Author: CA Meet Dhrangadhariya

Cheque Bounce under Section 138 of the Negotiable Instruments Act: Notice, Time Limits, Penalty, Interim Compensation and Appeal

Posted on by CA Meet Dhrangadhariya

Last updated: 09 October 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • A cheque returned unpaid for insufficient funds, or because it exceeds the arrangement with the bank, is an offence under section 138 if it was issued for a legally enforceable debt or liability. Punishment is imprisonment up to two years, or fine up to twice the cheque amount, or both.
  • Three steps in time: present the cheque within six months of its date or its validity, whichever is earlier; send a written demand notice within 30 days of the bank’s return information; the drawer has 15 days from receipt of the notice to pay.
  • The complaint must be filed within one month after the 15 days end, in the court of the branch where the payee holds the account (if the cheque was deposited through an account).
  • The court may order interim compensation up to 20% of the cheque amount, and an appellant against conviction may be asked to deposit at least 20% of the fine or compensation.

A bounced cheque is not always a crime, but one returned for want of funds can be. Section 138 of the Negotiable Instruments Act, 1881 turns the dishonour of a cheque issued to discharge a debt into a criminal offence, subject to a strict timetable. Missing any step in that timetable ends the complaint, so the dates matter more than the amount.

When section 138 applies

A cheque drawn by a person on an account maintained by him with a banker, for payment of an amount to another person from that account, for the discharge in whole or in part of any debt or other liability, is returned by the bank unpaid either because:

  • the money standing to the credit of the account is insufficient to honour the cheque, or
  • the cheque exceeds the amount arranged to be paid from that account by an agreement with the bank.

“Debt or other liability” means a legally enforceable debt or liability. A cheque given as a gift, or for a time-barred or illegal debt, falls outside the section.

The three conditions in the proviso

  1. Presentation: the cheque is presented to the bank within six months from the date on which it is drawn, or within the period of its validity, whichever is earlier. (The RBI has fixed the validity of a cheque at three months from its date, so in practice the cheque must be presented within three months.)
  2. Demand notice: the payee or holder in due course gives a written notice to the drawer demanding the amount, within 30 days of receiving information from the bank that the cheque was returned unpaid.
  3. Drawer’s chance to pay: the drawer fails to pay the amount within 15 days of receiving the notice.

Only when all three are met is the offence complete.

Filing the complaint (section 142)

  • Only on a written complaint by the payee or the holder in due course.
  • Within one month from the date the cause of action arises, which is the day after the 15 days to pay have ended. The court may take a late complaint if the complainant shows sufficient cause.
  • The court must be not lower than a Metropolitan Magistrate or Judicial Magistrate of the first class.
  • Territorial jurisdiction: if the cheque was delivered for collection through an account, the court where the payee’s (or holder’s) branch is situated; if it was presented for payment otherwise than through an account, the court where the drawer’s branch is situated. A cheque delivered to any branch of the payee’s bank is treated as delivered to the branch where the payee holds the account.
  • Later complaints against the same drawer for other cheques go to the same court as an earlier pending complaint (section 142A).

Example timeline

Step Date
Cheque dated 01/06/2026
Presented to the bank 15/06/2026 (within validity)
Bank return memo received 17/06/2026
Last day to send the notice (30 days from receipt of information) 17/07/2026
Notice sent and received 05/07/2026
Drawer’s 15 days end 20/07/2026
File the complaint by (one month after the cause of action arises; do not leave it to the last day) 20/08/2026

Count the days from the date the notice was received, not the date it was posted, and keep the postal proof.

Presumptions and what the drawer cannot say

  • It is presumed, unless the contrary is proved, that the holder received the cheque for the discharge of a debt or liability (section 139).
  • It is not a defence that the drawer had no reason to believe the cheque would be dishonoured (section 140).
  • On production of the bank’s slip or memo showing the official mark of dishonour, the court presumes the fact of dishonour until it is disproved (section 146).
  • The complainant’s evidence can be given on affidavit (section 145), and summons can be served by speed post or approved courier (section 144).

Punishment

Imprisonment which may extend to two years, or a fine which may extend to twice the amount of the cheque, or both.

Companies (section 141): where the drawer is a company, every person in charge of and responsible for the conduct of its business at the time of the offence, as well as the company, is deemed guilty, unless the person proves the offence was committed without knowledge or that he exercised all due diligence. A nominee director from the Government or a government financial institution is not liable. A director, manager or other officer is also liable where the offence was committed with consent or connivance or is attributable to neglect on his part. For this section, “company” includes a firm or other association of individuals, and “director” means a partner in a firm.

Trial, interim compensation and appeal

  • Summary trial (section 143): trials are by a Judicial Magistrate of the first class or Metropolitan Magistrate and follow the summary procedure, with a sentence of up to one year in a summary trial, and the court endeavours to conclude the trial within six months of the complaint.
  • Interim compensation (section 143A, from 01/09/2018): the court may order the drawer to pay the complainant up to 20% of the cheque amount, when the drawer pleads not guilty in a summary trial or summons case, or after charge is framed in other cases. It is payable within 60 days (extendable by up to 30 days) and is refunded, with interest at the RBI bank rate, if the drawer is acquitted.
  • Appeal deposit (section 148): in an appeal by the drawer against conviction, the appellate court may order a deposit of at least 20% of the fine or compensation awarded, in addition to any interim compensation, within 60 days (extendable by 30 days). The amount can be released to the complainant during the appeal and is repaid with interest if the appellant is acquitted.
  • Settlement: every offence under the Act is compoundable (section 147).

What to do if your cheque bounces

  1. Ask the bank for the return memo and note the date you received it.
  2. Send a written notice, by a method that gives proof of delivery, within 30 days, stating the cheque number, date, amount and the reason for return.
  3. Wait for the 15 days to end, then file the complaint within the next month.
  4. Keep the bank slips, the notice, the postal receipts and proof of the underlying debt (invoice, ledger, agreement).

If you are the drawer, reply to the notice, pay within 15 days where the debt is genuine, and keep proof of payment.

Points to check

  • This post follows the Act as published on India Code. That copy still refers to the Code of Criminal Procedure, 1973; the Bharatiya Nagarik Suraksha Sanhita, 2023 has replaced it from 01/07/2024, so check the equivalent BNSS provisions for procedure.
  • The three month validity of a cheque is an RBI instruction, not stated in the Act.
  • The facts of each case (the debt, defences, jurisdiction) decide the outcome; take legal advice before sending a notice or replying to one.

Frequently asked questions

Is every bounced cheque a criminal offence?

No. Section 138 applies when a cheque issued for a legally enforceable debt or liability is returned unpaid because the account has insufficient money, or the cheque exceeds the amount arranged with the bank. Other reasons, such as signature mismatch or account closed, are dealt with by courts on their own facts.

What is the punishment?

Imprisonment for a term which may extend to two years, or a fine which may extend to twice the amount of the cheque, or both.

Within what time must the cheque be presented?

Within six months from the date on which it was drawn, or within its validity period, whichever is earlier.

What is the time limit for the legal notice?

A written demand must be given to the drawer within 30 days of receiving information from the bank that the cheque was returned unpaid.

How long does the drawer have to pay after the notice?

15 days from the receipt of the notice. If the drawer does not pay, the cause of action arises.

By when must the complaint be filed?

Within one month from the date the cause of action arises, that is, after the 15 days end. The court can take a late complaint if the complainant shows sufficient cause for the delay.

Which court has jurisdiction?

The court where the payee’s or holder’s bank branch is situated, if the cheque was delivered for collection through an account; otherwise the court where the drawer’s bank branch is situated.

Can the case be settled?

Yes. Every offence under the Act is compoundable under section 147.

What is interim compensation?

Under section 143A, the court trying the case may order the drawer to pay up to 20% of the cheque amount to the complainant when the drawer pleads not guilty (or after charge is framed), payable within 60 days, and refundable with interest if the drawer is acquitted.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Sections 82 and 86 (Earlier 54 and 54F): Capital Gains Exemption on Buying a House (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 10 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Section 82 (earlier 54) exempts the long-term gain on sale of a residential house if you buy one house within 1 year before or 2 years after, or build one within 3 years; only the gain has to be reinvested.
  • Section 86 (earlier 54F) exempts the long-term gain on sale of any other long-term asset, such as shares, gold or land, if the whole net sale proceeds go into one house; the exemption is proportionate if only part is invested.
  • Both are for an individual or HUF, both need the new house to be in India, and both allow a deposit in the capital gains account scheme before the return is filed.
  • Both ignore cost or proceeds above ₹10 crore. Section 82 allows two houses once if the gain is up to ₹2 crore. Section 86 is lost if you own more than one other house.

Two sections of the Income-tax Act, 2025 let an individual or HUF avoid tax on long-term capital gains by buying or building a house. Section 82 (the old section 54) covers the sale of a house. Section 86 (the old section 54F) covers the sale of any other long-term asset.

Section 82 (earlier 54): sale of a residential house

Who: an individual or HUF.

Original asset: buildings or land appurtenant to them, being a residential house whose income is taxed as house property, with a long-term gain.

New asset: one residential house in India that you:

  • buy within one year before or two years after the date of transfer; or
  • construct within three years after the date of transfer.

Exemption:

  • If the capital gain is more than the cost of the new house, the excess is taxed under section 67, and if you transfer the new house within three years the cost is taken as nil.
  • If the gain is equal to or less than the cost of the new house, none of it is taxed, and if the new house is transferred within three years its cost is reduced by the gain.

Two houses (section 82(5) and (6)): if the gain is up to ₹2 crore, you may buy or build two houses instead of one. You can use this option only once, for one tax year only.

Limits (section 82(7) and (8)): a cost of the new house above ₹10 crore, and a gain above ₹10 crore for the deposit requirement, are not taken into account.

Example. A flat held for five years is sold for ₹1,20,00,000; indexation aside, the long-term gain is ₹50,00,000. You buy another house for ₹35,00,000 within two years. Exempt: ₹35,00,000. Taxed: ₹15,00,000 as long-term gain. If the new house cost ₹55,00,000, the whole ₹50,00,000 is exempt, and the new house has a reduced cost of ₹5,00,000 if you sell it within three years.

Section 86 (earlier 54F): sale of any other long-term asset

Who: an individual or HUF.

Original asset: any long-term capital asset that is not a residential house (shares, mutual fund units, gold, land, a commercial property and so on).

New asset: one residential house in India bought within one year before or two years after the transfer, or built within three years after.

Exemption (section 86(1)): compare the net consideration (sale price less expenses of the transfer) with the cost of the new house:

  • If the net consideration is equal to or less than the cost, no capital gain is taxed.
  • If it is more, the exempt part of the gain is: gain × cost of the new house ÷ net consideration.

Example. Shares are sold for ₹1,00,00,000 (net consideration), long-term gain ₹40,00,000. You buy a house for ₹60,00,000. Exempt: 40,00,000 × 60,00,000 ÷ 1,00,00,000 = ₹24,00,000. The rest, ₹16,00,000, is taxed under the capital gains rates. If you invest the whole ₹1,00,00,000, the whole gain is exempt.

Conditions that take the exemption away (section 86(5) and (6)):

  • The exemption is not available if, on the date of transfer, you own more than one residential house other than the new house; or if you buy another house (other than the new one) within one year, or build one within three years, after the transfer, and the income of that other house is taxed as house property.
  • If you buy, within two years after the transfer, or build, within three years, a house other than the new one whose income is taxed as house property, the gain that was exempted is taxed as long-term gain in the year you buy or build it.

Withdrawal (section 86(7)): if you transfer the new house within three years of buying or finishing it, the exempted gain is taxed as long-term gain in the year of transfer.

Limits (section 86(8) and (9)): cost of the new house above ₹10 crore, and net consideration above ₹10 crore for the deposit, are ignored.

Capital gains deposit scheme (sections 82(2) and 86(2))

If you have not bought or built the house before filing the return, you must deposit the unutilised amount in a specified bank or institution under the scheme notified by the Central Government. The deposit must be made before the return is filed and not later than its due date under section 263(1), and the proof of deposit must be attached to the return.

  • The amount utilised plus the deposit is treated as the cost of the new house.
  • If the deposit is not fully used within the time limit (three years from the date of transfer, or from the date compensation is received for a compulsory acquisition under section 89), the unutilised amount is taxed as income of the year in which three years from the transfer expire, and you may withdraw the unutilised amount under the scheme.
  • For section 86, the tax on unutilised amount is worked out by the formula X minus Y in section 86(4).

Compare the two

Point Section 82 Section 86
Original asset Residential house Any long-term asset other than a residential house
What must be invested The gain The net consideration (proportionate exemption)
House restriction None No more than one other house when the asset is sold
Two houses Once, if gain up to ₹2 crore No
Cap ₹10 crore ₹10 crore
Lock-in Three years, otherwise cost reduced or nil Three years, otherwise gain taxed

Before you claim

  1. Work out the long-term gain correctly, using the cost and holding period rules (see our post on capital gains).
  2. Decide how to meet the time limits: one year before, two years after, three years for construction.
  3. If funds are not used by the return due date, deposit them first.
  4. Keep the sale deed, purchase or construction documents and the deposit proof for the return and for any notice.

Frequently asked questions

Who can claim the exemption under section 82 (earlier 54)?

An individual or HUF with a long-term capital gain on sale of a residential house (building or land appurtenant to it) whose income is taxed as house property, who buys one residential house in India within one year before or two years after the sale, or builds one within three years after the sale.

How much is exempt under section 82?

The capital gain, up to the cost of the new house. If the gain is more than the cost of the new house, the excess is taxed as long-term gain.

Who can claim section 86 (earlier 54F)?

An individual or HUF with a long-term gain from the transfer of any long-term asset other than a residential house, who invests the net sale proceeds in one new residential house in India within the same time limits, and does not own more than one other house when the asset is sold.

How much is exempt under section 86?

All the gain if the net consideration is invested in the house. If only part is invested, the exempt gain is the gain multiplied by the cost of the new house and divided by the net consideration.

Can I buy two houses?

Under section 82, if the gain is ₹2 crore or less, you may buy or build two houses, but only once in your lifetime.

What if I cannot buy the house before filing the return?

Deposit the unutilised amount in a specified bank under the capital gains account scheme before the due date of filing, attach proof, and use it within the time limit. Any amount not used by the end of three years from the date of transfer is taxed in that year.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Capital Gains Tax on Sale of Property: Rates, Indexation Choice, Stamp Duty Value and Exemptions (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 15 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • A house, flat, plot or building held for more than 24 months gives a long-term gain taxed at 12.5% without indexation (section 197); held for 24 months or less, the gain is short-term and taxed at your slab rate.
  • A resident individual or HUF who acquired the land or building before 23 July 2024 pays the lower of 12.5% on the gain without indexation and 20% on the gain with indexation (section 197(3)).
  • If you sell below the stamp duty value, the stamp duty value is taxed as the sale price, with a 10% tolerance (section 78).
  • The buyer deducts 1% TDS where the consideration or stamp duty value is ₹50 lakh or more; rural agricultural land is not a capital asset at all.

Selling a house, flat, plot or shop is the most common capital gains event for individuals. The rules changed in 2024 (no indexation for property bought after 22 July 2024) and are now in the Income-tax Act, 2025. This post covers the gain, the rate, the stamp duty value rule, TDS and the ways to save tax.

Short-term or long-term

Land and buildings are short-term if held for 24 months or less, and long-term if held for more than 24 months (section 2(101)). The holding period starts from the date you acquired it (for a gift or inheritance, from the previous owner’s date) and ends on the date of transfer.

Rates

Gain Tax
Short-term Added to your income and taxed at slab rates
Long-term 12.5% on the gain computed without indexation (section 197(1))
Long-term, land or building acquired before 23 July 2024, seller is a resident individual or HUF The lower of: 12.5% without indexation, or 20% on the gain computed with the indexed cost of acquisition and improvement (section 197(3))

The surcharge on tax on long-term gains is capped at 15%, and cess is 4%.

Indexed cost of acquisition is the cost multiplied by (the Cost Inflation Index of the year of transfer ÷ the index of the first year you held the asset, or 2001-02 if later) (section 72(8)). The Central Government notifies the index each year.

Example. A flat bought on 01/04/2019 for ₹40,00,000 is sold on 15/09/2026 for ₹1,00,00,000, expenses of the sale being ignored. Assume (for illustration only, not notified figures) indexes of 289 for the year of purchase and 380 for 2026-27.

  • Without indexation: gain 60,00,000 × 12.5% = ₹7,50,000
  • With indexation: indexed cost 40,00,000 × 380 ÷ 289 = ₹52,59,516; gain ₹47,40,484 × 20% = ₹9,48,097
  • The resident individual pays the lower: ₹7,50,000 (plus cess).

For property bought long ago with modest appreciation, indexation can give the lower tax; for property bought recently, 12.5% without indexation usually does. Work out both.

Stamp duty value (section 78)

If the sale price of land or building is less than the stamp duty value, the stamp duty value is deemed to be your sale price for computing the gain.

  • If the stamp duty value is not more than 110% of the actual consideration, the actual consideration is used.
  • If the date of the agreement and the date of registration differ, and part or full consideration was received by account payee cheque, draft or electronic mode on or before the agreement date, the stamp duty value on the agreement date may be used.
  • If you claim that the stamp duty value is above the fair market value, the Assessing Officer may refer the matter to a Valuation Officer (section 78(2)).

The buyer can be taxed on the shortfall as income from other sources (section 92(2)(m)), and the value taxed becomes his cost of acquisition (section 73, serial 17), so a low registered price helps neither side.

Cost of acquisition and expenses

  • Cost: the price paid plus stamp duty and registration paid when you bought. For property acquired before 1 April 2001, the cost, or the fair market value on that date at your option, capped by the stamp duty value on that date (section 90(9) and (10)).
  • Cost of improvement: capital expenditure on additions and alterations, not repairs or expenses already claimed as deductions from house property income (section 90(1) and (2)).
  • Selling expenses: brokerage, legal fees and stamp duty on the sale, if borne by you, incurred wholly and exclusively for the transfer (section 72(1)(a)).
  • Interest claimed as a deduction under section 22 or Chapter VIII on the loan is not added to the cost (section 72(3)).

TDS on the sale

For a resident seller, the buyer must deduct 1% of the higher of the consideration and the stamp duty value, where either is ₹50 lakh or more, on the transfer of immovable property other than agricultural land (section 393(1), Table serial 3(i)). The seller takes credit for it in the return. Make sure the PAN of the seller is correct.

Joint development agreement (section 67(14))

If an individual or HUF gives land to a developer for a share of the built project (a registered “specified agreement”), the capital gain is taxed in the tax year in which the certificate of completion for the whole or part of the project is issued. The full value of consideration is the stamp duty value of the share on that date, plus any cash consideration. If the owner transfers the share before the completion certificate, the gain is taxed in the year of that transfer. The cost of the share when the owner later sells it is that same deemed consideration (section 73, serial 20).

Ways to save tax on the gain

Section Who Condition Limit
82 (earlier 54) Individual or HUF with a long-term gain on a residential house Buy one house within 1 year before or 2 years after the sale, or build one within 3 years; two houses once in a lifetime if the gain is up to ₹2 crore The cost of the new house up to ₹10 crore counts; gain above ₹10 crore is not considered for deposits
86 (earlier 54F) Individual or HUF with a long-term gain on any asset other than a residential house Invest the net consideration (not only the gain) in a house within the same time limits; you must not own more than one other house on the transfer date Cost above ₹10 crore is ignored
85 (earlier 54EC) Anyone with a long-term gain on land or building Invest within 6 months in NHAI or REC bonds redeemable after 5 years ₹50 lakh in a tax year (or across the year of sale and the next)
83 (earlier 54B) Individual or HUF selling agricultural land used for farming Buy other agricultural land within 2 years Cost of the new land

If you cannot invest before the return is filed, deposit the unutilised gain in a specified bank under the capital gains deposit scheme before the filing due date and attach the proof (sections 82(2), 83(2), 86(2)). See our posts on sections 82 and 86 and on the bonds.

The new asset must be kept for a minimum period. If you sell the new house within three years, the cost is reduced or taken as nil under section 82(1), and under section 86(7) the exempted gain is taxed as long-term gain in that year. If you transfer the bonds or take a loan against them within five years, the exempted gain is taxed (section 85(3) and (4)).

Agricultural land

Rural agricultural land in India is not a capital asset, so its sale gives no capital gain. Land is not rural, and is taxable, if it lies in the jurisdiction of a municipality or cantonment board with a population of 10,000 or more, or within a distance measured aerially from its limits of 2 km (population above 10,000 and up to 1 lakh), 6 km (above 1 lakh and up to 10 lakh) or 8 km (above 10 lakh) (section 2(22)). Urban agricultural land is taxed like other land, with section 83 available if you buy other agricultural land.

Compulsory acquisition

Compensation for compulsory acquisition is a capital gain. Enhanced compensation is taxed in the year you receive it, with a cost of nil (section 67(12) and (13)). Section 84 exempts the gain on compulsory acquisition of land or buildings of an industrial undertaking if you buy or build a new asset within 3 years to shift or set up the undertaking.

Reporting

Report the sale in the capital gains schedule of ITR-2 (or ITR-3), with date, cost, indexed cost if used, sale price, stamp duty value and any exemption claimed. Pay advance tax on the gain when you receive the sale money, so as to avoid interest.

Frequently asked questions

How is capital gains tax on a property sale calculated?

Sale price (or stamp duty value if higher by more than 10%) less brokerage and other expenses of the sale, less your cost of acquisition and cost of improvement. If you held it for more than 24 months, the gain is long-term and taxed at 12.5%; otherwise it is added to your income and taxed at slab rates.

Can I still use indexation?

A resident individual or HUF who acquired land or a building before 23 July 2024 may pay the lower of two amounts: 12.5% of the gain computed without indexation, or 20% of the gain computed with indexed cost of acquisition and improvement (section 197(3)). Others, and later purchases, get no indexation.

What is the stamp duty value rule?

If you sell land or building for less than the stamp duty value, the stamp duty value is treated as your sale price (section 78). If the stamp duty value is up to 110% of the actual price, the actual price is used. The date of the agreement can be used instead of the date of registration if part payment was made by a banking channel on or before the agreement.

Is TDS deducted on a property sale?

The buyer deducts 1% of the higher of the consideration and the stamp duty value where either is ₹50 lakh or more, on the transfer of immovable property other than agricultural land (section 393(1), Table serial 3(i)).

How can I save tax on the gain?

By reinvesting the long-term gain in a residential house (section 82 for a house sold, section 86 for other assets), in specified bonds (section 85, up to ₹50 lakh) or in agricultural land (section 83) within the time limits. Unutilised gain must be deposited under the capital gains deposit scheme before the return is filed.

Is agricultural land taxed on sale?

Rural agricultural land is not a capital asset, so there is no capital gain. Land that is within a municipality or cantonment board area with population of 10,000 or more, or within 2, 6 or 8 km of such local limits depending on the population, is a capital asset and taxable.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Tax on FD Interest: How to Pay Income Tax on Fixed Deposit Interest Income?

Posted on by CA Meet Dhrangadhariya

Last updated: 16 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • FD interest is added to your income and taxed at your slab rate, under Income from Other Sources.
  • Banks deduct 10% TDS once interest crosses ₹50,000 a year (₹1,00,000 for senior citizens) for FY 2025-26; the TDS may be less than the tax you owe.
  • Senior citizens in the old regime can claim up to ₹50,000 under section 80TTB; tax-saver FD principal qualifies under section 80C in the old regime.
  • Check Form 26AS, AIS and TIS before filing, and use Form 15G or 15H to avoid TDS if your income is below the taxable limit.

How to report FD interest in your return

1. Check FD interest in your bank statements, Form 26AS, AIS and TIS
↓
2. Add all FD interest to Income from Other Sources
↓
3. Claim section 80TTB (senior citizens, old regime) or section 80C (tax-saver FD, old regime) if eligible
↓
4. Compute tax on the total income at your slab rates
↓
5. Reduce the TDS already deducted by the bank
↓
6. Pay the balance as self-assessment tax, or claim a refund if TDS is more

Interest on a fixed deposit (FD) is added to your income and taxed at your normal slab rate. It is shown under “Income from Other Sources” in the return. The bank deducts TDS on the interest above a limit, but that TDS may be less than the tax you actually owe, so you may have to pay the balance yourself. Resident senior citizens in the old regime can claim a deduction of up to ₹50,000 on interest from savings accounts and deposits under section 80TTB.

Where can I check my FD interest?

Bank interest is easy to miss because it looks small, but under-reporting can lead to notices. You can check FD interest in:

  • your bank statements and interest certificates,
  • Form 26AS,
  • the Annual Information Statement (AIS), and
  • the Taxpayer Information Summary (TIS).

How to calculate tax on FD interest

  1. Add up the interest (earned or accrued in the year) from all FDs and banks for the year. Interest on a cumulative FD, where the interest is paid only at maturity, should be offered to tax every year as it accrues. Banks deduct TDS and report the interest in Form 26AS and the AIS on the same yearly basis, so offering it year by year keeps your return matching these records. Some individuals who follow the cash system of accounting offer it only on receipt. If you want to do that, speak to your professional first, because a mismatch with Form 26AS and the AIS can lead to a notice.
  2. Add it to your other income. Show it under Income from Other Sources.
  3. Claim the deductions that apply to you (see below).
  4. Tax is charged at your slab rates. The rate depends on your regime, age and residential status.
  5. Reduce the TDS shown in Form 26AS from your total tax. Pay the balance as self-assessment tax, or claim a refund if the TDS is more.

Deduction under section 80TTB (senior citizens)

  • Available to resident senior citizens (age 60 or more) in the old regime.
  • Covers interest on savings accounts, fixed deposits and recurring deposits with banks, post offices and co-operative banks.
  • The maximum deduction is ₹50,000, and it cannot exceed the interest earned.
  • Non-senior individuals can claim section 80TTA (up to ₹10,000), but only for savings account interest. It does not cover FD interest.

Deduction under section 80C (tax-saver FD)

In the old regime, the principal invested in a 5-year tax-saver FD qualifies under section 80C, within the overall limit of ₹1.5 lakh. The interest on such an FD is still taxable.

TDS on FD interest

  • Banks deduct TDS under section 194A at 10% when the interest in a year crosses the threshold. For FY 2025-26 the threshold is ₹50,000 for most depositors and ₹1,00,000 for senior citizens, applied bank by bank (branch by branch for banks with core banking).
  • If you have not given your PAN, TDS is deducted at a higher rate of 20%.
  • If your total income is below the taxable limit, you can submit Form 15G (below age 60) or Form 15H (senior citizens) to the bank so that no TDS is deducted. TDS being nil does not make the interest tax-free: it must still be reported in your return.
  • Under the Income-tax Act, 2025 the TDS provisions have new section numbers, but the rates and thresholds are carried forward unless the Finance Act changes them.

Final Word

FD interest is a regular part of most returns. Report all of it, check your 26AS and AIS before filing, and use the deductions that apply to you. Tax-saving FDs and senior citizen benefits help only in the old regime, so compare the two regimes before you choose.

Frequently asked questions

Is FD interest taxable?

Yes. FD interest is added to your income and taxed at your slab rate, whether or not TDS is deducted.

What is the TDS rate on FD interest?

Banks deduct TDS at 10% under section 194A once interest crosses the threshold, and at 20% if PAN is not provided.

What is the TDS threshold on FD interest?

For FY 2025-26 it is ₹50,000 a year for most depositors and ₹1,00,000 for senior citizens, applied bank by bank.

Can I claim a deduction on FD interest?

Resident senior citizens in the old regime can claim up to ₹50,000 under section 80TTB. Others cannot claim a deduction on FD interest; section 80TTA covers only savings account interest.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Old or New Tax Regime: How and When to Choose It in Your Return (Section 202, Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 16 August 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • The new regime in section 202(1) applies to individuals and HUFs by default. To use the old regime you must exercise an option under section 202(4).
  • A person with no business or professional income exercises the option with the return furnished under section 263(1) for that tax year, so the choice can be made afresh each year.
  • A person with business or professional income must exercise it on or before the due date; once exercised it continues, and it can be withdrawn only once.
  • The option rides on the return filed by the due date; do not assume a belated return can opt out of the new regime.
  • Your employer’s TDS follows the regime you tell it, but the return decides the final regime.

For tax year 2026-27, an individual is taxed under the new regime unless he chooses otherwise. The choice is made in the return, and the rules on how and when depend on whether you have business income. This post sets out section 202 of the Income-tax Act, 2025.

The default and the option

  • Section 202(1) states the slabs of the new regime: nil up to ₹4,00,000, then 5%, 10%, 15%, 20%, 25% and 30% above ₹24,00,000, and it applies to an individual, a HUF, an association of persons (other than a co-operative society), a body of individuals and an artificial juridical person, unless the person exercises the option in section 202(4).
  • Section 202(4) says that section 202(1) does not apply to a person who has exercised an option, in the prescribed manner, for the tax year. That person is taxed under the old slabs, with the old regime deductions and exemptions. Form 125 uses the same words: “opting out of the new tax regime under section 202”.

When to exercise the option (section 202(4))

Your income When and how
No income from business or profession (for example a salaried person, pensioner or investor) Along with the return of income furnished under section 263(1) for the tax year. The option applies to that year, so you can choose again next year
Income from business or profession On or before the due date for furnishing the return under section 263(1). Once exercised it applies to later tax years. It may be withdrawn only once for a tax year other than the year of the first exercise; after that you can never exercise it again, unless you cease to have business or professional income, in which case the option for persons without such income is open

What the new regime does not allow (section 202(2))

If you stay in the new regime, your total income is computed without:

  • Exemptions in Schedule III at serial numbers 5, 6, 7, 8, 11 and 17 (this includes the HRA exemption at serial 11), and serial numbers 12 and 13 other than those prescribed;
  • Professional tax under section 19(1) Table serial 1;
  • Interest under section 22(1)(b) on self-occupied houses (section 21(6));
  • Chapter VIII deductions, except the employer’s contribution to the notified pension scheme (section 124(1) and (2)), section 125(2) and section 146;
  • certain business deductions (sections 33(8), 45(3), 46, 47(1)(a), 48 and 49);
  • set-off of house property loss against other heads, and set-off of carried-forward losses or depreciation attributable to these deductions; and
  • any exemption or deduction for allowances or perquisites provided under any other law.

The standard deduction of ₹75,000 under section 19(1) and the retirement exemptions such as gratuity and leave encashment remain available.

The late return trap

The option is exercised “along with the return of income to be furnished under section 263(1)”. A belated return is furnished under section 263(4). Advisers read this to mean that a person who files after the due date cannot opt out of the new regime for that year. We have not found a ruling or circular that says otherwise, so file on time if you want the old regime.

Your employer and the regime

At the start of the year, tell your employer which regime to use for TDS. You may change your mind before the return; the employer’s deduction is only an estimate. At filing, you choose the regime that gives you the lower tax, on the evidence of your HRA, home loan, section 123 and other claims (Form 124 evidence, Rule 205). Any excess TDS comes back as refund.

How to decide

  1. Add up your actual old regime deductions: standard deduction ₹50,000, HRA exemption, section 123, own NPS, health insurance, home loan interest and others.
  2. Compare with the break-even for your salary in our post on saving tax by salary level. For example, at a salary of ₹20 lakh the old regime needs roughly ₹7.6 lakh of total deductions to match the new regime.
  3. If the old regime is better, exercise the option in the return and file by the due date.
  4. If you have business income, remember that the choice can be changed only once, and plan with a professional.

Frequently asked questions

Which regime applies if I do nothing?

The new regime in section 202(1) applies by default to an individual, HUF, AOP, BOI or artificial juridical person. To be taxed under the old regime you must exercise the option under section 202(4).

When must a salaried person choose the regime?

A person who has no income from business or profession exercises the option along with the return furnished under section 263(1) for that tax year (section 202(4)(b)). The choice is for the tax year, so it can differ from year to year.

What if I have business or professional income?

The option must be exercised on or before the due date for the return. Once exercised it applies to later tax years. It can be withdrawn only once, for a year other than the year it was exercised, and after that you can never opt out of the new regime again, unless you stop having business or professional income, when the salaried-type option becomes available (section 202(4)(a)).

Can I change the regime in a revised return?

The option is tied to the return furnished under section 263(1) for the year. The Act does not say that it can be exercised or changed through a revised or belated return. If you filed on time and made a different choice, take advice before relying on a revised return to change it.

What if I file late?

The section ties the option to the return under section 263(1). A belated return is furnished under section 263(4), so you should assume the new regime applies. Check with a professional before you claim old regime deductions in a belated return.

Does my employer’s choice bind me?

No. The employer deducts TDS on the regime you declare to it, but you decide the final regime when you file the return, and any excess TDS comes back as a refund.

Official sources

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Capital Gains Tax in India: Short-Term, Long-Term, Rates and Computation (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 26 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Capital gains are the profit on transfer of a capital asset, taxed in the year of transfer under section 67 of the Income-tax Act, 2025; they are computed as the sale value less expenses on the transfer, the cost of acquisition and the cost of improvement (section 72).
  • An asset held for 12 months or less (listed securities, equity-oriented fund units, UTI units, zero coupon bonds) or 24 months or less (everything else) is short-term; otherwise it is long-term (section 2(101)).
  • Short-term gains on listed equity with STT are taxed at 20%; long-term gains are taxed at 12.5%, and gains on listed equity with STT are taxed at 12.5% only on the part above ₹1,25,000 a year.
  • Resident individuals and HUFs can choose indexed cost at 20% for land or building acquired before 23 July 2024 if that gives a lower tax.

Profit on selling a house, plot, shares, mutual fund units or gold is taxed as capital gains. The rules sit in sections 67 to 91 of the Income-tax Act, 2025 (they were sections 45 to 55A of the 1961 Act), and the tax rates in sections 196 to 198. This post sets out the framework for tax year 2026-27, from the sale date to the tax.

What is taxed

Section 67(1): profits or gains from the transfer of a capital asset in a tax year are chargeable under the head “Capital gains” and are the income of the year in which the transfer took place. “Capital asset” means property of any kind held by you, whether or not connected with your business or profession (section 2(22)).

Some transactions are not a transfer (section 70): a gift or will by an individual or HUF, partition of a HUF, certain transfers between a company and its wholly owned subsidiary, amalgamation, and others. A gift is tax free to the giver, but the receiver takes over the cost and holding period of the giver (see our post on cost of acquisition).

The Act also specifically taxes some receipts as capital gains: insurance money received for destruction of a capital asset (section 67(2)), gains on conversion of a capital asset into stock-in-trade (section 67(6), taxed when the stock is sold), contributing an asset to a firm of which you are a partner (section 67(9)), enhanced compensation (section 67(12)), and a real estate joint development (section 67(14)).

Short-term or long-term (section 2(101))

Asset Short-term if held for
Security listed on a recognised stock exchange in India, unit of UTI, unit of an equity-oriented fund, zero coupon bond 12 months or less
Every other capital asset (unlisted shares, foreign shares, land, building, gold, debt fund units and so on) 24 months or less

The holding period runs from the date of acquisition to the date of transfer. It includes the previous owner’s period for a gift, will, inheritance and the other cases in section 73(1) Table serial 1, and, for shares or securities allotted by an employer under an ESOP, runs from the date of allotment. A specified mutual fund bought on or after 1 April 2023, a market linked debenture, and an unlisted bond or debenture transferred or redeemed on or after 23 July 2024 give short-term gains whatever the holding period (section 76).

How the gain is computed (section 72)

Capital gain = full value of consideration, less expenditure incurred wholly and exclusively on the transfer, less the cost of acquisition, less the cost of any improvement.

  • Interest claimed as a deduction under section 22(1)(b) or Chapter VIII and securities transaction tax are not deducted.
  • For land or building, if the sale price is less than the stamp duty value, the stamp duty value is taken as the sale price, but a gap of up to 10% is ignored (section 78). For unquoted shares sold below fair market value, the fair market value is used (section 79).
  • If the price cannot be ascertained, the fair market value on the transfer date is used (section 80).
  • Cost of improvement means capital expenditure on additions or alterations, not repairs (section 90(1) and (2)).

Cost of acquisition

Situation Cost
Bought What you paid
Gift, inheritance, will, certain transfers Cost to the previous owner (the last owner who acquired it otherwise), plus his cost of improvement (section 73(1), Table serial 1)
Acquired before 1 April 2001 Cost, or fair market value on 1 April 2001, at your option; for land or building the fair market value cannot exceed the stamp duty value on that date (section 90(9) and (10))
Long-term listed equity shares, equity-oriented fund units or business trust units acquired before 1 February 2018 The higher of (a) cost and (b) the lower of the fair market value on 31 January 2018 and the sale price (section 90(7))
Shares allotted under an ESOP or RSU The fair market value taken for the perquisite (section 73, serial 4)
Bonus shares and rights shares Nil for bonus shares; the amount paid for rights shares (section 90(5) and (6))

Tax rates (sections 196 to 198)

Gain Rate
Short-term gain on equity shares or units of an equity-oriented fund or a business trust, sold on a stock exchange with STT paid 20% (section 196)
Other short-term gains Normal slab rates
Long-term gain on listed equity shares, equity-oriented fund units or business trust units, where STT was paid on acquisition and transfer (STT on transfer only for fund and trust units) 12.5% on the gain above ₹1,25,000 in the year (section 198)
Other long-term gains (unlisted shares, property, gold, debt units and so on) 12.5%, without indexation (section 197)
Long-term gain on land or building acquired before 23 July 2024, by a resident individual or HUF The lower of 12.5% without indexation, and 20% with the indexed cost of acquisition and improvement (section 197(3))

Other points on rates:

  • For a resident individual or HUF, if the rest of your income is below the basic exemption limit, the shortfall is set against the capital gain before tax is applied (sections 196(2), 197(2) and 198(3)).
  • Chapter VIII deductions (section 123 and others) are allowed only from income other than these capital gains (sections 196(4), 197(5), 198(6)).
  • The rebate under section 156 is allowed against tax on income other than the special-rate capital gains. It does not wipe out tax on long-term gains under section 198 (section 198(7)).
  • Surcharge on tax on these capital gains is capped at 15% whatever the income (Finance Act, 2026), and cess is 4%.

Examples

1. Long-term gain on listed shares. A resident individual bought listed shares for ₹4,00,000 on 12/06/2025 and sold them on a stock exchange on 20/08/2026 for ₹6,10,000, with STT paid on both. Held for more than 12 months, so long-term.

  • Gain: 6,10,000 - 4,00,000 = ₹2,10,000
  • Exempt part: ₹1,25,000; taxable: ₹85,000
  • Tax at 12.5% = ₹10,625; cess 4% = ₹425; total ₹11,050

2. Short-term gain on listed shares. Bought on 01/04/2026 for ₹2,00,000, sold on 10/10/2026 for ₹2,50,000, STT paid. Gain ₹50,000; tax at 20% = ₹10,000 plus cess ₹400 = ₹10,400.

3. Listed shares bought before 1 February 2018. Cost ₹1,00,000 in 2015; value on 31 January 2018 ₹3,00,000; sold in 2026 for ₹5,00,000. Deemed cost = higher of 1,00,000 and the lower of 3,00,000 (value on 31/01/2018) and 5,00,000 (sale price) = ₹3,00,000. Gain = ₹2,00,000; taxable above ₹1,25,000 = ₹75,000 at 12.5% = ₹9,375.

4. Plot of land. Bought for ₹10,00,000 in March 2020 and sold for ₹30,00,000 in August 2026. Held more than 24 months, so long-term. Tax at 12.5% without indexation: 20,00,000 × 12.5% = ₹2,50,000. If indexing the cost at 20% gives a lower figure, the resident individual pays that lower tax, because the land was acquired before 23 July 2024. See our post on capital gains on property.

Losses

  • A short-term capital loss can be set off against any capital gain, short-term or long-term; a long-term capital loss only against long-term gains (section 108(2)).
  • A capital loss cannot be set off against other heads such as salary (section 109(2)).
  • Unabsorbed losses carry forward for eight tax years against capital gains of the matching kind (section 111), and only if the loss was determined in a return filed by the due date (section 121). See our post on capital loss set-off.

Reporting

Capital gains are reported in the capital gains schedule of the return, with each sale listed (date, cost, sale price). If you have capital gains beyond the long-term gains of ₹1,25,000 under section 198, you cannot use the simple ITR-1 (see our post on which ITR form to file). Pay advance tax on gains as they arise.

Frequently asked questions

What is a capital asset?

Property of any kind held by you, whether or not connected with your business, such as land, a house, shares, units, gold and jewellery, and certain other items (section 2(22)). Stock-in-trade and some other items are outside the definition.

When is a gain short-term or long-term?

Short-term if the asset is held for not more than 24 months before transfer; for a security listed in India, a UTI unit, a unit of an equity-oriented fund or a zero coupon bond the period is 12 months. A longer holding makes the gain long-term (section 2(101)).

What are the capital gains tax rates?

Short-term gain on listed equity shares and equity-oriented fund units sold with STT: 20%. Other short-term gains: slab rates. Long-term gains: 12.5%, and on listed equity shares and equity-oriented fund units with STT 12.5% only on gains above ₹1,25,000 in the year (sections 196 to 198).

Is indexation still available?

Only for a resident individual or HUF selling land or building acquired before 23 July 2024, who may pay the lower of 12.5% without indexation and 20% with indexation (section 197(3)). Indexation is not available for other assets.

How is the cost of acquisition fixed?

Generally what you paid; for gifted or inherited assets, the cost to the previous owner (section 73); for assets acquired before 1 April 2001, cost or fair market value on that date at your option; for listed equity acquired before 1 February 2018, the higher of cost and the lower of its value on 31 January 2018 and the sale price (section 90).

Can I set off a capital loss?

A short-term loss against any capital gain, a long-term loss only against long-term gains. Unabsorbed losses carry forward for eight tax years if the return was filed on time (sections 108, 111 and 121).

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Late, Revised and Updated Income Tax Returns: Time Limits, Fee, Interest and Additional Tax (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 05 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • A return missed by the due date can be filed within nine months from the end of the tax year (section 263(4)) with a fee of ₹1,000 if total income is up to ₹5 lakh and ₹5,000 otherwise (section 428), plus interest at 1% a month on tax due (section 423).
  • A return with an error can be revised within 12 months from the end of the tax year (section 263(5), as amended by the Finance Act, 2026); the same fee applies if the revised return is filed after nine months.
  • An updated return (ITR-UN) can be filed up to 48 months after the end of the financial year following the tax year, with additional tax of 25%, 50%, 60% or 70% of tax and interest (section 267).
  • An updated return cannot reduce tax, create or increase a refund, or be a loss return, with limited exceptions.

Missing the due date, finding an error or realising later that you left out income does not close the door on you. The Income-tax Act, 2025 gives three ways to file again, each with its own time limit and cost. This post uses the section numbers of the 2025 Act, which applies to tax year 2026-27 (income of FY 2026-27).

At a glance

Return Section Last date for tax year 2026-27 Cost
Original return 263(1) 31 July 2027 (other dates for audit and business cases) None
Belated return 263(4) 31 December 2027 (nine months from the end of the tax year) Fee under section 428 and interest under section 423
Revised return 263(5) 31 March 2028 (12 months from the end of the tax year) Fee under section 428(b) if filed after nine months
Updated return 263(6) 31 March 2032 (48 months from the end of the financial year following the tax year) Additional tax of 25% to 70% (section 267)

In each case the deadline is the earlier of that date and the completion of the assessment, except for the updated return.

1. Belated return (section 263(4))

If you did not file on or before the due date, you can file within nine months from the end of the tax year, or before the assessment is completed, whichever is earlier.

Fee (section 428(a)):

Total income Fee
Up to ₹5,00,000 ₹1,000
More than ₹5,00,000 ₹5,000

Interest (section 423): simple interest at 1% a month on the unpaid tax, from the day after the due date to the date of filing, where unpaid tax means tax on total income less advance tax, TDS and TCS paid. The interest is computed as I = 1% × A × T, where A is that tax and T is the number of months in the period.

Example. Total income ₹8,00,000 in tax year 2026-27; tax after TDS and advance tax is ₹50,000. You file on 31/10/2027, three months after the 31/07/2027 due date.

  • Fee: ₹5,000
  • Interest: 1% × 50,000 × 3 = ₹1,500
  • Pay the tax, the interest and the fee before you file; the return is not complete without them.

Consequences of a belated return: you may lose the right to carry forward a business or capital loss, because a loss must be determined in a return filed under section 263(1) (section 121). Some deductions and claims also need the return to be on time. Check each claim.

2. Revised return (section 263(5))

If you filed a return under section 263(1) or (4) and find an omission or a wrong statement, you can file a revised return within 12 months from the end of the tax year, or before the assessment is completed, whichever is earlier. The Finance Act, 2026 extended this period from nine to twelve months with effect from 01/04/2026.

If the revised return is furnished after nine months from the end of the tax year, you pay the fee in section 428(b): ₹1,000 if total income is up to ₹5,00,000 and ₹5,000 otherwise.

A revised return replaces the original. Use it for corrections such as TDS credit missed, a wrong deduction or income left out, if the time is open.

3. Updated return (section 263(6) and Rule 165)

An updated return can be filed by any person, whether or not he filed an earlier return, at any time within 48 months from the end of the financial year succeeding the tax year. It is meant to disclose additional income, and the return is in Form ITR-UN (Rule 165).

Additional tax (section 267(5)): on the aggregate of tax and interest payable on the updated return, including surcharge and cess:

When filed Additional tax
After the belated and revised return windows have expired, and within 12 months from the end of the financial year succeeding the tax year 25%
In the next 12 months 50%
In the third 12 months 60%
In the fourth 12 months, up to 48 months 70%

If the updated return is filed in response to a notice under section 280 within the time in the notice, a further 10% of tax and interest is payable.

You pay the tax, interest, fee and additional tax before filing, and attach proof of payment (section 267(3)).

When an updated return is not allowed (section 263(6)(c) and (d))

  • It is a return of loss, except where you had filed a loss return on time and the updated return is a return of income or reduces the loss.
  • It reduces the total tax liability from the earlier return.
  • It creates or increases a refund.
  • An updated return was already filed for the year.
  • An assessment, reassessment, recomputation or revision is pending or completed for the year (unless it is filed in response to a notice under section 280).
  • The Assessing Officer has information about a violation of specified laws, or information has been received under a tax treaty, and has been communicated to you before you file.
  • Prosecution proceedings have been started for the year.
  • Thirty-six months have expired from the end of the financial year following the tax year and a show-cause notice under section 281 has been issued.
  • A search, requisition or survey has been conducted, for the year of the search and earlier years.
  • A class of persons notified by the Board.

If a loss or credit carried forward is reduced by the updated return, an updated return must be filed for each later year that is affected.

Which to choose

  1. Missed the due date and no income was left out: file the belated return as soon as possible, so the fee and interest are smaller.
  2. Filed on time but made a mistake: file a revised return within 12 months.
  3. Left out income and the revised window has closed: file an updated return; the additional tax rises with delay.
  4. Left out income and you got a notice: respond as the notice says; the updated return route in response to a notice carries an extra 10%.

For FY 2025-26 (assessment year 2026-27)

Income of FY 2025-26 is still under the 1961 Act, with the Finance Act, 2026 amendments from 01/03/2026. The same ideas apply there under sections 139(4), 139(5) and 139(8A) of that Act, with fee under section 234F and interest under section 234A. The belated return for that year can be filed up to 31 December 2026 and the revised return until the end of the assessment year, 31 March 2027. Check your forms and the portal for the dates that apply to your return.

Frequently asked questions

What is the last date to file a belated return?

Within nine months from the end of the tax year, or before the assessment is completed, whichever is earlier (section 263(4)). For tax year 2026-27 that is 31 December 2027.

What is the fee for filing late?

₹1,000 if total income does not exceed ₹5,00,000, and ₹5,000 in any other case (section 428), plus interest under section 423 at 1% a month on the unpaid tax.

How long can I revise a return?

Within 12 months from the end of the tax year, or before the assessment is completed, whichever is earlier (section 263(5)). If you file the revised return after nine months from the end of the tax year, the same fee of ₹1,000 or ₹5,000 applies.

What is an updated return?

A return you can file at any time within 48 months from the end of the financial year following the tax year, whether or not you filed an earlier return, to report income you missed. It carries additional tax and is filed in Form ITR-UN (Rule 165).

How much is the additional tax on an updated return?

25% of tax plus interest if filed after the revised return window but within 12 months from the end of the financial year following the tax year; 50% in the second year, 60% in the third and 70% in the fourth. If filed in response to a notice, a further 10% (section 267(5)).

When is an updated return not allowed?

If it is a return of loss (with a limited exception), reduces tax, creates or increases a refund, was already filed once for the year, assessment or reassessment is pending or completed (with a notice-related exception), or in certain cases of search, survey, prosecution or information received (section 263(6)(c) and (d)).

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

How to Calculate Income From Salary: Step by Step With Example (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 05 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Income from salary is worked out in four steps: add everything that counts as salary (section 16), subtract the exempt allowances, add taxable perquisites, then subtract the section 19 deductions.
  • Section 19 allows the standard deduction (₹75,000 new regime, ₹50,000 old), professional tax (old regime) and retirement items such as gratuity and leave encashment within their limits.
  • Chapter VIII deductions (section 123 and others) are subtracted afterwards, in the old regime only.
  • Employers deduct TDS on salary under section 392 and issue Form 130 by 15 June; check it against your AIS before filing.

Income from salary is the first and usually the largest head of income for an employee. This post shows how it is worked out under the Income-tax Act, 2025 and then how tax is calculated on it, with a full example under both regimes.

Step 1: add up what counts as salary

Section 16 of the Act says salary includes:

  • wages (basic pay, dearness allowance, allowances, bonus),
  • any annuity or pension,
  • any gratuity,
  • any fees or commission,
  • perquisites (rent-free accommodation, a car for personal use, free shares and others in section 17),
  • profits in lieu of salary (section 18), such as compensation on termination,
  • any advance of salary,
  • any payment for leave not availed of (leave encashment),
  • the taxable annual accretion to a recognised provident fund, and
  • the employer’s contribution to the notified pension scheme (NPS).

Under section 15, salary due to you in the tax year is chargeable whether paid or not, salary paid in advance is chargeable in the year it is paid, and arrears paid in the year are chargeable if not taxed earlier. So salary that is due but unpaid at year end is still income of that year.

Step 2: take out exempt allowances

Some allowances are exempt in part or full, within limits, under Schedule III and Rule 279. The best known is house rent allowance (old regime only). It is exempt to the extent of the least of the HRA received, the rent paid less 10% of salary, and 50% of salary in Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad and Bengaluru (40% elsewhere), where salary is basic pay plus dearness allowance if the terms provide. Leave travel concession and some others are also old regime items. See our posts on allowances for each.

Step 3: add the taxable perquisites

Free or concessional accommodation, a car, free meals above the limit, loans at a low rate, gifts above the limit, and shares allotted under an ESOP or RSU are valued under Rule 15 and added. See our posts on perquisites and ESOP taxation.

Step 4: subtract the deductions from salary (section 19)

Deduction Amount Regime
Professional tax The whole amount Old only
Standard deduction ₹75,000, or the salary if less New
Standard deduction ₹50,000, or the salary if less Old
Death-cum-retirement gratuity of government employees The whole amount Both
Gratuity of other employees Within the limits in our gratuity post Both
Leave encashment on retirement Government employees: the whole amount. Others: the least of the cash equivalent of leave at credit (up to 30 days for each year of service), ten times the average monthly salary of the last ten months, the notified limit and the amount received Both
Voluntary retirement payment The least of the amount received and ₹5,00,000, subject to the conditions in section 19(2)(e) Both
Retrenchment compensation to a workman The least of three amounts in the Table Both

The result is income from salary. If you received arrears or advance salary that pushes you into a higher slab, claim relief under section 157 with Form 39.

Step 5: from income from salary to taxable income

Add income from other heads (house property, other sources and so on), set off losses and then, in the old regime only, subtract the Chapter VIII deductions: section 123 (up to ₹1,50,000), your own NPS contribution up to ₹50,000, health insurance, education loan interest, donations and others. The new regime allows only a few of these, mainly the employer’s NPS contribution. The balance is total income.

Step 6: apply the rates

New regime (section 202), tax year 2026-27: up to ₹4,00,000 nil; 5% to ₹8,00,000; 10% to ₹12,00,000; 15% to ₹16,00,000; 20% to ₹20,00,000; 25% to ₹24,00,000; 30% above. Rebate under section 156(2) of up to ₹60,000 if total income is up to ₹12,00,000.

Old regime: up to ₹2,50,000 nil; 5% to ₹5,00,000; 20% to ₹10,00,000; 30% above. Rebate of up to ₹12,500 if total income is up to ₹5,00,000. Higher basic exemption limits apply for resident senior citizens.

Then add surcharge if income is above ₹50 lakh, and 4% health and education cess.

Worked example

Basic ₹6,00,000, HRA ₹3,00,000, special allowance ₹4,50,000, bonus ₹1,50,000. Employee’s PF ₹72,000. Rent paid ₹3,30,000 a year in Pune. Professional tax ₹2,400. Other qualifying investments ₹78,000.

Item Old regime (₹) New regime (₹)
Gross salary 15,00,000 15,00,000
Less: HRA exemption (least of 3,00,000; 3,30,000 - 60,000 = 2,70,000; 50% of 6,00,000 = 3,00,000) 2,70,000 Not available
Less: professional tax 2,400 Not available
Less: standard deduction 50,000 75,000
Income from salary 11,77,600 14,25,000
Less: section 123 (PF 72,000 + others 78,000) 1,50,000 Not available
Total income 10,27,600 14,25,000
Tax on slabs 1,20,780 93,750
Add: cess at 4% 4,831 3,750
Tax payable 1,25,611 97,500

The new regime costs ₹28,111 less for this employee because the deductions (₹4,72,400 in all: HRA, professional tax, standard deduction and section 123) are below the break-even for a ₹15 lakh salary. See our post on saving tax by salary level.

TDS on salary

The employer deducts tax on salary under section 392(1) at the average rate on your estimated income for the year, after taking into account the evidence you give in Form 124 (Rule 205) and details of other income and previous employment (Form 122). It can adjust later months for any excess or shortfall (section 392(5)(c)). The employer pays the tax to the government and issues Form 130 by 15 June after the end of the year (Rule 215).

Documents you need to file the return

  1. Form 130, the TDS certificate for salary.
  2. AIS and the TDS statement on the e-filing portal, to reconcile TDS and any interest or other income.
  3. Rent receipts, landlord’s PAN, investment and loan statements for the old regime claims.
  4. Form 123, if the employer gives perquisite details separately.

If Form 130 and your AIS differ, ask your employer to correct the TDS return before you file, or report the figures you are able to support.

Frequently asked questions

What is included in salary for income tax?

Wages, any annuity or pension, gratuity, fees or commission, perquisites, profits in lieu of salary, advance salary, payment for leave not availed of, and certain provident fund and pension scheme items (section 16 of the Income-tax Act, 2025).

What deductions are allowed from salary?

Under section 19(1): professional tax (old regime only), the standard deduction (₹75,000 new regime, ₹50,000 old regime), and retirement items such as gratuity, leave encashment and commutation of pension within their limits.

Is the standard deduction available in both regimes?

Yes. It is ₹75,000 or the salary, whichever is less, in the new regime, and ₹50,000 or the salary, whichever is less, in the old regime.

Which form shows my salary and TDS?

Form 130, the TDS certificate for salary under section 395. The employer must furnish it by 15 June after the end of the tax year (Rule 215).

Do I need Form 124?

Give your employer Form 124 with evidence of HRA, LTA, home loan interest and Chapter VIII claims so that TDS is deducted on the right income (section 392(5)(b), Rule 205).

Where do I report salary in the return?

In the salary schedule of the return, using Form 130 and the figures in your AIS. Reconcile any difference before filing.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

RSU vs ESOP vs Sweat Equity Shares: Differences and Tax Treatment (2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 18 August 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • An ESOP is a right to buy shares at a fixed price; an RSU is a promise of shares for no payment once vesting conditions are met; sweat equity shares are issued at a discount or for know-how or similar value.
  • All three are taxed the same way under section 17(1)(d): fair market value on allotment less what you paid is a perquisite taxed as salary.
  • After that, the FMV becomes your cost of acquisition and the holding period runs from allotment; long-term gains on unlisted and foreign shares are taxed at 12.5% without indexation.
  • Company law differs: sweat equity is locked in for three years and capped, while ESOPs need a minimum one year between grant and vesting.

Companies share their ownership with employees in three common ways: employee stock options (ESOPs), restricted stock units (RSUs) and sweat equity shares. They look similar in an offer letter, but they differ in what you pay, when you get the shares and the company law rules behind them. The tax follows one pattern for all three.

What each one is

ESOP. The company grants you an option, a right but not an obligation, to apply for shares at a fixed price after the vesting period. You decide whether to exercise. Market price matters: if it is below the exercise price on the exercise date, you simply let the option lapse.

RSU. The company promises a number of shares, free of cost, once conditions are met. The conditions can be time-based (stay for a period), milestone-based (a target is reached) or both. If you leave before vesting, the RSUs are normally cancelled. RSUs are common with listed and foreign parent companies.

Sweat equity shares. Shares issued by a company to its employees or directors at a discount or for consideration other than cash, for providing know-how, intellectual property rights or value additions. They are allotted directly, not through an option.

Comparison

Point ESOP RSU Sweat equity shares
Nature Right to buy at a fixed price Promise of shares for no payment Shares issued at a discount or for non-cash value
Payment by employee Exercise price in cash Nothing Discounted price, or none
Employee’s choice Can choose not to exercise Receives the shares on vesting Receives the shares on allotment
Companies Act definition Section 2(37) and Rule 12 Not defined separately; Indian companies usually run RSUs under the employee stock option framework, so check the plan document Section 2(88) and section 54, Rule 8
Statutory lock-in None, company decides None, company decides Three years from allotment (Rule 8)
Statutory cap Not set by the Rules Not set by the Rules 15% of existing paid-up equity capital or ₹5 crore of issue value, whichever is higher, in a year, and 25% of paid-up equity capital in total (Rule 8(4)); relaxed for start-ups recognised by DPIIT for up to ten years from incorporation
Minimum vesting One year between grant and first vesting (Rule 12) As per plan Not applicable

The Companies Act points are from Rules 8 and 12 of the Companies (Share Capital and Debentures) Rules, 2014, checked against the text as amended up to 2020. They apply to a company other than a listed company that is not required to follow the SEBI regulations; a listed company follows the SEBI regulations on employee benefits and sweat equity instead. Both Rules require a special resolution. Rule 12 also excludes promoters, the promoter group and directors holding more than 10% from ESOPs, a restriction that does not apply to DPIIT-recognised start-ups for up to ten years from incorporation. Sweat equity is valued by a registered valuer (Rule 8(6)). The Rules are amended from time to time, so confirm the current text.

Income tax: one pattern for all three

Section 17(1)(d) of the Income-tax Act, 2025 taxes the value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the current or a former employer, free of cost or at a concessional rate. The value is the fair market value less the amount you paid or that was recovered from you (section 17(4)(h)).

Point ESOP RSU Sweat equity
Taxed at Exercise of the option Allotment of the shares on vesting Allotment
Perquisite FMV less exercise price The whole FMV (you paid nothing) FMV less the price you paid
Head Salaries, TDS under section 392 Salaries, TDS under section 392 Salaries, TDS under section 392

For the valuation rules (listed and unlisted shares, merchant banker, the 180 day window) and the eligible start-up deferral, see our post on ESOP taxation.

Foreign parent company shares

Rule 15(6) values a listed share as the average of the opening and closing price on a recognised stock exchange, and that term means a recognised Indian exchange. A share listed only abroad is, on the wording, “not listed on a recognised stock exchange”, which points to a merchant banker’s valuation under Rule 15(6)(d). The Rules do not say that the foreign market price can be used. In practice, employers and advisers commonly use the closing price on the foreign exchange on the vesting date, because a public quote exists. That is a convention, not a rule, so ask your employer which method it applies and keep the working. A merchant banker’s certificate is the safest support if the amount is large.

A value in a foreign currency is converted at the telegraphic transfer buying rate of the State Bank of India (Rules 206 and 207). For salary, the rate is that of the last day of the month before the month in which the salary is due, and for the sale of the shares (capital gains), the last day of the month before the month of transfer. The conversion dates are therefore different for the perquisite and for the sale.

On sale: capital gains

  • Cost of acquisition: the FMV taken as the perquisite (section 73, Table serial 4).
  • Holding period: from the date of allotment.
Shares Short-term if held for Short-term gain Long-term gain
Listed in India, sold on an exchange with STT paid 12 months or less 20% 12.5% on the gain above ₹1,25,000 in the year
Unlisted Indian shares 24 months or less Slab rates 12.5% without indexation
Foreign shares 24 months or less Slab rates 12.5% without indexation

Some articles show a 20% long-term rate for unlisted shares. For tax year 2026-27 the Act says 12.5% (section 197).

Example (RSU of a foreign parent): 100 RSUs vest and are allotted on 10/06/2026 when each share has an FMV of ₹2,000. Perquisite = ₹2,00,000 (nothing was paid), taxed as salary. You sell all 100 shares after 25 months at ₹2,600 each. Gain = (2,600 - 2,000) × 100 = ₹60,000, long-term, taxed at 12.5% without indexation = ₹7,500 plus cess (the ₹1,25,000 exemption applies only to listed Indian equity sold with STT).

Which is better

It depends on the company and your risk appetite.

  • An RSU is simpler: you pay nothing and have value whenever the shares have value, but you pay income tax on the whole value at vesting.
  • An ESOP needs your cash to exercise and may expire worthless, but the exercise price is fixed, so a large rise in the share price benefits you, and you choose when to trigger the tax.
  • Sweat equity is usually for founders and key people who bring know-how or intellectual property; the three year lock-in matters.

Employers rarely give you a choice, so the practical task is to know the tax at the moment the shares reach you and to keep money ready for it.

Frequently asked questions

What is the difference between RSU and ESOP?

An ESOP gives you the right, not the obligation, to buy shares at a fixed price after vesting. An RSU is a promise of shares at no cost once the vesting conditions are met, so you do not pay to receive them.

How are RSUs taxed in India?

When the shares are allotted to you, their fair market value less any amount you paid (usually nil) is a perquisite taxed as salary under section 17(1)(d), with TDS. Later, the gain over that value is a capital gain.

Are sweat equity shares taxed differently?

No. Section 17(1)(d) covers any specified security or sweat equity shares allotted free of cost or at a concessional rate. The tax on sale follows the same capital gains rules.

Is there any tax if I never exercise my ESOP?

No. A right that is not exercised is not taxed.

What is the lock-in for sweat equity shares?

Three years from allotment under Rule 8 of the Companies (Share Capital and Debentures) Rules, 2014. ESOP shares have no statutory lock-in; the company decides.

Which is better, an RSU or an ESOP?

Neither is better for every employee. An RSU always has value if the shares have value, because you pay nothing. An ESOP can give a bigger gain if the share price rises well above the exercise price, but you must pay to exercise and the options are worthless if the price stays below the exercise price.

Official sources

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Is ESOP Discount a Deductible Expense for the Employer? (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 17 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • The discount an employer gives on shares issued under an ESOP (market price less exercise price) has been held to be an allowable business expense, as employee compensation.
  • The leading rulings are the ITAT Special Bench and the Karnataka High Court in Biocon, followed by the Delhi High Court.
  • The Income-tax Act, 2025 has no separate provision for it, so the claim rests on the general deduction in section 34 (earlier section 37(1)).
  • The claim is spread over the vesting period, and the employee is separately taxed on the perquisite at exercise.

When a company issues shares to employees under an ESOP at less than the market price, it gives up value. Can the company claim that difference, the “discount”, as an expense in computing its business profits? For years the department said no. The courts have said yes.

The position in the Income-tax Act, 2025

The Act taxes the employee on the benefit: the fair market value on the exercise date less the exercise price is a perquisite (section 17(1)(d) and (4)(h)). It does not carry a matching rule for the employer’s deduction.

The employer’s claim therefore rests on the general deduction in section 34: expenditure, not capital or personal, laid out or expended wholly and exclusively for the purposes of the business or profession, which is not covered by the specific deduction sections. Section 34 corresponds to section 37(1) of the 1961 Act, on which the case law is based. We found nothing in the 2025 Act that changes the reasoning.

Why the department objected

The usual grounds were that no cash leaves the company on a share issue, that the discount is a notional loss of capital receipt rather than an expense, and that the liability is contingent until the employee exercises the option.

What the courts have held

  • Biocon Ltd v DCIT (ITAT Special Bench, Bangalore, 16/07/2013): the discount on ESOP shares is employee remuneration expenditure and allowable under section 37(1).
  • Karnataka High Court in Biocon (reported December 2020): the department’s appeal was dismissed. Where options vest over a period, for example 25% each year over four years, the employee gets a definite right to that portion at each vesting date and the company is bound to allow it. The discount is therefore an ascertained liability, not a contingent one. Section 37(1) does not require a cash pay out.
  • Delhi High Court: the department’s appeals were dismissed in line with Biocon, in the Lemon Tree Hotels matter, and the court has since followed Biocon in the matter reported as PVR Ltd v CIT.

The employer’s deduction is a business expenditure and the employee’s perquisite is a salary item, so one does not depend on the other.

How to claim it

  1. The reported rulings measure the discount as the market price on the grant date less the exercise price, and treat it as accruing as each tranche vests. Claim each tranche in the year it vests, use one method consistently, and take advice on the method before you adopt it.
  2. Keep the plan document, the board and shareholder approvals, the vesting schedule and the valuation with the return.
  3. Deduct and deposit TDS on the employee’s perquisite at exercise, and report it in Form 123 and the salary TDS certificate.
  4. Where the company is an eligible start-up under section 140, the employee’s tax is payable later (within 14 days of the earliest of 60 months, sale or leaving the job), but the employer’s deduction question remains the same.

Before you rely on this

  • The rulings turn on the facts and terms of the plans before the courts. A plan run through a trust, or one where the employer reimburses a trust, can raise separate questions, so look at your own plan terms.
  • The case summaries above are taken from the reports linked below. Read the full order before you quote it to a client.

Frequently asked questions

Is the ESOP discount deductible for the company?

Courts have held that it is employee compensation cost and an allowable business expenditure. The leading ruling is Biocon Ltd, where the ITAT Special Bench (2013) allowed it and the Karnataka High Court upheld that view.

Which section gives the deduction?

The Income-tax Act, 2025 has no section on ESOP discount specifically. The claim is under the general deduction for business expenditure in section 34, which replaced section 37(1) of the 1961 Act.

In which year is the deduction claimed?

The courts have followed the vesting. Where options vest over several years, each vesting gives the employee a definite right, so the discount for that portion is an ascertained liability of that year.

What is the discount?

The difference between the market price of the share and the price at which the option is exercised. The Karnataka High Court treated it as the cost of securing the employees’ services.

Does the employee also pay tax?

Yes. The employee is taxed on the same difference (FMV on exercise less exercise price) as a perquisite under section 17(1)(d). The employer’s deduction and the employee’s perquisite are separate computations.

Official sources

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.