Tax Profile Engine India

The Income Tax Department of India requires taxpayers to file their returns using specific forms tailored to their source of income, aggregate earnings, and status. Selecting the wrong form invalidates the return, leading to Section 139(9) defective return notices.

• ITR-1 (Sahaj): For Resident individuals with total income up to ₹50 Lakhs. Valid sources include Salary/Pension, one residential house property, and other sources (interest, dividends). Agricultural income cannot exceed ₹5,000. It strictly blocks capital gains, crypto, business turnover, or foreign assets.
• ITR-2: For individuals or HUFs not having business/professional income but whose aggregate earnings exceed ₹50 Lakhs, or who possess capital gains (shares, mutual funds, real estate), own multiple house properties, or have Resident but Not Ordinarily Resident (RNOR) / Non-Resident Indian (NRI) status. It is also mandatory to disclose foreign assets (Schedule FA).
• ITR-3: Mandatory for individuals/HUFs who have income from a proprietary business or profession, including stock market F&O and intraday trading, partnership firm partners, or who treat capital gains as business income.
• ITR-4 (Sugam): For resident individuals, HUFs, and firms (excluding LLPs) with income up to ₹50 Lakhs opting for presumptive taxation schemes under Section 44AD (business), 44ADA (professions), or 44AE (goods carriages).
• ITR-5, ITR-6, ITR-7: Targeted at Partnership Firms/LLPs, Companies (other than those claiming exemption u/s 11), and trusts/charitable institutions respectively.

High net worth individuals (HNIs) are subject to a surcharge, which is an additional tax levied on the baseline income tax liability. Surcharges are calculated as a percentage of the payable tax (prior to Health & Education Cess).

The surcharge slabs for FY 2025-26 are:

• 10% for taxable income between ₹50 Lakhs and ₹1 Crore.
• 15% for taxable income between ₹1 Crore and ₹2 Crores.
• 25% for taxable income between ₹2 Crores and ₹5 Crores.
• 37% for taxable income exceeding ₹5 Crores under the Old Tax Regime. Under the New Tax Regime, this rate is capped at 25% for maximum relief.

Capping on Special Incomes: Surcharge on capital gains (under Section 111A, 112, 112A) and dividend income is capped at 15% to protect stock market investments. Additionally, a 4% Health & Education Cess is appended to the aggregate of the baseline tax and calculated surcharge.

The primary difference lies in the trade-off between lower tax slab rates and availability of tax deductions. The **New Tax Regime (Section 115BAC)** has become the default tax structure in India and features lower progressive tax slabs but requires the taxpayer to forfeit over 70 deductions and exemptions. However, salaried taxpayers can claim a standard deduction of ₹75,000 under the New Regime.

The **Old Tax Regime** maintains higher progressive slabs (reaching 30% after ₹10 Lakhs) but permits taxpayers to lower their taxable income using tax-planning deductions: Section 80C (up to 1.5L), Section 80D (health insurance), Section 80CCD(1B) (extra 50k NPS), Section 24b (home loan interest up to 2L), HRA exemptions, and LTA. Taxpayers can run comparative calculators to select the optimal regime during their return filing.

Stock market transactions have distinct tax treatments under business heads:

• Futures & Options (F&O): Classed as **Non-Speculative Business Income**. Losses incurred in F&O trades can be set off against any other business profits, house property income, or other sources (except salary) in the current year. Any remaining loss can be carried forward for up to 8 financial years.
• Intraday Equity Trading: Classed as **Speculative Business Income** under Section 43(5). Speculative losses cannot be set off against salary or F&O profits; they can only be set off against speculative profits. Speculative losses can only be carried forward for 4 years.

Under Section 87A, a resident individual whose taxable income does not exceed the threshold is eligible for a rebate of 100% of their tax liability. For FY 2025-26 under the New Regime, the threshold is ₹7,00,000 (or ₹12,00,000 under revised Budget 2025 proposals).

Marginal Relief: When taxable income slightly exceeds the threshold, normal tax rules would trigger a sharp tax liability (e.g. ₹20,000+ tax on ₹7,05,000 income). To prevent the tax from exceeding the incremental income earned, marginal relief reduces the payable tax. The tax liability after rebate is capped at the exact amount by which the income exceeds the threshold ($Income - Threshold$).