A jargon-free walkthrough — what to file for FY 2025–26 under the Old Act, and how to plan smart for FY 2026–27 under the New Income Tax Act 2025.
Every month, before you even open your salary slip, a portion of your earnings is already gone — quietly sent to the government by your employer. No invoice. No reminder. No approval from you. It just happens.
Most salaried employees accept this without a second thought. But here's the thing — you are India's most reliable taxpayer. And in a system this significant, you deserve to actually understand how it works. Not in vague terms. Not in lawyer-language. In plain, honest words.
That is exactly what this guide is. Think of it as a conversation with a knowledgeable friend — one who will walk you through everything: the new tax law, your TDS, every deduction you are legally entitled to, and exactly what to do next.
Look at those numbers. Salaried employees — people with no way to defer, delay, or negotiate their taxes — contribute the largest single share of India's tax revenue. You are the engine that funds hospitals, highways, and schools. The least you can do for yourself is understand how much of that is yours to keep — and how to keep it.
Ready? Let's walk through it together — step by step, no jargon, no boring moments.
If you have heard about the "New Income Tax Act 2025" and wondered whether everything has changed — this is the section that will answer that. Spoiler: not yet. But it will, from April 1, 2026.
Here is what actually happened. India has been filing taxes under a law written in 1961. That law had over 800 sections, confusingly structured, full of cross-references, and frankly — quite hard to read. The government spent years rewriting it. The result: the Income Tax Act 2025, passed on August 21, 2025, with cleaner structure and plain language.
But — and this is the key — the new act does not apply yet. It takes effect from April 1, 2026. Everything until March 31, 2026 still runs on the old 1961 Act.
The new Income Tax Act 2025 does not change how much you pay — it just reorganises the rules under new section numbers and simpler language. Same amounts, same deductions, new addresses.
On top of which act applies (1961 or 2025), you also have a choice of regime — old or new. Think of it as two different menus at the same restaurant. One has more options (old regime) but costs more per dish; the other is a simpler set menu (new regime) at a lower price, but you can't mix and match.
| Feature | Old Regime | New Regime (Default) |
|---|---|---|
| Tax rates | Higher rates | Lower, more generous rates |
| Standard deduction | ₹50,000 — same in both acts | ₹75,000 — same in both acts |
| Zero-tax threshold | ~₹5.5L taxable income (with 87A + deductions) | ₹12L taxable income (or ₹12.75L salary income after ₹75K standard deduction) |
| HRA, 80C, 80D, home loan, 80DD, 80DDB | ✅ All available | ❌ Most not available |
| Is this the default? | ❌ You must actively opt in | ✅ Yes — silence = new regime |
| Best for | Heavy deductions: home loan + HRA + 80C maxed out | Simple salary, fewer investments, income ≤ ₹12.75L |
Throughout this guide, we keep the act and the regime clearly separate. Part A covers your current filing under the old act. Part B covers your future planning under the new act. Both use the regime framework above.
This is the most practical page in this guide. Your CA says "80C." Your new payslip from April 2026 says "Section 123." Same thing. Here is every section you will ever need, translated.
Think of the new act as a building that was completely renumbered. Room 80C on Floor 80 is now Room 123 on Floor 12. Same room, same furniture — just a new number on the door. Effective April 1, 2026.
| What It Covers | Old Section (Act 1961) | New Section (Act 2025, from Apr 1, 2026) |
|---|---|---|
| Salary TDS — your monthly tax deduction | Section 192 | Section 392 |
| Standard Deduction from salary | Section 16(ia) | Section 19 |
| Tax-free allowances — HRA, LTA, gratuity, leave encashment | Section 10 | Section 11 + Schedules II–VII |
| PPF, ELSS, LIC, PF, tuition fees (80C) | Section 80C / 80CCE | Section 123 |
| NPS — your own + employer contribution | Section 80CCD | Section 124 |
| Health insurance premium — self, family, parents | Section 80D | Section 126 |
| Dependent with disability — caregiver deduction | Section 80DD | Section 127 |
| Treatment of specified serious illnesses | Section 80DDB | Section 128 |
| Education loan interest — full amount, 8 years | Section 80E | Section 129 |
| Home loan interest — affordable housing bonus | Section 80EEA | Section 131 |
| EV loan interest | Section 80EEB | Section 132 |
| Donations to approved charity / PM funds | Section 80G | Section 133 |
| Tax rebate — zero tax up to ₹12 lakh | Section 87A | Section 156 |
| New / default tax regime | Section 115BAC | Section 202 |
| Home loan interest — main deduction (self-occupied) | Section 24(b) | Section 69 |
| Salary arrears relief | Section 89 | Section 157 |
These two are consistently underused — and they can mean very significant savings.
80DD (Section 127 from Apr 2026) — The Caregiver Deduction: Are you financially supporting a family member — spouse, child, parent, or sibling — who has a disability? You can claim a fixed deduction of ₹75,000 for normal disability or ₹1,25,000 for severe disability (80%+). This is not about how much you spent. It's a recognition that caregiving has a cost. You need a medical certificate + Form 10-IA.
80DDB (Section 128 from Apr 2026) — The Medical Treatment Deduction: If you or a dependent is being treated for a specified serious illness — cancer, chronic kidney disease, AIDS, Parkinson's, thalassemia, dementia, and others — you can claim the actual expenses paid, up to ₹40,000 (if below 60 years) or ₹1,00,000 (for senior citizens). You need a certificate from a specialist doctor in the prescribed format. Both sections are old regime only.
This is your immediate to-do list. Your salary from April 1, 2025 to March 31, 2026 is taxed under the old Income Tax Act 1961. Your employer currently deducts TDS under Section 192. Your ITR filing deadline is July 31, 2026. Everything in Part A — how TDS works, what you can deduct, and the full filing checklist — is about this year's return.
Let's demystify that monthly deduction on your payslip. Under the old Income Tax Act 1961, your employer calculates salary TDS under Section 192. Here is how they arrive at that number — six clear steps.
Imagine you are doing the calculation yourself, sitting with your employer's payroll team. This is exactly what they do, every April, for every employee — and then divide by 12 to get your monthly deduction.
Basic pay + HRA allowance + special allowance + bonus + any other components across all 12 months. This total is your Gross Salary — the starting number before any reductions.
If you pay rent and submitted receipts — HRA gets exempted here. If you travelled and have bills — LTA gets exempted. This step requires you to actively submit proof to your HR team. What you don't declare, you don't get.
This is automatic. Every salaried employee gets: ₹50,000 under the old regime, or ₹75,000 under the new regime. No proof, no form, no action. It simply gets applied.
Under the old regime, your employer also deducts the benefit of your investments: PF, LIC, PPF, ELSS, home loan interest, health insurance (80D), and even 80DD / 80DDB if you declared them. Under the new regime — skip this step entirely, it doesn't apply.
The number remaining after all deductions is your taxable income. Tax is calculated progressively using the slab rates. Then Section 87A rebate is applied — if your income qualifies, you may owe zero tax despite positive taxable income.
Your employer splits the annual tax into 12 equal monthly deductions. Paid more than your actual tax? You get a refund when you file your ITR. Paid less? You pay the balance when filing. The goal is to get as close to zero difference as possible.
New Regime (default): ₹0–3L = Nil · ₹3–7L = 5% · ₹7–10L = 10% · ₹10–12L = 15% · ₹12–15L = 20% · Above ₹15L = 30%. Section 87A rebate makes taxable income up to ₹12L zero tax. For salaried employees, this effectively means zero tax on salary income up to ₹12.75L — after the ₹75,000 standard deduction is applied first.
Old Regime: ₹0–2.5L = Nil · ₹2.5–5L = 5% · ₹5–10L = 20% · Above ₹10L = 30%. Section 87A gives full rebate up to ₹5L taxable income.
Most employers close investment proof submission in January or February. If you miss this window, your employer assumes zero deductions and deducts maximum TDS from your last 2–3 salary payments. You will eventually get that money back as a refund when you file — but you lose liquidity unnecessarily for months. Set a reminder for January every year. Without fail.
Here is the complete menu of what you are legally entitled to deduct for FY 2025–26. Many employees use only 80C and call it done. This table might surprise you.
| Deduction | Section | How Much Can You Claim | What Proof You Need |
|---|---|---|---|
| Standard Deduction | 16(ia) | ₹50,000 flat — automatically applied | None at all |
| HRA — House Rent Allowance | 10(13A) | Lowest of: actual HRA received, 50%/40% of basic (metro/non-metro), or rent paid minus 10% of basic | Rent receipts; landlord PAN if annual rent > ₹1 lakh |
| LTA — Leave Travel Allowance | 10(5) | Actual domestic travel cost — twice in a 4-year block | Travel tickets and bills |
| PPF, ELSS, LIC, PF, tuition fees | 80C / 80CCE | Up to ₹1,50,000 total across all instruments | Statements, premium receipts, account certificates |
| NPS — employee's additional contribution | 80CCD(1B) | Additional ₹50,000 over and above the ₹1.5L limit | NPS account statement |
| NPS — employer's contribution | 80CCD(2) | Up to 14% of basic (government employees) or 10% of basic (private sector) — also works in new regime! | Automatically from salary slip |
| Health insurance — self & family | 80D | ₹25,000 (self + family) + ₹25,000–₹50,000 extra for parents (age-dependent) | Premium receipts from insurer |
| Dependent with disability — caregiver | 80DD | Fixed: ₹75,000 (normal disability) or ₹1,25,000 (severe — 80%+ impairment) | Medical certificate + Form 10-IA |
| Specified disease treatment expenses | 80DDB | Actual expenses: up to ₹40,000 (under 60 yrs) or ₹1,00,000 (senior citizens) | Specialist doctor certificate in prescribed format |
| Education loan interest | 80E | 100% of interest paid, no upper cap, for up to 8 consecutive years | Annual interest certificate from lender |
| Home loan interest — self-occupied | 24(b) | Up to ₹2,00,000 per year | Interest certificate from bank |
| Home loan — affordable housing bonus | 80EEA | Additional ₹1,50,000 (stamp value ≤ ₹45L, first-time buyer) | Loan sanction letter, stamp duty certificate |
| EV loan interest | 80EEB | Up to ₹1,50,000 per year | EV loan interest statement |
| Donations — approved organisations | 80G | 50% or 100% of donation (depends on the organisation) | Receipt + 80G certificate from the organisation |
| Tax rebate — zero tax up to ₹5L income | 87A | Full rebate — effectively zero tax if taxable income ≤ ₹5L | Applied automatically when you file |
80DD is about who you support. If you financially care for a disabled dependent — even one with zero income of their own — you get a fixed deduction just for being their caregiver. Your actual spending doesn't determine the amount; the disability certificate does.
80DDB is about what you paid. This is about actual medical expenses — chemotherapy, dialysis, anti-retroviral treatment, and other specialised treatments. You claim what you actually spent, subject to the cap. Both are exclusively for the old regime, and both are mapped to new sections 127 and 128 from April 1, 2026.
Most employees assume the new regime is all sacrifice and no benefit. That's not entirely accurate. A few things still work — and some of them are quite valuable.
| What You Still Get | Section | Amount / Condition |
|---|---|---|
| Standard Deduction | 16(ia) | ₹75,000 — higher than old regime |
| Employer NPS contribution | 80CCD(2) | Up to 10% of basic salary — fully deductible, works in new regime |
| Gratuity exemption | 10(10) | Up to ₹20 lakh (private sector) |
| Leave encashment on retirement | 10(10AA) | Up to ₹25 lakh |
| Tax rebate | 87A | Zero tax up to ₹12L income — effectively ₹12.75L for salaried after standard deduction |
| Perquisites via salary restructuring | 17(2) | Meal vouchers, phone reimbursements, car lease — partial exemptions still apply |
Add up your total expected deductions under old regime: 80C + 80D + HRA exemption + home loan interest + 80DD/80DDB + any others. In many cases, if the total exceeds roughly ₹3.5–4 lakh, the old regime may become more beneficial — but this breakeven point varies with your income slab. Always run the actual numbers before deciding.
Still not sure? The Income Tax portal has a free regime comparison calculator. Enter your numbers and it tells you the better option in under 2 minutes. Use it before you declare your regime to HR.
Think of this as your pre-flight checklist. Missing any item here is what leads to tax notices, missed refunds, or last-minute panic. Click each item to mark it done as you go.
You now understand how your TDS works, what you can deduct this year, and exactly what to check before filing. The checklist above is your complete guide to a clean FY 2025–26 return. Now let's look ahead — Part B is about the new act and planning smart for FY 2026–27.
From April 1, 2026, the Income Tax Act 2025 takes over. Your first payslip of April 2026 will reflect TDS under Section 392 instead of Section 192. The good news: your tax rates, deduction amounts, and core benefits remain unchanged. What changes is the rulebook they come from — and a few genuine improvements in the process. Part B tells you exactly what to expect and how to prepare before April arrives.
From April 1, 2026, salary TDS moves from Section 192 to Section 392 of the new act. The calculation steps from Part A stay exactly the same. Here is a direct comparison so you know what has and has not changed.
Your payroll software will switch automatically — you do not need to do anything technical. But understanding what changed is important when reviewing payslips, querying HR, or understanding any deduction differences.
| TDS Feature | Old Act 1961 (till March 31, 2026) | New Act 2025 (from April 1, 2026) |
|---|---|---|
| Salary TDS section | Section 192 | Section 392 |
| Tax rates | Per Finance Act slabs | Same rates — no change |
| Standard deduction — old regime | ₹50,000 | ₹50,000 — unchanged |
| Standard deduction — new regime | ₹75,000 | ₹75,000 — unchanged |
| Default regime | New regime (since FY 2023–24) | New regime — continues as default |
| Refund on excess TDS | File ITR to claim | Now claimable even on a delayed ITR filing |
| Employer reporting | Quarterly TDS returns | Digital-first, simplified, more automated |
At the start of every financial year, your employer will ask for your regime preference for the coming year. For FY 2026–27, this declaration will happen in March–April 2026. Do not ignore this prompt. If you want old regime benefits (80C, HRA, 80D, 80DD, 80DDB etc.), you must explicitly opt in. Silence means new regime — by law. Make this decision thoughtfully, based on your actual FY 2026–27 investment plans.
The most important thing to confirm: your deductions and exemption amounts are unchanged under the new act. The only thing that moves is the section number. Here is the formal confirmation.
| Regime | Under Old Act 1961 (till Mar 31, 2026) | Under New Act 2025 (from Apr 1, 2026) |
|---|---|---|
| Old Regime | ₹50,000 | ₹50,000 — no change |
| New Regime | ₹75,000 | ₹75,000 — no change |
| Deduction | Old Section (till Mar 31, 2026) | New Section (from Apr 1, 2026) | Limit — Unchanged |
|---|---|---|---|
| PPF, ELSS, LIC, PF, tuition fees | 80C | Section 123 | ₹1,50,000 |
| NPS — employee & employer contribution | 80CCD | Section 124 | 14% basic (govt) / 10% basic (private) — employer; ₹50K extra — employee |
| Health insurance premium | 80D | Section 126 | ₹25,000–₹1,00,000 |
| Dependent with disability — caregiver | 80DD | Section 127 | ₹75,000 / ₹1,25,000 |
| Specified disease treatment | 80DDB | Section 128 | ₹40,000 / ₹1,00,000 |
| Education loan interest | 80E | Section 129 | Full interest, 8 years, no cap |
| Home loan interest — self-occupied | 24(b) | Section 69 | ₹2,00,000 |
| EV loan interest | 80EEB | Section 132 | ₹1,50,000 |
| Tax rebate — zero tax up to ₹12L | 87A | Section 156 | Up to ₹12L income |
For the first time, you can read a tax section yourself and understand it — without needing a CA to translate every clause.
"Previous Year" + "Assessment Year" is gone. It's simply "Tax Year 2026–27." Less confusion on every form you ever fill.
Better pre-filled ITRs, faster refund processing, and more faceless interactions with the department from April 2026.
Type any old section number → get the new one instantly. Bookmark the Income Tax portal's mapping tool in April 2026.
Everything in Part B applies only from April 1, 2026. Until March 31, 2026, your payslips and Form 16 will reference old section numbers (192, 80C, 80D, etc.). After April 1, 2026, the new act takes over. During the March–April 2026 transition, it is normal to see both old and new section references simultaneously — this is expected and not an error.
This is not a filing checklist — it is a planning checklist. Every item here is about setting yourself up for optimal tax efficiency from Day 1 of FY 2026–27. The earlier you act, the more you save across the full year.
These are not tricks. These are things you are fully entitled to — things that are sitting on the table, unclaimed, year after year. Each one works under both the old and new acts.
Ask HR to route up to 14% of your basic as employer NPS (Section 80CCD(2) → Section 124 from Apr 2026). This deduction works in both regimes. It is salary restructuring, not an out-of-pocket investment.
Many employees estimate instead of calculating. HRA exemption is the lowest of three values: HRA received, 50%/40% of basic, or rent paid minus 10% of basic. A CA can help if the numbers are complex.
80D gives ₹25,000 extra for parents' premiums — or ₹50,000 if either parent is a senior citizen. You protect them and reduce your tax. Old regime only.
If you support a disabled family member or are paying for serious medical treatment — these deductions exist precisely for you. Most employees don't even know they qualify. Check once a year.
If both spouses are co-owners of the property, co-borrowers on the loan, and both contribute to EMI payments — each may independently claim up to ₹2L interest under Section 24(b). All three conditions must be met. Old regime only.
HR deadlines are usually January–February. Miss it and your employer assumes zero deductions for the remaining months of the year. Calendar reminder, every January. Non-negotiable.
Section 80E (Section 129 from Apr 2026) allows 100% of interest paid as a deduction for 8 consecutive years. No upper limit. Even co-borrower parents can claim it independently.
Section 80EEB (Section 132 from Apr 2026): up to ₹1.5L of interest on an EV loan is deductible. Good for the planet, good for your wallet. Old regime only.
Do you receive ESOPs or RSUs from a US or UK listed company? Did you have a bank account abroad when you worked overseas? Have you inherited property from a relative who lived abroad? If yes — the next few paragraphs are not optional reading.
If you are a Resident and Ordinarily Resident (ROR) in India — which most employees who have lived in India for the past few years are — you are legally required to declare all foreign assets in your ITR every single year. Even if those assets earned nothing. Even if they are worth very little. Even if you forgot about them.
Under the Black Money Act 2015, failure to disclose foreign assets can attract: a penalty of up to ₹10 lakh for failure to disclose in Schedule FA (applicable per year of default), taxation of the full asset value at 30%, and in serious cases, imprisonment of 6 months to 7 years. The Income Tax Department cross-matches ESOP data from company filings and uses international exchange agreements to identify undisclosed foreign holdings. "I didn't know" is not a legal defence.
| Asset Type | Where to Disclose | Must Declare Even If... |
|---|---|---|
| Foreign bank accounts | Schedule FA in ITR-2 | Dormant, zero balance, inactive for years |
| ESOPs / RSUs (foreign-listed company) | Schedule FA (until sold) | Not yet exercised or sold |
| Foreign shares & mutual funds | Schedule FA | No dividend has ever been received |
| Property abroad | Schedule FA | Inherited, gifted, or bought long ago |
| Overseas retirement accounts (401k, IRA etc.) | Schedule FA | Still with a previous employer's plan |
| Foreign income — salary, rental, dividends | Schedule FSI | Tax was already paid in that country — claim DTAA relief too |
Budget 2026 announced a one-time six-month voluntary disclosure window for small taxpayers — including salaried employees who missed disclosing modest foreign assets in past years. Declare now, and receive immunity from prosecution. This window is time-limited. If this applies to you — do not wait. Speak to a CA before it closes.
A CBDT circular dated August 20, 2025 confirmed that prosecution will not be initiated for movable foreign assets with a total value below ₹20 lakh at any point during the year. This protects many employees with small ESOP holdings or modest foreign bank balances. But a penalty for non-disclosure may still apply independently of prosecution. It is always safer — and simpler — to just declare. Use ITR-2 or ITR-3, not ITR-1 or ITR-4 (which do not have Schedule FA).
You just walked through the most significant change in India's tax law in over 60 years. And if you followed this guide, you now understand it better than most people filing returns right now — including many who have been doing it for decades.
Here is what to do next. For FY 2025–26: use the Part A checklist, compare your regimes, don't skip 80DD or 80DDB if they apply to you, and declare any foreign assets. File before July 31, 2026. For FY 2026–27: declare your regime to HR before April 2026, map your deductions to new section numbers, and use the planning checklist in Part B.
The new Income Tax Act 2025 is a genuine improvement. Simpler language, cleaner structure, more automated compliance. It doesn't take more from you — it just makes the rules easier to read. That is a good thing, and you are now prepared to use it to your advantage.
You are the backbone of India's tax system. Every month, quietly and reliably, you contribute before you even see your salary. The least you can do for yourself is make sure it's the exact right amount — and not a single rupee more.
File smart. Plan ahead. And keep more of what you earn.
This guide is written for informational and educational purposes only. It does not constitute legal, financial, or tax advice. Tax laws are subject to change and individual circumstances vary. Section references are based on the Income Tax Act 1961 (as amended) and the Income Tax Act 2025, as available at the time of writing (March 2026). Please consult a qualified Chartered Accountant or tax professional for personalised advice specific to your situation.