax to be paid |
| Up to Rs 2.5 lakhs | 0 | No tax |
| Rs 2.5 lakhs – Rs 5 lakhs | 5% | 5% of your taxable income |
| Rs 5 lakhs – Rs 10 lakhs | 20% | Rs 12,500+20% on income above Rs 5 lakh |
| Above 10 lakhs | 30% | Rs 1,12,500+30% on income above Rs 10 lakh |
Note:
The following are popular deductions available under the old tax regime:
- Deductions of allowances like Leave Travel Concession (LTC), House Rent Allowance (HRA), and specific other allowances.
- Deductions for tax-saving investments as per Section 80C (LIC, PPF, NPS, etc) to 80U can be claimed.
- Standard deduction of Rs 50,000 on salary.
- Deduction for interest paid on home loan.
There are two other tax slabs for two other age groups: those 60 and older and those above 80.
People often misunderstand that if they earn, let’s say, Rs12 lakh, they will be paying a 30% tax on Rs.12 lakh, i.e. Rs 3,60,000. This is incorrect. Tax is payable slab wise. A person earning Rs 12 lakh in the progressive tax system will pay Rs 1,12,500 + Rs 60,000 = Rs 1,72,500.
New Tax Regime
New tax regime was introduced with an intent to reduce compliance burden on individuals and HUFs. Tax rates and tax deductions were reduced simultaneously. Now individuals don’t need to obtain various tax saving investments and document them to lessen their tax. To encourage taxpayers to adopt the new tax regime in Budget 2023, it was made the default regime and the income tax slabs under the new tax regime for FY 2024-25 (AY 2025-26) are as follows:
| Income Tax Slabs | Income Tax Rates |
| Income up to Rs 3 lakh | Nil |
| Rs 3 lakh to Rs 7 lakh | 5% |
| Rs 7 lakh to Rs 10 lakh | 10% |
| Rs 10 lakh to Rs 12 lakh | 15% |
| Rs 12 lakh to Rs 15 lakh | 20% |
| Income above Rs 15 lakh | 30% |
In Budget 2025, the tax slabs under the New Tax Regime were revised to ensure easier tax compliance and increase tax savings in the hands on the taxpayer. The revised tax slabs from FY 2025-26 are as follows:
| Income Tax Slabs | Income Tax Rates |
| Up to Rs 4 lakh | NIL |
| Rs 4 lakh – Rs 8 lakh | 5% |
| Rs 8 lakh – Rs12 lakh | 10% |
| Rs 12 lakh – Rs 16 lakh | 15% |
| Rs 16 lakh – Rs 20 lakh | 20% |
| Rs 20 lakh – Rs 24 lakh | 25% |
| Above Rs 24 lakh | 30% |
Most of the deductions and exemptions are not allowed if the taxpayers opt for the new tax regime. However, the exemptions and deductions available under the new regime are:
- Transport allowances in case of a specially-abled person.
- Conveyance allowance received to meet the conveyance expenditure incurred as part of the employment.
- Any compensation received to meet the cost of travel on tour or transfer.
- Daily allowance received to meet the ordinary regular charges or expenditures you incur on account of absence from his regular place of duty.
- Under the new tax regime, the highest surcharge has been reduced to 25% from 37% for people earning more than Rs 5 crore. This move brings down their tax rate from 42.74% to 39%.
- Standard deduction under the head salary is Rs. 75,000 under new tax regime. (Rs.50000 for old regime)
- Deduction on employer’s contribution to pension scheme is 14% of salary (10% for old regime)
- Maximum limit on family pension deduction is Rs. 25,000 (Rs.15,000 for old regime)
- The limit on the exemption of Long Term Capital Gains on the transfer of equity shares or equity-oriented units or units of Business Trust is increased from Rs.1 Lakh to Rs.1.25 lakh per year.
Special Tax Rates
One must remember that not all income can be taxed on a slab basis. Certain incomes are taxed at fixed special rates.
- Capital Gains Income: Capital gains are taxed depending on your asset and how long you’ve owned it. The holding period would determine if assets are Long-Term or Short-Term. Long-Term Capital Gains are taxed at 12.5% and Short-Term Capital Gains are taxed at 20% flat rate for listed equity share, and equity-oriented mutual funds.
- Casual Incomes like winnings from lottery, betting and gambling are taxed at 30% flat rate.
- Virtual Digital Assets are taxed at 30%
The below table summarizes the holding period for determination of whether the capital asset is Long-Term of Short-Term.
| Asset | Short-term Capital Asset | Long-term Capital Asset |
| Securities listed on a recognised stock exchange, units of Unit Trust of India, units of an equity-oriented fund, zero-coupon bonds | ≤ 12 months | > 12 months |
| Other assets | ≤ 24 months | > 24 months |
Rebate u/s 87A and Cess
Rebates under Section 87A allow taxpayers to reduce their income tax liability. If you are a resident individual and the amount of your total income after reducing Chapter VI-A deductions (Section 80C, 80D, 80U, etc) does not exceed a certain limit, you can claim a tax rebate. The rebate is different for old and new tax regimes.
Old Tax Regime:
- If the income after reducing deductions is up-to Rs 5 lakh in a financial year, a rebate of maximum Rs.12,500 is allowed.
- This means if your total tax payable is less than Rs 12,500, then you will not have to pay any tax.
New Tax Regime:
- If the income after reducing deductions is up-to Rs 7 lakh in a financial year, a rebate of maximum Rs.25,000 is allowed.
- This means if your total tax payable is less than Rs.25,000, then you will not have to pay any tax.
- If the total income is slightly above Rs.7,00,000, a benefit is available.
In Budget 2025, the rebate limit was increased to Rs. 60,000 (from the previous limit of Rs. 25,000) for taxpayers opting for the New Tax Regime. This means that taxpayers earning total income up to Rs. 12 lakhs will enjoy a tax-free income. This will be applicable for FY 2025-26 onwards.
In all the cases, Health and Education Cess is calculated at 4% of the income tax calculated after rebate.
Income Tax Payment
Usually, Income tax is collected at the time of filing the returns. But the government would also collect taxes well before filing the returns for preventing non-compliance and generating more tax revenue. The various modes of collection of tax is described below.
Tax Deducted at Source (TDS)
- For certain payments, tax is deducted at source itself, by the person making payment. The payer would deduct tax and deposit to the government on the taxpayer’s behalf. This is how TDS works, on a simpler note.
- Since the tax has already been paid as TDS, the taxpayer can claim credit of the TDS already deducted from him by the payer. This credit can be claimed while filing the ITR.
Advance Tax
- The taxpayer must pay advance tax when his estimated income tax liability for the year exceeds Rs 10,000.
- The government has specified due dates for payment of advance tax installments.
Self-Assessment Tax
It is the balance tax that the taxpayer has to pay on the assessed income. The self-assessment tax is calculated after reducing the advance tax and TDS from the total income tax calculated on the assessed income.
E-Payment of Taxes
Taxpayers can pay advance tax and self-assessment tax online from the e-filing website.
Refund
- Refund arises when the tax already paid is greater than the total tax liability.
- tax already paid can be in the form of advance tax, TDS or even excess Self-Assessment tax paid.
- The excess tax paid would be credited to the taxpayer’s bank account.
Important terms
Financial Year
- The financial year is a one-year period that the taxpayers use for accounting and financial reporting purposes.
- According to the Income Tax Act, such a period begins from 1st April of the calendar year to 31st March of the next calendar year. It is abbreviated as “FY”.
- For example, the financial year starting from 1st April 2024 and ending on 31st March 2025 can be written as FY 2024-25.
Assessment Year
- The one year from 1st April to 31st March starting immediately after the financial year is termed an assessment year.
- This is the period in which tax is calculated on the income of the taxpayer.
- For example, for incomes earned during the FY 2024-25, the assessment year will be AY 2025-26.
PAN
- PAN is an abbreviation for the Permanent Account Number.
- It is a unique 10-digit alphanumeric digit issued by the Income Tax Department to Indian taxpayers.
- All the tax-related transactions and information of a person are recorded against their unique permanent account number.
- When the person has to pay advance tax or self-assessment tax, they must mention the PAN number.
- When the taxpayer’s income is liable for TDS deduction, he should also furnish his PAN to the payer.
- PAN is captured for all significant financial transactions by entities like banks. Thus income tax department captures the transactions undertaken by a person.
TAN
- TAN is an abbreviation for Tax Deduction and Collection Account Number.
- It is a unique 10-digit alphanumeric digit allotted by the Income Tax Department of India.
- All persons responsible for deduction (TDS) or collection of tax (TCS) are required to obtain TAN. It is compulsory to quote the TAN in TDS/TCS return, any TDS/TCS payment challan, and TDS/TCS certificates.
Filing Your ITR
Every person whose income is taxable should file Income Tax Returns in online mode.
Meaning of ITR
- The taxpayer shall file an Income Tax Return every year via ITR forms prescribed by the income tax department.
- The government has prescribed seven ITR forms through which the taxpayer can file his income tax return.
- The taxpayer has to choose the appropriate ITR forms and file his income tax return.
Income Tax Forms List
- ITR-1: Individuals (residents) having income from salary, one house property, other sources, agricultural income less than Rs 5,000 and with a total income of up to Rs 50 lakh.
- ITR-2: Individuals/HUFs not having any business or profession under any proprietorship, more than one house property.
- ITR-3: Individuals/HUFs having income from a proprietary business or profession, income of a person as a partner in a firm.
- ITR-4: Individuals/HUFs having presumptive income from business or profession, one house property.
- ITR-5: Partnership firms or LLPs.
- ITR-6: Companies.
- ITR-7: Trusts.
Documents Required for ITR Filing
The following are some of the crucial information/documents you need to be ready with before filing your return.
- Form 16
- Form 26AS
- Annual Information Statement (AIS)
- Taxpayer Information Statement (TIS)
- Form 16A,
- Proof of tax saving investments made
- Bank account details
Further, the documents you will need to file your tax return will largely depend on your source of income.
Persons Not Required to File ITR
Every person whose income is taxable should file income tax returns. However, there are a few exceptions to this generic rule:
Taxpayers aged 75 or more and satisfying the following conditions:
- Total income consists of only pension and interest income. Interest income can be from any account maintained with the same bank in which they receive pension.
- They have submitted a declaration to the bank.
- Such bank deducts TDS under Section 194P.
Taxpayers with an taxable income less than the applicable basic exemption limit.
- Basic Exemption Limit for old regime:
- Rs.2,50,000 for individuals under 60 years
- Rs.3,00,000 for resident individuals between 60-80 years.
- Rs. 5,00,000 for resident individuals greater than 80 years.
- Basic Exemption Limit for new regime : Rs. 3,00,000 for all individuals
Note: Age limit can be reckoned as on 31st march of the financial year.
Consequences of Not Filing ITR
For most individual taxpayers, the due date for filing the return of income is 31 July, immediately following the financial year. If you do not file on time, here are some disadvantages:
- You will be denied carry forward of losses (except house property loss and loss brought forward from preceding previous years) to future years.
- Delay processing of refund claims if any.
- Difficulty in getting home loans.
- Levy of late filing fee up to Rs 5,000 (if the total income is above Rs 5 lakh) and Rs 1,000 (if the total income is below Rs 5 lakh) under Section 234F.
- Will not be allowed to file the tax return under the Old Tax Regime.
- Levy of interest under Section 234A if there are taxes due as on 31 July.
Once you file your return online, you either e-verify the same or take a print of the ITR V and send it to CPC, Bengaluru, for processing your return. However, the procedure is different if e-filing is made for the first time.
E-Filing
The taxpayer shall electronically file the income tax return through the e-filing platform of the IT department. To file the income tax return, the taxpayer should register at www.incometax.gov.in. After that, the taxpayer can log in to the website and file his ITR. Also, there is no need to manually send the acknowledgement of the return to the income tax department. The income tax department now allows e-verification of the ITR in different ways, which completes the income tax return process.
What is ITR–V?
Form ITR-V is an income tax return verification form generated after the taxpayer files income tax return and submits it to the income tax department. The ITR-V should be e-verified or must be sent to CPC Bangalore at “Income Tax Department – CPC, Post Box No – 1, Electronic City Post Office, Bangalore – 560100, Karnataka” for verification. The ITR processing takes place only if its verification is completed.
Did You E-file Your Tax Return For This Year?
You can file your Income Tax Return on ClearTax. Even if you don’t know anything about taxes, we will take you step-by-step and help you e-file. Clear also helps you lose the fear of not taking the applicable deductions by helping you claim all the relevant deductions.
Important Income Tax Dates 2025
The following are some of the important due dates for income tax in financial year 2024-25.
- 15th September 2025 – Income tax return filing for FY 2024-25 for individuals and entities not liable for tax audit and who have not entered into any international or specified domestic transaction.
- 30th September 2025 – Submission of audit report (Section 44AB) for FY 2024-25 for taxpayers liable for audit under the Income Tax Act.
- 31st October 2025 – ITR filing for taxpayers requiring audit (not having international or specified domestic transactions).
- 31st October 2025 – Submission of the audit report for FY 2024-25 for taxpayers having transfer pricing and specified domestic transactions.
- 30th November 2025 – ITR filing for businesses requiring transfer pricing reports (in case of international/specified domestic transactions)
- 31st December 2025 – Last date for filing a belated return or revised return for FY 2024-25.