Income Tax Compliances in India

Income tax compliance in India is a multifaceted area governed primarily by the Income-tax Act, 1961, and supplemented by various rules, notifications, and judicial pronouncements. The Indian direct tax system is undergoing significant reforms, with the proposed Income Tax Bill, 2025, aiming to replace the existing Act. This new bill, currently under parliamentary review, seeks to simplify the complex tax structure and enhance taxpayer convenience. As of July 26, 2025, a parliamentary select committee has submitted its report with around 285 suggestions, including crucial recommendations on TDS refunds and the taxation of non-profit organizations.

Key Aspects of Income Tax Compliances

1. Understanding the Income Tax Framework

• Basic Structure: The Income-tax Act, 1961, defines the scope of income, heads of income, and various deductions and exemptions. The new Income Tax Bill, 2025, aims to introduce a simplified and modern framework. (More on Structure of Income Tax Act)
• Key Definitions: Understanding terms like 'person', 'assessment year', 'previous year', and 'total income' is fundamental. The new bill proposes replacing the dual concepts of "previous year" and "assessment year" with a single, unified approach. (More on Key Definitions)
• Important Concepts: Concepts such as residential status play a crucial role in determining the scope of taxable income for an individual or entity. (More on Important Income Tax Concepts | More on Residential Status)
• Heads of Income: Income is classified into five main heads:
  • Salaries: (More on Income from Salaries)
  • Income from House Property: The parliamentary panel has recommended clarifying the 30% standard deduction and extending home loan interest exemption to rented properties in the new bill. (More on Income from House Property)
  • Profits and Gains from Business or Profession: (More on Business/Profession Income)
  • Capital Gains: (More on Capital Gains)
  • Income from Other Sources: (More on Income from Other Sources)

2. Income Tax Slab Rates (FY 2025-26 / AY 2026-27)

For the Financial Year 2025-26 (Assessment Year 2026-27), significant changes have been proposed in the new tax regime, which is now the default option. The old tax regime continues to be available as an option.

New Tax Regime (Default Regime)

The basic exemption limit has been increased from Rs. 3 lakh to Rs. 4 lakh. Additionally, the rebate under Section 87A has been enhanced, making income up to Rs. 12 lakh (Rs. 12.75 lakh for salaried taxpayers with standard deduction) effectively tax-exempt.

Surcharge rates under the new tax regime remain the same, with a maximum of 25% for income above Rs. 5 crore.

(Old Tax Regime vs. New Tax Regime | Charge of Income Tax | Income Tax Calculator)

Old Tax Regime (Optional)

The slab rates under the old tax regime remain unchanged for FY 2025-26:

Different basic exemption limits apply based on age under the old regime (e.g., Rs. 3 lakh for senior citizens aged 60 to below 80, Rs. 5 lakh for super senior citizens aged 80 and above).

3. Deductions and Exemptions (Chapter VI-A)

While the new tax regime allows fewer deductions, the old regime offers a wide array of tax-saving avenues. Key deductions include:

• Section 80C, 80CCC, 80CCD: Investments in EPF, PPF, ELSS, NPS, life insurance premiums, etc., up to Rs. 1.5 lakh. (Section 80C | Section 80CCC | Section 80CCD(1) | Section 80CCD(1B) | Section 80CCD(2))
• Section 80D: Health insurance premiums. (Section 80D)
• Section 80E: Interest on education loan. (Section 80E)
• Section 80EE/80EEA/80EEB: Interest on home loans for affordable housing or electric vehicles. (Section 80EE | Section 80EEA | Section 80EEB)
• Section 80G: Donations to charitable institutions. (Section 80G)
• Section 80TTA/80TTB: Interest from savings accounts for individuals/HUFs (up to Rs. 10,000) and senior citizens (up to Rs. 50,000). (Section 80TTA | Section 80TTB)
• Other Exemptions: Section 10 covers various exempt incomes. (More on Section 10 Exemptions)
• Chapter VI-A Deductions: (More on Chapter VI-A Deductions)

4. Tax Deducted at Source (TDS) & Tax Collected at Source (TCS)

TDS and TCS are mechanisms for collection of tax at the very source of income. The new Income Tax Bill, 2025, aims to simplify TDS/TCS processes and the parliamentary panel has suggested simplifying refund procedures, especially for small taxpayers.

• Key TDS Sections:
  • Section 192: Salaries (Section 192)
  • Section 194A: Interest other than interest on securities. The threshold for TDS on interest received by senior citizens has been doubled to Rs. 1 lakh from Rs. 50,000 for FY 2025-26. (Section 194A)
  • Section 194C: Payments to contractors. (Section 194C)
  • Section 194I: Rent payments. The TDS limit on rent has been increased from Rs. 2.4 lakh to Rs. 6 lakh per annum for FY 2025-26. (Section 194I)
  • Section 194J: Professional fees. (Section 194J)
  • Section 194Q: Purchase of goods (if turnover exceeds Rs. 10 crore and purchase value exceeds Rs. 50 lakh). (Section 194Q)
  • Section 194N: Cash withdrawals. (Section 194N)
  • Section 194S: Transfer of Virtual Digital Assets (VDA). (Section 194S)
  • Section 194R: Benefits or perquisites in business or profession. (Section 194R)
  • Section 206AB: Special provision for non-filers of income tax return. Sections 206AB and 206CCA are proposed to be omitted from April 2025 to reduce compliance burden. (Section 206AB)
• Key TCS Sections:
  • The threshold for TCS on overseas remittances under the Liberalized Remittance Scheme (LRS) has been increased to Rs. 10 lakhs from Rs. 7 lakhs for FY 2025-26. No TCS will be applicable on remittances for educational loans from financial institutions.
  • Section 206CCA: Special provision for non-filers of income tax returns (for TCS). (Section 206CCA)
• TDS/TCS Certificates and Statements: Form 16, Form 16A, Form 24Q, Form 26Q, Form 27Q, Form 27EQ are crucial for compliance. (Form 16 | Form 16A | Form 24Q | Form 26Q | Form 27Q | Form 27EQ)
• (Advance Tax | TDS Guide | TCS Guide)

5. Income Tax Return (ITR) Filing

Filing Income Tax Returns is a mandatory annual compliance for most individuals and entities.

• ITR Forms Applicability: Different ITR forms (ITR-1 to ITR-7) are prescribed based on the type of income and taxpayer. (ITR Forms Applicability | ITR-1 | ITR-2 | ITR-3 | ITR-4 | ITR-5 | ITR-6 | ITR-7)
• Due Dates: The general due date for individuals and HUFs is July 31 for the relevant assessment year, while for businesses requiring an audit, it is October 31. For FY 2024-25 (AY 2025-26), the last date for completion of tax audit is September 30, 2025. (Return Due Dates)
• E-filing Walkthrough: The Income Tax Department provides an online portal for e-filing returns. (E-filing Walkthrough)
• Updated Return (ITR-U): The time limit for filing an updated return (Section 139(8A)) has been extended from 24 months to 48 months from the end of the relevant assessment year for FY 2025-26. This allows taxpayers to update previously undisclosed income. (Section 139(8A))
• Belated and Revised Returns: Provisions for filing returns after the due date or revising an already filed return exist. (Belated Return | Revised Return)
• TDS Refunds: A significant recommendation from the parliamentary panel for the new Income Tax Bill, 2025, is to allow taxpayers to claim TDS refunds even after the ITR filing due date without paying any penal charges. This would benefit many small taxpayers whose income is below taxable limits but have had tax deducted at source.

6. Tax Audit Requirements (Section 44AB)

Certain businesses and professionals are required to get their accounts audited by a Chartered Accountant.

• Turnover Limits for FY 2025-26 (AY 2026-27):
  • Businesses:
    • General Limit: Turnover exceeding Rs. 1 crore.
    • Enhanced Limit for Digital Transactions: Turnover exceeding Rs. 10 crore if 95% or more of both total receipts and total payments are carried out through digital modes. The new bill also mentions a proposed increase to Rs. 15 crore for such businesses.
  • Professionals: Gross receipts exceeding Rs. 50 lakhs.
• Presumptive Taxation Schemes:
  • Section 44AD: For small businesses with turnover up to Rs. 3 crore (if digital transactions are 95% or more; otherwise Rs. 2 crore). Assessees can declare income at a presumptive rate (typically 6% for digital receipts, 8% for others). (Section 44AD)
  • Section 44ADA: For certain professionals with gross receipts up to Rs. 75 lakh (if digital receipts are 95% or more; otherwise Rs. 50 lakh). Assessees can declare income at a presumptive rate (50% of gross receipts). (Section 44ADA)
• Audit Forms: The audit report is submitted in Form 3CA/3CB along with Form 3CD. (Form 3CA | Form 3CB | Form 3CD)
• (More on Tax Audit under Section 44AB)

7. Penalties and Prosecution

Non-compliance with income tax laws can lead to penalties and even prosecution.

• Common Penalties: Penalties are imposed for late filing of returns, concealment of income, under-reporting of income, etc. (Common Penalties | Penalty Proceedings)
• Prosecution Provisions: Serious offenses like willful evasion of tax can lead to prosecution. (Prosecution Provisions)

8. Assessment and Appeals

The Income Tax Department conducts various types of assessments, and taxpayers have the right to appeal against unfavorable orders.

• Types of Assessment: Includes summary assessment (Section 143(1)), scrutiny assessment (Section 143(3)), best judgment assessment (Section 144), and re-assessment (Section 147/148). (Types of Assessment | Section 143(1) | Section 143(2) | Section 143(3) | Section 144 | Section 147 | Section 148)
• Appeals Hierarchy: The appeal process typically involves the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal. (Appeals Hierarchy | Section 250)

9. Other Important Compliances and Concepts

• PAN: Permanent Account Number is essential for all financial transactions. (What is PAN | How to Apply for PAN)
• Annual Information Statement (AIS) and Taxpayer Information Summary (TIS): These statements provide a comprehensive view of a taxpayer's financial transactions, aiding in accurate return filing.
• Double Taxation Avoidance Agreements (DTAA): Agreements with other countries to avoid double taxation on income. (DTAA India)
• HUF Income Tax: Specific provisions apply to Hindu Undivided Families. (HUF Income Tax)
• Income Tax Notices: Various types of notices are issued by the Income Tax Department. (Income Tax Notices)