Income Tax Eligibility in India 2026: Who Must Pay and File

Income tax eligibility determines whether your income is taxable and whether you must file an income-tax return (ITR). These are separate questions because a taxpayer may need to file even when no tax is payable.

• The new regime is the default, with a basic exemption limit of Rs. 4 lakh for individuals.
• Eligible resident individuals can receive a rebate of up to Rs. 60,000 on normal slab-rate income up to Rs. 12 lakh.
• Old-regime exemption limits are Rs. 2.50 lakh, Rs. 3 lakh or Rs. 5 lakh, depending on age.
• Filing can be mandatory even when the rebate reduces your tax to nil.
• Residential status determines whether Indian and foreign income are taxable in India.
• Home Loan deductions and most Section 80C benefits are available under the old regime.

Calculate your income from all sources, check any additional filing conditions and compare both regimes before submitting your return.

Individuals become liable to income tax when their taxable income falls within the applicable tax slabs. However, deductions and rebates can reduce the final amount payable to nil.

Under the new regime, the basic exemption limit is Rs. 4 lakh for individuals of every age. A resident individual with normal slab-rate income up to Rs. 12 lakh may receive a rebate of up to Rs. 60,000.

For example, Neha earns Rs. 9 lakh annually. Her tax before rebate is Rs. 30,000 under the new regime. The rebate reduces her tax to nil. However, her income exceeds the filing threshold, so she must ordinarily submit an ITR.

Income tax applies to different categories of taxpayers:

The Rs. 12 lakh rebate is available to eligible resident individuals, not automatically to every taxpayer category.

Under the new regime, the basic exemption limit is Rs. 4 lakh regardless of age. Under the old regime, it increases for senior citizens.

Last updated: 22nd October, 2026

The nil-tax salary limits come from adding the standard deduction to the rebate limit. A salaried employee deducts Rs. 75,000 under the new regime, or Rs. 50,000 under the old regime, before tax is worked out on the rest.

Under the new regime, a salary of Rs. 12,75,000 leaves taxable income of Rs. 12,00,000 after the standard deduction. The slab tax on that is Rs. 60,000, and the rebate under Section 87A of the Income-tax Act, 1961 cancels it in full. Under the old regime, a salary of Rs. 5,50,000 leaves Rs. 5,00,000 taxable, and the Rs. 12,500 tax on it is cancelled by the old regime rebate.

The rebate is available only to resident individuals, and only against tax on income at normal slab rates. These figures assume salary is your only income. From tax year 2026-27, the rebate continues as Section 156 of the Income-tax Act, 2025.

Source: Income Tax Department – Tax rates and computation.

The Rs. 12 lakh rebate is available to eligible resident individuals against tax calculated at normal slab rates. It does not eliminate tax on income subject to special rates.

Three distinctions matter:

1. Special-rate income

Specified capital gains, lottery winnings and certain other income are taxed separately.

For example, a resident with Rs. 10 lakh in salary income and Rs. 1 lakh in short-term capital gains on eligible listed shares may receive a rebate against the normal slab-rate tax. However, the Rs. 1 lakh short-term gain remains subject to the applicable 20% special rate. The resulting tax on those gains is Rs. 20,000, or Rs. 20,800 including 4% cess, assuming no other adjustments.

2. Marginal relief above Rs. 12 lakh

Marginal relief prevents tax immediately above Rs. 12 lakh from exceeding the amount by which eligible income crosses that threshold.

For taxable income of Rs. 12,10,000:

Marginal relief continues only until the applicable threshold, approximately Rs. 12.71 lakh.

3. Non-resident taxpayers

The Section 87A rebate is restricted to resident individuals.

For example, a non-resident with Rs. 10 lakh of income taxable at normal new-regime slab rates would pay Rs. 40,000 before cess, assuming no other adjustments.

Source: Income Tax Department – Budget 2026 FAQs.

You generally must file an ITR when your total income, calculated before specified deductions and exemptions, exceeds the applicable basic exemption limit. A nil tax liability after rebate does not automatically remove the filing requirement.

Additional conditions can make filing compulsory even when income remains below the ordinary threshold.

These conditions are subject to their statutory definitions and exceptions.

For example, Neha must ordinarily file an ITR on her Rs. 9 lakh salary even though the rebate reduces her tax to nil.

Some resident individuals aged 75 or above qualify for a separate filing exemption under Section 194P when the prescribed pension, interest and bank conditions are satisfied. Filing may also be necessary to claim a tax refund or carry forward certain losses.

Source: Income Tax Department – Who needs to file an ITR?.

Residential status determines the scope of income taxable in India. An individual can be resident and ordinarily resident (ROR), resident but not ordinarily resident (RNOR), or non-resident (NR).

The general residency tests consider whether an individual stays in India for at least 182 days during the year, or for at least 60 days during the year and 365 days across the preceding four years.

Special rules apply to Indian citizens and persons of Indian origin visiting India.

For specified visitors with Indian income exceeding Rs. 15 lakh, the relevant 60-day threshold can become 120 days. Other qualifying visitors may be subject to a 182-day threshold.

An Indian citizen with Indian income exceeding Rs. 15 lakh may also qualify as a deemed resident when not liable to tax elsewhere under the specified conditions.

RNOR status can apply when a resident was non-resident in nine of the previous ten years or stayed in India for 729 days or less during the previous seven years. Check your residential status annually, particularly if you work abroad or earn income in more than one country.

Source: Income Tax Department – Residential status.

The Income-tax Act classifies income into five heads for calculating taxable income.

Your gross total income is calculated after applying the relevant rules under these heads, including eligible adjustments. You then deduct the amounts permitted by your tax regime to arrive at total taxable income.

For example, an employee earning Rs. 12 lakh in salary and Rs. 40,000 in fixed-deposit interest must account for both sources.

Compare interest records with the Annual Information Statement (AIS) before filing.

The new regime offers progressive tax rates from nil to 30%, depending on taxable income.

New tax regime

Old tax regime for individuals below 60

Health and education cess of 4% generally applies to calculated tax, after relevant relief and rebate. Surcharge may apply at higher income levels.

The new regime is the default. Individuals without business or professional income can generally choose the old regime in their return, subject to filing requirements. Those with business or professional income must follow the prescribed opt-out process, including Form 10-IEA where applicable.

Source: Income Tax Department – Tax rates and computation.

The old regime offers several deductions that can reduce taxable income, including qualifying investments, insurance payments and Home Loan expenses.

Most of these benefits are unavailable under the new regime. However, the new regime does allow certain deductions. These include the applicable salary standard deduction, eligible family-pension deduction, employer NPS contributions and specified other statutory deductions.

Eligible let-out property interest is considered under house-property income rules. It is not a general Chapter VI-A deduction.

From Tax Year 2026–27, corresponding provisions under the Income-tax Act, 2025 use different section numbers, including Section 123 for eligible investments and payments previously covered by Section 80C.

Source: Income Tax Department – Deductions.

A tax regime with more deductions does not necessarily mean a lower tax bill.

Example: Tax on an Rs. 18 lakh salary

Arjun, a 32-year-old software engineer in Hyderabad, earns Rs. 18 lakh annually and plans to purchase a flat using a Home Loan. Assume he is a resident individual with only salary income and qualifies for the listed deductions.

Under these assumptions, the new regime saves Arjun Rs. 83,200, despite the deductions available in the old regime. 

However, suppose Arjun rents a qualifying property in Hyderabad while owning a self-occupied home in another city. If he additionally qualifies for an HRA exemption of Rs. 3 lakh, his old-regime tax becomes Rs. 1,40,400. In that case, the old regime saves Rs. 10,400 compared with the new regime.

The HRA figure is illustrative. Actual eligibility depends on rent paid, salary components, HRA received and applicable tax rules. The example shows why taxpayers should calculate their final liability under both regimes instead of choosing based on a single deduction.

Under the old regime, qualifying Home Loan interest can reduce house-property income, while eligible principal repayment falls within Section 80C.

Certain additional interest deductions under Sections 80EE and 80EEA remain relevant only to borrowers meeting their earlier loan-sanction windows and other conditions. These are not new benefits available to every Home Loan borrower in 2026.

Bajaj Finance Home Loan borrowers can use their interest certificates and repayment records when preparing eligible tax claims. If you are planning a property purchase, calculate the EMI independently of any expected tax saving. Deductions reduce taxable income; they do not reimburse the entire cost of borrowing.

The correct ITR form depends on your income sources, residential status and other filing conditions.

For AY 2026–27, ITR-1 can include income from up to two house properties and eligible long-term capital gains under Section 112A up to Rs. 1.25 lakh.

However, ITR-1 is unavailable to individuals with specified disqualifying circumstances, including short-term capital gains, foreign assets, directorship in a company, unlisted equity shares or agricultural income exceeding Rs. 5,000. Always check the current form instructions before filing.

Source: Income Tax Department – ITR-1 FAQs.

Errors or mismatches may lead to an income-tax query, adjustment or notice, depending on the circumstances.

Avoid these common mistakes:

• Assuming nil tax means no filing: Check the ordinary income threshold and additional mandatory filing conditions.
• Omitting interest income: Reconcile bank records with the AIS.
• Claiming ineligible deductions: Apply only the exemptions and deductions permitted under your chosen regime.
• Reporting incorrect tax credits: Compare your records with Form 26AS and the AIS, and resolve discrepancies.
• Using the wrong residential status: Review your stay in India and the applicable exceptions before reporting foreign income.

Not every mismatch automatically results in a notice, and an AIS entry is not necessarily correct simply because it appears in the system. If the information is inaccurate, use the appropriate correction or feedback process and retain supporting evidence.

Calculate your income under the five heads and check whether you meet an ordinary or additional filing requirement. Compare the old and new regimes using your actual eligible deductions. Then reconcile Form 26AS, the AIS and supporting documents.

Choose the correct ITR form and verify the submitted return.

If you are planning a home purchase, assess the full repayment obligation rather than relying on expected deductions alone. You can check your Home Loan eligibility with Bajaj Finance and use the Home Loan EMI Calculator to plan an affordable monthly repayment.