Income tax — 15 FAQs with examples
Income tax is a direct tax levied by the Government of India on income earned by individuals, HUFs, firms, and companies during a financial year (April 1 – March 31). An individual is liable to pay income tax if their total income exceeds the basic exemption limit — ₹2,50,000 for below-60, ₹3,00,000 for senior citizens (60–80 yrs), and ₹5,00,000 for super senior citizens (above 80 yrs) under the old regime. Under the new regime, the basic exemption is ₹4,00,000 for all individuals.
| Rahul, age 35, gross income | ₹2,80,000 |
| Basic exemption (old regime) | ₹2,50,000 |
| Taxable income | ₹30,000 |
| Tax @ 5% | ₹1,500 |
| Rebate u/s 87A (income < ₹5L) | – ₹1,500 |
| Tax payable | ₹0 |
Rahul is technically liable but pays zero tax due to the 87A rebate.
All income is classified under five heads: (1) Salaries — wages, pension, perquisites; (2) Income from house property — rental income less deductions; (3) Profits and gains of business or profession; (4) Capital gains — profit from sale of assets; (5) Income from other sources — interest, dividends, winnings, etc. The total of all five heads (after set-off of losses) is the Gross Total Income.
| Salary income | ₹9,00,000 |
| Income from house property | ₹1,20,000 |
| Capital gains (STCG on shares) | ₹40,000 |
| Income from other sources (FD interest) | ₹30,000 |
| Gross total income (GTI) | ₹10,90,000 |
Each head is computed separately; losses in one head may be set off against others (subject to rules).
Start with Gross Total Income (GTI) — the sum of all five heads. Then subtract Chapter VI-A deductions (80C, 80D, etc.) to arrive at Total Income (Taxable Income). Apply the slab rates, subtract rebate u/s 87A if eligible, add surcharge if applicable, and add 4% health & education cess to get the final tax liability.
| Gross salary | ₹12,00,000 |
| Less: standard deduction (u/s 16) | – ₹50,000 |
| Income from salary | ₹11,50,000 |
| Less: 80C (PPF + ELSS) | – ₹1,50,000 |
| Less: 80D (health insurance) | – ₹25,000 |
| Taxable income | ₹9,75,000 |
| Tax on ₹9,75,000 | ₹1,12,500 |
| Add: 4% cess | ₹4,500 |
| Total tax | ₹1,17,000 |
Standard deduction of ₹50,000 is deducted from salary before arriving at GTI under the old regime.
The Financial Year (FY) is the year in which income is earned — April 1 to March 31. The Assessment Year (AY) is the following year in which the income is assessed and tax is filed. For example, income earned between April 1, 2025 and March 31, 2026 belongs to FY 2025-26 and is assessed in AY 2026-27.
| Income earned during | Apr 2025 – Mar 2026 |
| Financial Year | FY 2025–26 |
| Assessment Year | AY 2026–27 |
| ITR filing due date (salaried) | 31 July 2026 |
| Applicable slab rates | FY 2025-26 rates |
Always quote AY when filing returns; quote FY when referring to the year income was earned.
Section 87A provides a tax rebate to reduce the final tax liability to zero for lower-income taxpayers. Under the new regime (FY 2025-26): rebate of up to ₹60,000 if taxable income ≤ ₹12,00,000. Under the old regime: rebate of up to ₹12,500 if taxable income ≤ ₹5,00,000. Note: 87A rebate is not available on special-rate income like LTCG u/s 112A.
| Gross salary | ₹13,50,000 |
| Less: standard deduction | – ₹75,000 |
| Taxable income | ₹12,75,000 |
| Tax on ₹12,75,000 (slab calc) | ₹67,500 |
| 87A rebate (income > ₹12L — NOT eligible) | ₹0 |
| Add: 4% cess | ₹2,700 |
| Total tax payable | ₹70,200 |
The rebate threshold is ₹12,00,000 taxable income. At ₹12.75L taxable, no rebate applies.
Section 80C allows deduction up to ₹1,50,000 per year for investments and payments such as: Life insurance premium, PPF contribution, EPF employee contribution, ELSS mutual funds, NSC, 5-year FD, tuition fees for children, home loan principal repayment, Sukanya Samriddhi Yojana. This deduction is only available under the old regime.
| LIC premium | ₹30,000 |
| PPF contribution | ₹60,000 |
| ELSS investment | ₹40,000 |
| Children’s tuition fees | ₹30,000 |
| Total 80C investments | ₹1,60,000 |
| Maximum deductible u/s 80C | ₹1,50,000 |
| Tax saving @ 20% slab | ₹30,000 |
Even though Sunita invested ₹1,60,000, only ₹1,50,000 is allowed as deduction — the cap is absolute.
HRA exemption u/s 10(13A) is the minimum of: (A) Actual HRA received from employer; (B) Rent paid − 10% of Basic salary; (C) 50% of Basic salary if metro city (Delhi, Mumbai, Chennai, Kolkata), else 40%. The taxable HRA = HRA received − exempt HRA. This deduction is not available under the new regime.
| Basic salary (monthly × 12) | ₹6,00,000 |
| HRA received | ₹2,40,000 |
| Rent paid | ₹2,40,000 |
| A) Actual HRA | ₹2,40,000 |
| B) Rent − 10% of basic (₹2,40,000 − ₹60,000) | ₹1,80,000 |
| C) 50% of basic (metro) | ₹3,00,000 |
| HRA exempt (minimum of A, B, C) | ₹1,80,000 |
| Taxable HRA | ₹60,000 |
Always pick the minimum of all three — that is the exempt amount.
Standard deduction is a flat deduction from salary/pension income with no proof required. It replaced the earlier transport allowance + medical reimbursement benefits. For FY 2025-26: ₹75,000 under the new regime and ₹50,000 under the old regime. Available to all salaried employees and pensioners.
| Gross salary | ₹10,00,000 |
| Standard deduction (new regime) | – ₹75,000 |
| Net salary income | ₹9,25,000 |
| Tax saving @ 10% slab | ₹7,500 |
The standard deduction is automatic — no bills or receipts needed. It is deducted from salary before calculating taxable income.
Section 80D allows deduction for health insurance premiums paid for self, spouse, dependent children, and parents. Limits: ₹25,000 for self/family (₹50,000 if any member is senior citizen); ₹25,000 for parents (₹50,000 if parents are senior citizens). Maximum possible deduction: ₹1,00,000. Preventive health check-up up to ₹5,000 included within the above limits. Available only under the old regime.
| Premium for self + spouse + kids | ₹22,000 |
| Premium for senior citizen parents | ₹48,000 |
| Preventive health check-up (self) | ₹5,000 |
| 80D deduction — self/family (max ₹25,000) | ₹25,000 |
| 80D deduction — parents (max ₹50,000) | ₹48,000 |
| Total 80D deduction | ₹73,000 |
Preventive health check-up of ₹5,000 is subsumed within the ₹25,000 limit, not in addition to it.
The new regime (default since FY 2023-24) offers lower slab rates with very few deductions (only standard deduction of ₹75,000 and NPS employer contribution u/s 80CCD(2)). The old regime has higher slab rates but allows ~70 deductions including 80C, HRA, 80D, home loan interest, etc. Taxpayers should compare both and choose whichever results in lower tax. The choice can be changed every year for salaried individuals.
| — Old regime taxable income | ₹9,00,000 |
| Old regime tax + cess | ₹87,880 |
| — New regime taxable income (after std ded.) | ₹11,25,000 |
| New regime tax + cess | ₹57,200 |
| Savings under new regime | ₹30,680 |
Even with 80C + HRA, the new regime is better here. Always compute both before deciding.
The new regime slabs for FY 2025-26 are: ₹0–4,00,000 @ 0%; ₹4,00,001–8,00,000 @ 5%; ₹8,00,001–12,00,000 @ 10%; ₹12,00,001–16,00,000 @ 15%; ₹16,00,001–20,00,000 @ 20%; ₹20,00,001–24,00,000 @ 25%; Above ₹24,00,000 @ 30%. A rebate u/s 87A (up to ₹60,000) makes effective tax zero for taxable income up to ₹12,00,000.
| ₹0–₹4L @ 0% | ₹0 |
| ₹4L–₹8L @ 5% | ₹20,000 |
| ₹8L–₹12L @ 10% | ₹40,000 |
| ₹12L–₹16L @ 15% | ₹60,000 |
| ₹16L–₹18L @ 20% | ₹40,000 |
| Tax before cess | ₹1,60,000 |
| Add: 4% cess | ₹6,400 |
| Total tax | ₹1,66,400 |
Tax is calculated slab-by-slab on each band of income, not on the total at the highest rate.
Annual Value (AV) of let-out property = Actual rent received or Expected rent (whichever is higher). Deductions allowed: 30% standard deduction (flat, no proof), and interest on housing loan (no limit for let-out property). For self-occupied property, AV = nil; only interest on home loan is deductible, capped at ₹2,00,000 under old regime.
| Actual annual rent | ₹2,40,000 |
| Municipal taxes paid | ₹12,000 |
| Net Annual Value (NAV) | ₹2,28,000 |
| Less: 30% standard deduction | – ₹68,400 |
| Less: home loan interest | – ₹1,20,000 |
| Income from house property | ₹39,600 |
If interest > NAV after standard deduction, a loss arises which can be set off against salary up to ₹2,00,000.
Capital gains depend on holding period. Short-Term Capital Gains (STCG): listed equity/equity MF held < 12 months — taxed @ 20% u/s 111A (revised from 15%, effective July 23, 2024). Other assets held < 24/36 months — taxed at slab rates. Long-Term Capital Gains (LTCG): listed equity held > 12 months — gains above ₹1,25,000 taxed @ 12.5% u/s 112A (no indexation). Other assets — 12.5% without indexation or slab rate with indexation (grandfathered).
| Purchase price (before Jan 31, 2018) | ₹3,00,000 |
| Fair Market Value on Jan 31, 2018 | ₹4,50,000 |
| Sale price (FY 2025-26) | ₹8,00,000 |
| Cost for LTCG (higher of purchase or FMV) | ₹4,50,000 |
| LTCG | ₹3,50,000 |
| Exempt LTCG (₹1,25,000 threshold) | – ₹1,25,000 |
| Taxable LTCG | ₹2,25,000 |
| Tax @ 12.5% | ₹28,125 |
The grandfathering provision (FMV on Jan 31, 2018) applies to equity assets acquired before February 1, 2018.
Surcharge is an additional levy on income tax when taxable income exceeds ₹50 lakh. Rates: 10% for ₹50L–₹1Cr; 15% for ₹1Cr–₹2Cr; 25% for ₹2Cr–₹5Cr; 37% above ₹5Cr (capped at 25% for new regime). Marginal relief ensures the net tax increase does not exceed the marginal income increase beyond the surcharge threshold.
| Taxable income | ₹55,00,000 |
| Base income tax (slab calc) | ₹14,22,500 |
| Surcharge @ 10% | ₹1,42,250 |
| Tax + surcharge | ₹15,64,750 |
| 4% cess on above | ₹62,590 |
| Total tax payable | ₹16,27,340 |
| Effective tax rate | ~29.6% |
Without marginal relief, a rupee more of income can sometimes increase tax by more than ₹1. Marginal relief prevents this.
Advance tax is income tax paid in instalments during the financial year itself, rather than at year-end. It is required if estimated tax liability for the year exceeds ₹10,000. Due dates: 15% by June 15; 45% by September 15; 75% by December 15; 100% by March 15. Non-payment attracts interest u/s 234B and 234C. Salaried employees with TDS covering all liability are generally exempt from advance tax.
| By June 15 (15%) | ₹12,000 |
| By Sep 15 (45% cumulative) | ₹24,000 |
| By Dec 15 (75% cumulative) | ₹24,000 |
| By Mar 15 (100%) | ₹20,000 |
| Total advance tax paid | ₹80,000 |
Interest u/s 234C is charged at 1% per month if any instalment is short. u/s 234B applies if total advance tax < 90% of assessed tax.
Recent Comments