📊 Direct Taxation

Income Tax Act 1961 / 2025

Taxation of income from salary, business, profession, capital gains, and other sources for individuals, companies, HUFs, and other entities.

298Sections (IT Act 2025)
1961Year of Enactment
Apr 2026IT Act 2025 Effective
CBDTAdministering Body
Overview

What is the Income Tax Act?

The Income Tax Act governs the levy and collection of income tax in India. The original 1961 Act has been replaced by the Income Tax Act 2025, which takes effect from April 1, 2026 for AY 2026-27 onwards. The 2025 Act retains the substantive law but restructures it with simpler language, new section numbering, and a cleaner layout across 536 clauses and 16 schedules.

⚠️ Important: For AY 2025-26 (FY 2024-25), the Income Tax Act 1961 applies. The new Income Tax Act 2025 applies from AY 2026-27 (FY 2025-26). Many section numbers have changed — e.g., Section 80C is now Section 123, Section 80D is Section 126.

Tax Regimes — FY 2025-26

✅ New Tax Regime (Default)

Default from FY 2023-24 onwards

  • Lower slab rates, no most deductions
  • Standard deduction: ₹75,000 (salary)
  • Rebate u/s 87A: Nil tax up to ₹12 lakh net income
  • No HRA, 80C, 80D, LTA exemptions
  • NPS employer contribution allowed

Old Tax Regime (Opt-in)

Opt-in required via ITR / Form 10-IEA

  • Higher slab rates but 70+ deductions available
  • 80C up to ₹1.5L, 80D, HRA, LTA, NPS
  • Home loan interest deduction (Sec 24)
  • Loss from HP against salary income
  • Standard deduction: ₹50,000

New Tax Regime Slabs — FY 2025-26 (AY 2026-27)

Income RangeTax RateEffective Tax
Up to ₹4,00,000Nil₹0
₹4,00,001 – ₹8,00,0005%Up to ₹20,000
₹8,00,001 – ₹12,00,00010%Up to ₹40,000
₹12,00,001 – ₹16,00,00015%Up to ₹60,000
₹16,00,001 – ₹20,00,00020%Up to ₹80,000
₹20,00,001 – ₹24,00,00025%Up to ₹1,00,000
Above ₹24,00,00030%—

+ 4% Health & Education Cess. Surcharge applicable above ₹50L. Rebate u/s 87A: Nil tax for income ≤ ₹12L (net taxable) under New Regime.

Structure

Key Chapters & Heads of Income

I
Salary Income
▼
Taxable salary includes basic pay, allowances (HRA, LTA, special), perquisites, and retirement benefits. Under IT Act 2025, these are covered in Chapter IV (Sections 17-24 equivalent).
  • Standard Deduction: ₹75,000 (New Regime) / ₹50,000 (Old Regime)
  • HRA Exemption: Available only under Old Regime — least of actual HRA, 50%/40% of basic, or rent paid minus 10% of basic
  • Gratuity: Exempt up to ₹20 lakh for government employees; ₹20L for others (per Payment of Gratuity Act ceiling)
  • Leave Encashment: Fully exempt on retirement for government employees; up to ₹25 lakh for others
II
House Property Income
▼
Annual value of property owned is taxable. Deductions allowed: 30% standard deduction, municipal taxes paid, and interest on home loan.
  • Self-occupied property: Annual value = Nil; interest deduction up to ₹2L (Old Regime only)
  • Let-out property: Actual rent or expected rent, whichever is higher
  • Loss from HP: Under New Regime, loss cannot be set off against salary income
  • Pre-construction interest: 1/5th allowed for 5 years from completion year
III
Business & Profession (PGBP)
▼
Profits and gains of business or profession are taxable after allowable deductions. Covers sole proprietors, partnerships, companies, and professionals.
  • Presumptive taxation (Sec 44AD): 8% of turnover for businesses with turnover up to ₹3 crore (6% if digital receipts)
  • Professionals (Sec 44ADA): 50% of gross receipts as deemed profit for receipts up to ₹75 lakh
  • Depreciation: Block asset system; rates from 5% to 40%
  • Deductions: Revenue expenses, interest, rent, employee costs, repairs
IV
Capital Gains
▼
Gains from sale of capital assets — listed shares, real estate, unlisted securities, MFs, etc.
  • LTCG on listed equity (>12 months): 12.5% above ₹1.25L (from Budget 2024; earlier 10% above ₹1L)
  • STCG on listed equity (≤12 months): 20% (from Budget 2024; earlier 15%)
  • LTCG on property (>24 months): 12.5% without indexation (from Budget 2024)
  • STCG on property: Taxed as per slab
  • Reinvestment exemptions: Sections 54, 54F, 54EC for residential property reinvestment
V
TDS & Advance Tax
▼
Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) are withholding mechanisms ensuring tax collected at source.
  • Salary TDS (Sec 192): Deducted at applicable slab rates
  • Bank interest TDS (Sec 194A): 10% if interest > ₹50,000 (senior citizens) / ₹40,000
  • Rent TDS (Sec 194I): 10% if annual rent > ₹2.4L
  • Advance Tax: Payable in 4 instalments — 15% by Jun 15, 45% by Sep 15, 75% by Dec 15, 100% by Mar 15
  • Form 26AS / AIS: Annual tax credit statement — verify before filing ITR
Key Provisions

Important Sections to Know

Sec 123 (80C)

Life & Investment Deductions

Up to ₹1.5L deduction for LIC, PPF, ELSS, NSC, home loan principal, tuition fees — Old Regime only

Sec 126 (80D)

Health Insurance Premium

Up to ₹25,000 (₹50,000 for senior citizens) for health insurance premiums — Old Regime only

Sec 139

Return Filing

ITR due July 31 (non-audit) / Oct 31 (audit). Updated return (ITR-U) allowed within 2 years of AY end.

Sec 148A

Reassessment

Notice before reassessment must be given with opportunity to respond. Limitation: 3 years (income escaped ≤ ₹50L) / 10 years (> ₹50L).

Sec 44AB

Tax Audit

Mandatory if business turnover > ₹1 crore (₹10 crore if 95% digital). Professionals: gross receipts > ₹50 lakh.

Sec 271AAC

Undisclosed Income Penalty

60% penalty on undisclosed income found during search; 30% if disclosed voluntarily before assessment.

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