What is Income Tax? Meaning, Rules, Tax Slabs, Types and Tax Guide for Tax Year 2026-27

Last updated: 11 August 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Income tax is a direct tax on income, administered by the CBDT. Income up to 31 March 2026 is taxed under the 1961 Act and the Income-tax Act, 2025 applies from 1 April 2026.
  • The new regime is the default: nil tax up to ₹4 lakh, rising in steps to 30% above ₹24 lakh, with a ₹75,000 standard deduction and nil tax up to ₹12 lakh after the rebate.
  • Capital gains, lottery winnings and crypto income are taxed at special rates.
  • Choose the right ITR form, meet the due dates and pay tax through TDS, advance tax and self-assessment tax.

Income tax is the most important direct tax in India. It is charged on the income a person earns in a year, and it is administered by the Central Board of Direct Taxes (CBDT). Income earned up to 31 March 2026 (FY 2025-26, AY 2026-27) is taxed under the Income-tax Act, 1961. From 1 April 2026 a new law, the Income-tax Act, 2025, applies, and income is reported for a “Tax Year” (see our note on the Tax Year). Individuals can choose between the new and the old tax regime.

What is Income Tax?

Income tax is a tax on the income earned by a person in a year. The rate depends on the amount of income, the type of taxpayer and, for individuals, the regime chosen.

Who pays Income Tax?

The person who is liable to pay tax or any other sum under the Act is called the assessee. The Act recognises these kinds of persons:

  1. Individual
  2. Hindu Undivided Family (HUF)
  3. Company
  4. Firm, including a limited liability partnership (LLP)
  5. Association of Persons (AOP) or Body of Individuals (BOI)
  6. Local authority
  7. Artificial juridical person

The Income Tax Act

Under Article 265 of the Constitution, no tax can be levied or collected except under the authority of law. The rules for computing income, deductions, rates, surcharge, cess, due dates and penalties are in the Income-tax Act. After more than six decades of amendments the 1961 Act had become long and hard to follow, so the Income-tax Act, 2025 replaced it from 1 April 2026 with a simpler structure. Section numbers have changed, but most of the rates and rules are carried over.

The five heads of income

Income is computed under five heads: salary, income from house property, profits and gains of business or profession, capital gains, and income from other sources.

Income Tax Slab Rates

Individuals and HUFs are taxed on slab rates. The new regime is the default; an individual may opt for the old regime. Budget 2026 did not change the slab rates.

New tax regime

Total income Rate
Up to ₹4,00,000 Nil
₹4,00,001 to ₹8,00,000 5%
₹8,00,001 to ₹12,00,000 10%
₹12,00,001 to ₹16,00,000 15%
₹16,00,001 to ₹20,00,000 20%
₹20,00,001 to ₹24,00,000 25%
Above ₹24,00,000 30%
  • A standard deduction of ₹75,000 is allowed to salaried taxpayers and pensioners.
  • A rebate of up to ₹60,000 makes the tax nil for a total income up to ₹12 lakh (see rebate under section 87A).

Old tax regime (individuals below 60 years)

Total income Rate
Up to ₹2,50,000 Nil
₹2,50,001 to ₹5,00,000 5%
₹5,00,001 to ₹10,00,000 20%
Above ₹10,00,000 30%

The basic exemption limit is ₹3 lakh for resident senior citizens (60 to 79 years) and ₹5 lakh for resident super senior citizens (80 years and above) in the old regime. The standard deduction is ₹50,000 for salaried taxpayers and pensioners. The old regime allows many deductions and exemptions; the new regime allows very few.

Surcharge and cess

A surcharge is added to the tax of high-income individuals, and health and education cess of 4% is added on the tax plus surcharge. In the new regime the surcharge is capped at 25%.

Special tax rates

Income type Rate
Long-term capital gains on listed equity shares and equity mutual funds (held over 12 months) 12.5% on gains above ₹1.25 lakh in a year
Short-term capital gains on listed equity shares and equity mutual funds 20%
Long-term capital gains on other assets such as property and gold (held over 24 months) 12.5% without indexation
Winnings from lotteries, game shows, online games and betting 30% flat
Income from transfer of virtual digital assets (crypto assets) 30% flat

Debt mutual funds bought after 1 April 2023 and certain similar investments are taxed at your slab rate and not at the rates above.

Deductions

The following popular deductions are mainly available in the old regime:

  • Section 80C: up to ₹1.5 lakh for specified investments and payments.
  • Section 80CCD(1B): an additional ₹50,000 for contributions to the National Pension System.
  • Section 80D: health insurance premium and medical expenses.
  • Section 80E: interest on an education loan.
  • Section 24(b): interest on a home loan.
  • Sections 80TTA and 80TTB: interest on savings accounts, and for senior citizens interest from deposits.

The employer’s contribution to NPS under section 80CCD(2) is allowed in both regimes, up to 10% of salary in the old regime and 14% in the new regime. Under the Income-tax Act, 2025 these deductions carry new section numbers.

Income Tax Return (ITR)

Who need not file a return

  • A person whose total income is within the basic exemption limit (₹4 lakh in the new regime, ₹2.5 lakh in the old regime for those below 60) and who does not fall under the other mandatory filing cases.
  • A resident senior citizen aged 75 or more who has only pension and interest income from the same bank, where the bank deducts tax on the person’s declaration.

ITR forms

  • ITR-1: resident individuals with income up to ₹50 lakh from salary, one house property and other sources, and long-term capital gains under section 112A up to ₹1.25 lakh.
  • ITR-2: individuals and HUFs with capital gains, income above ₹50 lakh or no business income.
  • ITR-3: individuals and HUFs with business or professional income.
  • ITR-4: resident individuals, HUFs and firms (other than LLPs) opting for presumptive taxation, with income up to ₹50 lakh.
  • ITR-5: firms, LLPs, AOPs and BOIs.
  • ITR-6: companies other than those claiming exemption under section 11.
  • ITR-7: trusts and institutions under specified sections.

Documents to keep ready

Form 16, Form 26AS, the Annual Information Statement (AIS) and Taxpayer Information Summary (TIS), bank statements and interest certificates, proof of deductions, and your bank account details.

Due dates

The due dates are fixed each year and can be extended by the CBDT. For AY 2026-27 the usual dates were:

Taxpayer Due date
Individuals and others not requiring audit 31 July 2026
Taxpayers whose accounts require audit 31 October 2026, extended to 21 November 2026
Taxpayers with transfer pricing reports 30 November 2026

For the audit extension see our note on the ITR deadline extension for AY 2026-27. Late filing attracts a fee and interest.

How tax is paid

  • Tax deducted at source (TDS): the payer deducts tax from salary, interest, rent, professional fees and similar payments and deposits it with the government.
  • Advance tax: payable in instalments if the tax liability for the year is ₹10,000 or more: 15% by 15 June, 45% by 15 September, 75% by 15 December and 100% by 15 March. Taxpayers under presumptive taxation pay in one instalment by 15 March.
  • Self-assessment tax: any balance tax paid before filing the return.

Final Word

Income tax rules change often, especially around the move to the Income-tax Act, 2025. Choose the regime that suits you each year, keep your records ready, meet the due dates and take advice from a qualified professional where needed.

Frequently asked questions

What is income tax?

Income tax is a direct tax charged on the income a person earns in a year. In India it is administered by the Central Board of Direct Taxes and levied under the Income-tax Act.

Which tax regime is the default?

The new tax regime is the default. An individual can opt for the old regime, which allows deductions such as section 80C but has higher slab rates.

Is income up to ₹12 lakh really tax free?

In the new regime, a resident individual with total income up to ₹12 lakh pays no tax because of the section 87A rebate of up to ₹60,000. Salaried taxpayers get a further ₹75,000 standard deduction. Special-rate capital gains are not covered by the rebate.

What is the due date for filing an income tax return?

For AY 2026-27 the due date was 31 July 2026 for taxpayers not requiring audit, and 31 October 2026 for audit cases, extended to 21 November 2026. Due dates are fixed each year and can be extended.

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.

Income Tax Rebate Under Section 87A

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

Quick summary

  • Section 87A gives resident individuals a rebate of up to ₹60,000 in the new regime for total income up to ₹12 lakh, so no tax is payable.
  • In the old regime the rebate is up to ₹12,500 for total income up to ₹5 lakh.
  • Marginal relief in the new regime protects taxpayers whose income is only slightly above ₹12 lakh; the old regime has none.
  • The rebate is not available against tax on special-rate capital gains in the new regime, and it is calculated before the 4% cess.

How the section 87A rebate works

1. Compute total income after the deductions allowed in your regime
↓
2. Check the limit: ₹12 lakh in the new regime, ₹5 lakh in the old regime
↓
3. Compute tax on the slab rates before cess
↓
4. Rebate is the lower of the tax and ₹60,000 (new) or ₹12,500 (old)
↓
5. If income is just above ₹12 lakh in the new regime, apply marginal relief
↓
6. Add 4% health and education cess on the tax that remains

A rebate under section 87A is a reduction in tax for resident individuals whose total income is within a set limit. Under the new tax regime the rebate is up to ₹60,000 for a total income up to ₹12 lakh, so no tax is payable. Under the old tax regime the rebate is up to ₹12,500 for a total income up to ₹5 lakh. These limits applied to FY 2025-26 (AY 2026-27). Budget 2026 did not change the slab rates, so the same limits are being applied for Tax Year 2026-27.

What is Rebate Under Section 87A?

  • The rebate is a relief for low and middle income earners. It is available only to resident individuals.
  • It reduces the income tax payable, calculated on the slab rates before adding the 4% health and education cess.
  • If the rebate equals the tax payable, the taxpayer pays no income tax at all.
  • It is not available to HUFs, companies, firms or non-residents.

Eligibility Criteria for Rebate

  1. Only resident individuals are eligible.
  2. The total income, after the deductions allowed in the regime chosen, must not exceed:
    - ₹12 lakh under the new tax regime, or
    - ₹5 lakh under the old tax regime.
  3. The rebate is the lower of the limit (₹60,000 or ₹12,500) and the tax payable before cess.
  4. Under the new regime the rebate cannot be used against tax on capital gains taxed at special rates (sections 111A, 112 and 112A).

Section 87A Rebate Limit: New vs Old Tax Regime

Particulars New regime Old regime
Total income limit ₹12,00,000 ₹5,00,000
Maximum rebate ₹60,000 ₹12,500
Standard deduction for salaried and pensioners ₹75,000 ₹50,000
Marginal relief available Yes No

Because the standard deduction in the new regime is ₹75,000, a salaried taxpayer with a salary of up to ₹12,75,000 and no other income has a taxable income of ₹12 lakh or less and pays no tax.

Why ₹12 lakh gives nil tax in the new regime

Slab Rate Tax
Up to ₹4,00,000 Nil 0
₹4,00,001 to ₹8,00,000 5% 20,000
₹8,00,001 to ₹12,00,000 10% 40,000
Total tax on ₹12,00,000 60,000
Less: rebate 60,000
Tax payable 0

How to Claim the Rebate

  1. Calculate your gross total income for the year.
  2. Reduce the deductions allowed in the regime you have chosen.
  3. Arrive at your total income and compare it with the limit (₹12 lakh or ₹5 lakh).
  4. File your return with the correct income and deductions.
  5. The income tax portal calculates the rebate automatically if your income is within the limit.

Examples

1. New tax regime

Particulars Amount (₹)
Total income 12,00,000
Tax as per slab rates 60,000
Less: rebate under section 87A 60,000
Tax payable 0

Deductions such as section 80C are not available in the new regime.

2. Old tax regime

Particulars Amount (₹)
Gross total income 6,50,000
Less: deduction under section 80C 1,50,000
Total income 5,00,000
Tax as per slab rates 12,500
Less: rebate under section 87A 12,500
Tax payable 0

Incomes Not Eligible for the Rebate

The rebate cannot be claimed against tax on:

  • Long-term capital gains under section 112A and other capital gains taxed at special rates (new regime).
  • Short-term capital gains on listed equity under section 111A (new regime).
  • Income taxed at special rates, such as winnings from lotteries and games.

Marginal Relief in the New Tax Regime

If the total income is slightly above ₹12 lakh, the tax can be higher than the extra income earned above ₹12 lakh. Marginal relief makes sure the tax payable is not more than that extra income.

How to calculate it:

  1. Find the excess over ₹12 lakh (total income minus ₹12,00,000). Call it A.
  2. Compute the tax on the total income before cess. Call it B.
  3. If B is more than A, the rebate is B minus A, and the tax payable equals A.

Example

Mr. Ravi, a resident, has a total income of ₹12,15,000 in the new tax regime.

Step Amount (₹)
Excess over ₹12,00,000 (A) 15,000
Tax on ₹12,15,000 before cess (B): 60,000 on the first ₹12 lakh plus 15% of 15,000 62,250
Rebate (B minus A) 47,250
Tax payable before cess (equal to the excess income of ₹15,000) 15,000
Add: health and education cess at 4% 600
Total tax liability 15,600

The old regime has no marginal relief, so a taxable income just above ₹5 lakh loses the whole ₹12,500 rebate at once.

Section 87A and the Income-tax Act, 2025 (now section 156)

The Income-tax Act, 2025 applies from 1 April 2026, and the rebate of section 87A is now in section 156. Sub-section (1) gives the rebate of up to ₹12,500 where total income does not exceed ₹5 lakh. Sub-section (2) gives the rebate of up to ₹60,000 where total income does not exceed ₹12 lakh and the tax is computed on the new regime slab rates of section 202. For income earned up to 31 March 2026 (FY 2025-26, AY 2026-27) the Income-tax Act, 1961 and its section 87A still apply. The rules described here are the same under both Acts.

Frequently asked questions

Who can claim the rebate under section 87A?

Only resident individuals whose total income is within ₹12 lakh in the new tax regime or ₹5 lakh in the old tax regime. HUFs, companies, firms and non-residents cannot claim it.

How much is the section 87A rebate?

Up to ₹60,000 in the new tax regime and up to ₹12,500 in the old tax regime, limited to the tax payable before cess.

Is there tax if my income is ₹12 lakh in the new regime?

No. Tax on ₹12 lakh is ₹60,000 and the rebate of ₹60,000 brings it to nil. A salaried taxpayer with a salary up to ₹12,75,000 also pays no tax after the ₹75,000 standard deduction.

What is marginal relief on the rebate?

If income is slightly above ₹12 lakh in the new regime, marginal relief limits the tax to the amount of income above ₹12 lakh. The old regime has no marginal relief.

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.