Basics of Income Tax in India

Who Is Liable to Pay Income Tax?

Income tax can apply to different categories of persons, including individuals, Hindu undivided families (HUFs), companies, firms, associations of persons (AOPs), bodies of individuals (BOIs), local authorities and artificial juridical persons. Trusts, societies and other entities may also have tax obligations depending on their legal character, income, registration and exemptions.

Tax liability cannot be determined only by asking whether income exceeds one universal threshold. Different taxpayers are subject to different rates, exemptions, special provisions and return-filing requirements. A person can also be required to file a return in specified circumstances even where ordinary taxable income is below a slab threshold.

Residential Status and Scope of Taxable Income

Residential status is a fundamental part of Indian income-tax law. A resident may be taxable on a wider scope of income than a non-resident, subject to the statutory residence rules and applicable relief. A non-resident is generally taxed in India on income received, deemed to be received, accruing or arising, or deemed to accrue or arise in India, as provided by law.

For cross-border income, an applicable Double Taxation Avoidance Agreement may affect taxability, withholding or relief. Taxpayers should consider both domestic law and the relevant tax treaty where applicable.

Five Heads of Income

For computation purposes, taxable income is classified into five principal heads. The classification matters because each head has its own computation rules, deductions and restrictions:

1. Salaries: salary, wages, pension and taxable allowances or perquisites that fall within the salary provisions.
2. Income from house property: income determined under the statutory rules for buildings and associated property, including applicable rules for let-out and self-occupied property.
3. Profits and gains of business or profession: taxable profits from business, profession or vocation after applying the relevant computation and deduction provisions.
4. Capital gains: gains arising from transfer of capital assets where chargeable under the capital-gains provisions, subject to asset-specific rules and exemptions.
5. Income from other sources: taxable income not properly chargeable under the other heads, such as specified interest, dividends and other receipts governed by this residual head.

The official statutory text and current tax resources are available from the Income Tax Department.

Gross Total Income and Total Income

Gross total income broadly represents income computed under the applicable heads after applying the relevant aggregation and set-off provisions, but before deductions that the law permits to be made from gross total income.

Total income, commonly called taxable income, is the amount determined after applying the deductions and other computation provisions allowed under the tax regime applicable to the taxpayer. Not every deduction available under one regime is available under another.

The older article referred generally to Chapter VI-A deductions under the Income-tax Act, 1961. For proceedings governed by that Act, those provisions remain relevant where saved. For current tax years under the Income-tax Act, 2025, the corresponding provisions of the new Act must be used.

Individual Tax Regimes and Current Rate Structure

India has operated a default concessional tax regime alongside an optional old regime for eligible individual-type taxpayers. The regime selected affects slab rates and the availability of many exemptions and deductions. The correct rates must be checked for the relevant tax year because Finance Acts can change them.

For Assessment Year 2026-27 under the Income-tax Act, 1961 transition period, the official e-filing guidance states that the default new-regime slab rates are:

For AY 2026-27, official guidance also provides a section 87A rebate of up to Rs. 60,000 for eligible resident individuals under the new regime where total income does not exceed Rs. 12,00,000, subject to the statutory conditions and treatment of income taxable at special rates. Marginal relief may apply in specified cases. These provisions should not be confused with the basic nil-rate slab.

For later tax years governed by the Income-tax Act, 2025, taxpayers should use the rates enacted for that tax year rather than reusing an earlier assessment year's table. Current return and tax information can be checked through the Income Tax e-Filing Portal.

Income Tax Return, TDS and Payment of Tax

Tax can be collected through tax deducted at source (TDS), tax collected at source (TCS), advance tax, self-assessment tax and other statutory mechanisms. Credit for eligible tax already paid or deducted is taken into account while determining the final amount payable or refundable.

An income-tax return reports income, deductions, taxes paid and other prescribed information. The correct ITR form depends on the taxpayer category and nature of income. Filing obligations are governed by statutory provisions and may arise from income levels or other specified conditions.

PAN, Aadhaar-related requirements where applicable, bank details, Form 26AS, the Annual Information Statement and relevant tax certificates and records should be reviewed before filing. Returns and most taxpayer services are available through the official e-filing portal.