Most people don’t think twice about the Income Tax Act until July rolls around and the filing deadline starts looming. But by the time you actually open your tax portal, the underlying rules have already fixed your liability. The law itself goes all the way back to April 1, 1962. It spans 298 sections across 23 chapters and 14 schedules, and Parliament tinkers with it every single year through the Finance Act. That means the actual tax rules you follow depend entirely on what changed in that specific year’s budget.
Section 4: Where the Charge Begins
Section 4 is the actual engine of the entire Act it’s the charging section that gives the government legal authority to levy and collect income tax for any assessment year.
Here’s the twist: if you look through the Income Tax Act itself, you won’t find the tax rates anywhere. Those sit inside the First Schedule of the annual Finance Act. The Income Tax Act just builds the structural house; the Finance Act drops in the exact numbers every year.
How Income Is Classified: The Five Heads
Section 14 forces every single rupee of income into one of five distinct buckets. Each bucket comes with its own charging rules, allowed deductions, and tax math:
- Salaries (Section 15): Taxes salary due from your employer whether they’ve paid you yet or not, taxes advance pay when received, and catches back-pay/arrears when settled if they weren’t taxed earlier.
- House Property (Section 22): Taxes the annual value of real estate you own, assuming you aren’t using the property to run your own business or profession.
- Profits and Gains of Business or Profession (Section 28): Covers self-employment and business profits, including payouts you get for modifying or cancelling a business contract.
- Capital Gains (Section 45): Taxes the profit you make whenever you sell or transfer a capital asset.
- Income from Other Sources (Section 56): The catch-all bucket for money that doesn’t fit the first four—things like bank interest, stock dividends, or lottery winnings.
The Two Tax Regimes
Starting in AY 2024-25, the new regime under Section 115BAC became the default choice. You can still pick the old regime, but you have to deliberately opt into it.
The tradeoff is simple on paper, though it takes a bit of math in practice. The new regime slashes your tax slab rates, but it strips away almost every major deduction and exemption. Section 80C is gone. Section 80D is gone. The HRA exemption under Section 10(13A) is gone too.
Here is how the slabs stack up for AY 2026-27:
| Income Slab | New Regime | Old Regime |
| Up to ₹2.5 lakh | Nil | Nil |
| ₹2.5–4 lakh | Nil | 5% |
| ₹4–5 lakh | 5% | 5% |
| ₹5–8 lakh | 5% | 20% |
| ₹8–10 lakh | 10% | 20% |
| ₹10–12 lakh | 10% | 30% |
| ₹12–16 lakh | 15% | 30% |
| ₹16–20 lakh | 20% | 30% |
| ₹20–24 lakh | 25% | 30% |
| Above ₹24 lakh | 30% | 30% |
Those lower slab rates in the new regime only save you money if the deductions you give up were small to begin with. If you don’t invest under 80C and don’t have a housing loan, the new regime almost always wins. But if you max out 80C, pay health insurance premiums, and pay off home loan interest, the old regime can easily come out ahead.
The Deductions That Matter Under the Old Regime
- Section 80C: Lets you claim up to ₹1.5 lakh across PPF, EPF, ELSS mutual funds, tax-saving FDs, and life insurance premiums.
- Section 80D: Covers health insurance premiums—up to ₹25,000 for yourself and family, and up to ₹50,000 if you buy coverage for senior citizen parents.
- Section 24(b): Knocks off up to ₹2 lakh for home loan interest payments. (Unlike 80C or 80D, this deduction survives in both regimes).
- Section 80CCD(1B): Adds an extra ₹50,000 deduction specifically for NPS contributions on top of the 80C limit.
- Section 80TTA: Gives you up to ₹10,000 off savings account interest.
Section 139: Filing the Return
Section 139(1) makes filing a return compulsory if your total income crosses the basic tax-free threshold. For salaried individuals in AY 2026-27, the deadline to file is 31 July 2026.
If you miss July 31, Section 234F kicks in with a late fee: ₹1,000 if your total income is up to ₹5 lakh, and ₹5,000 if it’s higher. On top of that fee, penal interest under Sections 234A, 234B, and 234C starts piling up based on how much tax remains unpaid and how many months you delay.
What This Means in Practice
- Sort into heads first: Figure out where your earnings go—Salary under 15, rent under 22, capital gains under 45, bank interest under 56. The head dictates what tax breaks you can legally claim.
- Calculate under both regimes: Don’t assume the default new regime is automatically better. Calculate both side-by-side to see if your total 80C, 80D, and home loan deductions beat the lower tax slabs.
- File before the deadline: The Section 234F late fee is annoying, but the stacking monthly interest under 234A/B/C is what really hurts if you delay.
Frequently Asked Questions
1. What is the Income Tax Act, 1961?
It’s India’s primary direct tax law, active since 1 April 1962. It contains 298 sections, 23 chapters, and 14 schedules, and gets updated every year through the Finance Act.
2. What are the five heads of income?
Section 14 breaks down all income into five buckets: Salaries (Section 15), House Property (Section 22), Business or Profession (Section 28), Capital Gains (Section 45), and Income from Other Sources (Section 56). Every single rupee of taxable income has to land in one of these five.
3. What is the new tax regime under Section 115BAC?
It became the default tax system in AY 2024-25. It offers lower slab rates across the board, but forces you to surrender major tax breaks like Section 80C, 80D, and HRA exemptions.
4. What is the basic exemption limit?
For AY 2026-27, the basic tax-free limit is ₹4 lakh under the default new regime, and ₹2.5 lakh under the old regime for taxpayers under 60.
5. What happens if you miss the ITR deadline?
You pay a late fee under Section 234F (₹1,000 for income up to ₹5 lakh; ₹5,000 above that) plus monthly interest charges under Sections 234A, 234B, and 234C on any unpaid tax balance.
