Personal Income Tax Filing in India 2026: Slabs, Regimes, Deductions and Which ITR to Use

India's tax base crossed 9.19 crore filers in FY 2024-25, up from 3.60 crore a decade earlier, and 72% of them now file under the new tax regime (CBDT, 2025). For salaried individuals, FY 2025-26 (AY 2026-27) brings the most generous zero-tax threshold in years: earn up to ₹12.75 lakh and pay nothing under the new regime (PIB, Budget 2025). This guide covers who must file, the slab rates under both regimes, which ITR form fits your income, the deductions that survive under each regime, capital gains rules on stocks and mutual funds, and how to legitimately maximise your refund before the July 31, 2026 deadline.

Who must file an income tax return in India for FY 2025-26?

You must file if your gross income - before any deductions - exceeds the basic exemption limit: ₹4 lakh under the new regime (raised in Budget 2025) or ₹2.5 lakh under the old regime for those below 60 (PIB, Budget 2025). But owing zero tax and being exempt from filing are two separate things. Several triggers make filing mandatory regardless of income.

• New tax regime: Gross income above ₹4 lakh
• Old tax regime: Above ₹2.5 lakh (below 60); ₹3 lakh (60-80); ₹5 lakh (above 80)

You must also file, whatever your income, if any of these apply:

• You deposited ₹1 crore or more in current accounts, or ₹50 lakh or more in savings accounts
• You spent ₹2 lakh or more on foreign travel
• Your annual electricity bill exceeded ₹1 lakh
• You hold foreign assets or earned foreign income
• TDS or TCS was deducted and you want a refund

That last trigger matters most for salaried people. India issued ₹4,35,008 crore in income tax refunds in FY 2024-25 (CBDT, 2025), much of it to employees whose TDS exceeded their actual liability. If your employer over-deducted, or your bank cut TDS on fixed deposit interest, filing is the only way to get that money back. Compliance aside, filing is often how you recover cash that's already yours.

What are the income tax slabs under the new regime for FY 2025-26?

Under the new regime, income up to ₹4 lakh is nil-rated, and the Section 87A rebate wipes out tax on total income up to ₹12 lakh (PIB, Budget 2025). Add the ₹75,000 standard deduction and a salaried person's effective zero-tax ceiling reaches ₹12.75 lakh. Rates then climb in ₹4 lakh bands to a 30% top rate above ₹24 lakh.

The rebate is a cliff, not a slope. Cross ₹12 lakh of net taxable income by even ₹1 and the 87A rebate vanishes, so tax applies from the ₹4 lakh slab upward. Marginal relief softens the edge just past the threshold, but the practical lesson stands: for salaried filers, keeping net taxable income at or below ₹12 lakh (₹12.75 lakh gross after standard deduction) is the single biggest tax-saving move under the new regime.

New regime vs old regime: which should individuals choose?

The new regime is the default since FY 2023-24, and 72% of taxpayers now use it (PIB/CBDT, 2024). It offers lower slab rates but strips out almost every deduction. The old regime keeps higher rates yet lets you claim 80C, 80D, HRA, and home loan interest. The right choice depends entirely on how much deduction you can genuinely claim.

The break-even is deduction-driven. For most incomes, the old regime only wins when your total deductions - 80C (₹1.5 lakh), 80D health premiums, HRA, and home loan interest (₹2 lakh under Section 24b) - add up to roughly ₹4-4.5 lakh or more per year. If you rent in a metro, pay a home loan EMI, and max out 80C, run both calculations. If you have few deductions, the new regime almost always wins and is far simpler to file.

Which ITR form should an individual use?

ITR-1 (Sahaj) is the most-filed form in India, covering 45.77% of all returns in AY 2024-25 (PIB/CBDT, 2024). It fits salaried individuals with total income up to ₹50 lakh from salary, one house property, and interest income. The moment you add capital gains, a second property, or foreign income, you move up to ITR-2.

Here's the trap that catches investors: if you sold even one mutual fund unit or a single share during FY 2025-26, ITR-1 no longer works. The capital gains schedule lives only in ITR-2. File the wrong form and the department issues a defective return notice under Section 139(9), giving you 15 days to correct it. For AY 2025-26, the ITR forms even added a small relaxation letting long-term equity gains under ₹1.25 lakh be reported in ITR-1, but any taxable gain still pushes you to ITR-2.

How are salary components, TDS, and Form 16 taxed?

Your salary is taxed as a whole under the new regime, with only the ₹75,000 standard deduction reducing it. Employers deduct TDS monthly based on your projected annual income and issue Form 16 by June 15 each year (CBDT rules). Form 16 is your master document: it shows gross salary, exemptions, TDS deducted, and the net taxable figure.

Under the old regime, several salary components stay partly or fully exempt, which is a big part of why it survives:

• House Rent Allowance (HRA): Exempt to the least of actual HRA, 50% of salary (metro) or 40% (non-metro), or rent paid minus 10% of salary. Landlord PAN is mandatory if annual rent exceeds ₹1 lakh.
• Leave Travel Allowance (LTA): Exempt for domestic travel, twice in a four-year block.
• Standard deduction: ₹50,000 (old) or ₹75,000 (new), automatic for all salaried filers.
• Professional tax and employer NPS contribution: Deductible within limits.

Reconcile three documents before filing: Form 16 (what your employer paid and deducted), Form 26AS (TDS actually deposited against your PAN), and the AIS (everything the tax department sees, including bank interest, dividends, and securities transactions). Download all three from incometax.gov.in. If the portal's pre-filled return disagrees with your Form 16, the AIS usually explains the gap - fix it before you submit, not after a notice arrives.

How are capital gains on stocks and mutual funds taxed in 2026?

Capital gains rules changed sharply from July 23, 2024. Equity long-term gains (holding over 12 months) are now taxed at 12.5% above a ₹1.25 lakh annual exemption, up from ₹1 lakh. Equity short-term gains jumped to 20% from 15% (CBDT, 2024). These rates apply regardless of which regime you choose - capital gains sit outside the slab system.

The ₹1.25 lakh equity LTCG exemption resets every financial year, which opens a legitimate planning move: harvesting gains. If you're sitting on long-term equity profits, you can sell enough each year to realise up to ₹1.25 lakh of gains tax-free, then reinvest. Done annually, this quietly resets your cost base and shrinks the taxable gain when you finally exit. Report all sales in Schedule CG of ITR-2, even loss-making ones - filing on time preserves your right to carry those losses forward for eight years.

How can salaried individuals maximise their refund legitimately?

Refunds come from paying more tax during the year (via TDS) than you actually owe. In FY 2024-25 the government refunded ₹4,35,008 crore, largely to salaried filers (CBDT, 2025). The goal isn't to dodge tax; it's to claim every deduction and exemption you're entitled to, then let TDS reconciliation return the excess.

1. Pick the right regime. Use the portal's built-in comparison tool. For heavy-deduction profiles, the old regime can cut taxable income by several lakh.
2. Claim every 80C rupee (old regime). EPF, PPF, ELSS, life insurance, and children's tuition all count toward the ₹1.5 lakh limit.
3. Add 80D health premiums (old regime). Up to ₹25,000 for self and family, plus ₹50,000 for senior-citizen parents.
4. Claim home loan interest. Up to ₹2 lakh under Section 24b for a self-occupied property (old regime).
5. Harvest equity gains. Realise up to ₹1.25 lakh of long-term equity gains tax-free each year.
6. Report all TDS entries. Cross-check Form 26AS so no deducted tax goes unclaimed.
7. File on time and e-verify fast. Timely, e-verified returns are processed first - refunds often land within 2-4 weeks.

A common myth is that a lower TDS means a smaller refund. It doesn't. Your refund equals total tax paid minus actual liability. The fastest way to a quick refund is a clean, reconciled return that matches the AIS, e-verified within 30 days via Aadhaar OTP. Pre-validate your bank account on the portal too - the department only credits refunds to a validated, PAN-linked account.

What happens if you miss the July 31, 2026 deadline?

The due date for individuals (ITR-1, ITR-2, ITR-4) for FY 2025-26 is July 31, 2026. You can still file a belated return until December 31, 2026, but Section 234F imposes a late fee of up to ₹5,000, plus 1% monthly interest under Section 234A on any unpaid tax (CBDT). Belated filing also forfeits most loss carry-forward rights.

There's a quieter cost most people miss. File late and you lose the right to carry forward capital losses and business losses, so a bad year in the market can't offset a good one later. For anyone running equity SIPs, that matters from year one. The safe move is to file well before the last week of July, when the portal slows under peak load and small errors turn into missed deadlines.

Frequently Asked Questions

Is income up to ₹12.75 lakh really tax-free for salaried individuals?

Yes, under the new regime for FY 2025-26. The Section 87A rebate makes tax nil on net taxable income up to ₹12 lakh, and the ₹75,000 standard deduction lifts a salaried person's gross ceiling to ₹12.75 lakh (PIB, Budget 2025). Cross ₹12 lakh of net taxable income and the rebate disappears, so tax applies from the ₹4 lakh slab, softened only by marginal relief.

Can I switch between the new and old regime every year?

Salaried individuals with no business income can choose their regime afresh each financial year while filing the return. Those with business or professional income face stricter rules: switching back to the new regime after opting out is generally allowed only once. For most salaried filers, this means you can compare both regimes annually and pick whichever produces the lower tax that year.

Which ITR form do I use if I sold mutual funds during the year?

Use ITR-2. Any taxable capital gain from selling shares or mutual funds requires the Schedule CG capital gains section, which ITR-1 does not contain. Report both short-term and long-term gains, and include loss-making trades too - filing on time lets you carry those losses forward for up to eight years to offset future gains.

How much long-term capital gain on stocks is tax-free?

Long-term capital gains on listed equity and equity mutual funds are exempt up to ₹1.25 lakh per financial year, raised from ₹1 lakh effective July 23, 2024 (CBDT, 2024). Gains above that are taxed at 12.5% without indexation. The exemption resets each year, so annual gain harvesting can keep a meaningful slice of your equity profits tax-free.

Do I still need to file if my employer already deducted TDS?

Yes. TDS is an advance payment of tax, not a substitute for filing. Your employer remits TDS on your behalf but cannot file your return. Without filing, you can't claim a refund of excess TDS, carry forward losses, or produce the ITR-V that banks and visa offices ask for as income proof. Filing confirms and closes your tax position for the year.

Personal income tax filing rewards the prepared. Reconcile Form 16, Form 26AS, and your AIS, choose the regime that genuinely fits your deductions, and file well before July 31, 2026 to protect your refund and loss carry-forwards. If you're unsure which regime saves more or how to report a year of stock and mutual fund trades, a quick tax consultation settles it fast. New to the process? Start with our first-time ITR filing walkthrough, and if you want to file it yourself, our guide on filing ITR without a CA shows exactly how.