ITR Filing for Salaried Employees: FY 2025-26 (AY 2026-27) Guide

A practical, CA-reviewed walkthrough for salaried employees filing ITR for FY 2025-26 — deadlines, regime choice, common mistakes and real cases.

Quick Answer

Salaried employees must file ITR-1 or ITR-2 for FY 2025-26 (AY 2026-27) by 31st July 2026. Most salaried taxpayers now fall under the new tax regime by default, where income up to Rs 12.75 lakh is effectively tax-free after the Rs 75,000 standard deduction and Section 87A rebate. Filing on time protects refunds, loss carry-forward and avoids a Section 234F penalty of up to Rs 5,000.

Introduction

Every filing season, I see the same pattern with salaried clients. Form 16 arrives, the numbers look straightforward, and people assume the return is a five-minute job on the portal. Then the AIS shows a mutual fund redemption nobody remembered, or a joint home loan claimed twice by mistake, or interest income that was never added because "the bank deducts TDS anyway." None of these are rare. They are the routine reasons why otherwise careful taxpayers end up with a defective return notice or a mismatch flag.

This year adds a genuine structural shift worth understanding before you file. The new tax regime is now the default, the rebate threshold has moved to Rs 12 lakh, and the government has kept the traditional 31st July deadline for salaried filers even while giving business taxpayers an extra month. None of this is complicated once explained properly, but it does change how you should approach documentation, regime selection and pre-filing checks for FY 2025-26.

This guide is written the way I'd walk a client through it in a consultation — what actually matters, where people slip up, and what the return should look like once it's done correctly.

Why This Matters for Taxpayers

A salaried employee's ITR isn't just a compliance form. It's the document banks check for a home loan, the proof visa officers ask for, and the record that determines whether you can carry forward a capital loss from last year's market correction. Get it wrong and the consequences show up much later — a rejected loan application, a scrutiny notice, or a lost set-off you only discover when it's too late to claim it.

I've had clients come to me in October with a notice under Section 143(1) purely because their employer's TDS return and their own declared salary didn't match by a few thousand rupees. The gap was traceable to a reimbursement wrongly clubbed as taxable pay. Small errors like this are avoidable with a proper cross-check against Form 26AS and the AIS before you hit submit, not after.

Choosing the Right ITR Form

For FY 2025-26, ITR-1 (Sahaj) now covers salary or pension income, income from up to two house properties, and other sources such as interest, provided total income doesn't exceed Rs 50 lakh and there's no capital gains income other than specified small LTCG cases some years allow. If you sold shares, mutual funds or property during the year, or you hold foreign assets, ITR-2 is the correct form — filing ITR-1 in that situation invites a defective return notice under Section 139(9).

• ITR-1: Salary/pension income, up to two house properties, interest and similar other-source income, total income up to Rs 50 lakh, no capital gains (barring narrow exceptions).
• ITR-2: Salary income plus capital gains, multiple properties beyond the ITR-1 limit, foreign assets or income, or director/unlisted shareholding.

A mistake I see often: someone with a small equity mutual fund redemption during the year still tries to file ITR-1 because "it's a small amount." The form doesn't care about the amount — the presence of capital gains income is what decides the form.

Filing Deadline for FY 2025-26 (AY 2026-27)

For the first time, the government has staggered ITR due dates by taxpayer category. Salaried individuals filing ITR-1 or ITR-2 still have the traditional 31st July 2026 deadline. Business owners and professionals filing ITR-3 or ITR-4 without audit requirements now get until 31st August 2026, and audit cases run to 31st October 2026. If you're salaried but also hold a small side consultancy income requiring ITR-3, don't assume the extended date automatically applies to your entire filing — check which form your income profile actually requires.

Note: This is effectively the last filing season fully governed by the Income Tax Act, 1961 — the Income Tax Act, 2025 applies only from Tax Year 2026-27 onwards, so returns for FY 2025-26 continue under familiar provisions and section numbers.

New Tax Regime vs Old Regime — What Actually Changed

The new tax regime under Section 115BAC is now the default option, and a large share of my salaried clients are better off staying in it this year, purely because of how the numbers have moved. The standard deduction under the new regime is now Rs 75,000, and the Section 87A rebate covers tax liability in full for taxable income up to Rs 12 lakh. Put together, a salaried employee earning up to Rs 12.75 lakh can end up with zero tax payable under the new regime.

New regime — key numbers for FY 2025-26

• Basic exemption limit: Rs 4 lakh
• Standard deduction (salaried/pensioners): Rs 75,000
• Section 87A rebate: up to Rs 60,000, covering taxable income up to Rs 12 lakh
• Effective tax-free salary for most salaried employees: up to Rs 12.75 lakh
• Marginal relief applies for income slightly above Rs 12 lakh, so tax doesn't jump disproportionately

The catch that clients frequently miss: the 87A rebate applies only to income taxed at normal slab rates. If you've booked short-term capital gains under Section 111A or long-term gains under 112A, that portion is taxed separately and the rebate doesn't wipe it out, even if your overall income is close to Rs 12 lakh. I've had to explain this more than once to a client who assumed a small trading profit would also disappear under the rebate — it doesn't.

When the old regime still wins

If you're claiming a home loan interest deduction under Section 24(b), a full Section 80C basket, HRA on an actual high rent, and health insurance under 80D, the old regime can still work out cheaper, especially for income in the Rs 15-25 lakh band. There's no formula that applies to everyone here — I run both computations for every client with meaningful deductions before recommending a regime, because the crossover point shifts depending on how many deductions actually apply.

One point that trips up salaried clients with side income: if you have business or professional income and want to move back to the old regime, you must file Form 10-IEA before the due date under Section 139(1). Pure salary-only taxpayers don't need this form — they can simply choose the regime directly in the ITR each year.

Documents to Keep Ready Before You Start

• Form 16 (Part A and Part B) from your employer
• Form 26AS and the Annual Information Statement (AIS), downloaded from the e-filing portal
• Bank interest certificates for savings and fixed deposits
• Capital gains statement from your broker or mutual fund registrar, if applicable
• Home loan interest certificate, if you're claiming Section 24(b)
• Rent receipts and landlord PAN, if HRA exceeds Rs 1 lakh a year and you're on the old regime
• Investment proofs for 80C, 80D, 80CCD(1B) if opting for the old regime
• Details of any foreign assets or foreign income, if applicable

I ask every client to pull the AIS before we touch the ITR, not after. It routinely surfaces income the client genuinely forgot about — a small dividend, interest on a joint account, or a mutual fund switch that counts as a redemption for tax purposes.

Common Mistakes I See Every Filing Season

• Filing ITR-1 despite having capital gains income, leading to a defective return notice
• Not reconciling Form 16 with Form 26AS/AIS, causing income or TDS mismatches
• Claiming HRA under the new regime, where it isn't available at all
• Forgetting interest income from savings accounts and fixed deposits, assuming TDS already "settles" the tax
• Double-claiming home loan interest when a property is jointly owned, without splitting the claim correctly between co-owners
• Missing the disclosure of foreign bank accounts or ESOPs from an overseas employer, which can trigger Black Money Act scrutiny
• Choosing the old regime out of habit without actually computing whether it's beneficial this year

Of these, the AIS mismatch is the one I flag hardest. The income tax department's system now cross-checks your return against AIS data almost immediately, and an unexplained gap is one of the fastest routes to a notice.

Real Client Situations

The Form 16 vs AIS gap

A client working in IT had a clean Form 16, but the AIS showed a small savings bank interest entry and a dividend from shares he'd forgotten he held from an old ESOP grant. Filing based only on Form 16 would have left both out. We reconciled the AIS line by line, added both amounts under other sources, and paid the marginal additional tax before filing rather than after a notice arrived.

Regime confusion after a home loan

A client bought a house mid-year and assumed the new regime, being default, was automatically the better option. Once we ran the numbers with his home loan interest, 80C investments and health insurance premium, the old regime saved him close to Rs 38,000 for that year. He'd have filed under the wrong regime purely because it's presented as the default on the portal.

HUF and joint property complication

A senior manager co-owned a flat with his spouse and had been claiming the full home loan interest deduction himself for two years. Both co-owners are eligible to claim interest up to their respective ownership share, and correcting this going forward changed how the couple structured EMI payments and rental income sharing.

Latest Income Tax Rules Relevant to FY 2025-26 (AY 2026-27)

• New tax regime remains the default under Section 115BAC; salaried employees can opt for the old regime each year directly in the ITR, without needing Form 10-IEA
• Standard deduction under the new regime: Rs 75,000 (Rs 50,000 under the old regime)
• Section 87A rebate: up to Rs 60,000 under the new regime (taxable income up to Rs 12 lakh), and up to Rs 12,500 under the old regime (taxable income up to Rs 5 lakh)
• ITR-1 now permits up to two house properties, an increase from the earlier single-property limit
• Staggered due dates by taxpayer category for the first time — 31 July for salaried filers, 31 August for non-audit business/professional filers, 31 October for audit cases
• Revised return window extended to 31 March 2027 for AY 2026-27
• Section 234F late filing fee unchanged: up to Rs 5,000 (Rs 1,000 if total income is below Rs 5 lakh)

These figures are based on Budget 2025 provisions as carried forward into Budget 2026 and CBDT notifications current as of July 2026. The Income Tax Act, 1961 continues to govern AY 2026-27 returns; the Income Tax Act, 2025 applies from Tax Year 2026-27 onwards. Always verify against the e-filing portal before relying on any figure for your own filing.

Frequently Asked Questions

Q1. Is the new tax regime compulsory for salaried employees this year?
No. The new regime is the default, but salaried employees without business income can opt for the old regime every year simply by selecting it while filing the ITR — no separate form is needed.

Q2. What is the ITR filing due date for salaried employees for FY 2025-26?
31st July 2026, for those filing ITR-1 or ITR-2. This is separate from the 31st August deadline now given to non-audit business and professional taxpayers filing ITR-3 or ITR-4.

Q3. Can I claim HRA under the new tax regime?
No. HRA exemption, along with most other exemptions and deductions like 80C and 80D, is not available under the new tax regime. It remains available only under the old regime.

Q4. Is income up to Rs 12 lakh really tax-free under the new regime?
For income taxed at normal slab rates, yes, through the Section 87A rebate. Special-rate income such as short-term or long-term capital gains under Sections 111A and 112A is taxed separately and is not covered by this rebate.

Q5. What happens if I file ITR-1 but I actually have capital gains income?
The return is likely to be treated as defective under Section 139(9), and you'll get a notice to correct it within a specified window. It's better to identify the right form (ITR-2) before filing rather than after.

Q6. Do I need to report interest income if TDS has already been deducted?
Yes. Bank TDS is only a credit against your final tax liability, not a substitute for declaring the income itself. All interest income must be reported under other sources, whether or not TDS was deducted.

Q7. What if I miss the 31st July deadline?
You can still file a belated return under Section 139(4) by 31st December 2026, but you'll pay a late fee under Section 234F, interest under Section 234A on any unpaid tax, and you may lose the ability to carry forward certain losses.

Q8. Can I switch between the old and new regime every year?
Yes, if you're a salaried individual with no business income. You can choose whichever regime suits you each financial year while filing your return. Taxpayers with business income face restrictions and a one-time re-entry rule for the new regime.

Q9. Should I file ITR even if my employer has already deducted full TDS?
Yes. Filing is a separate legal obligation from TDS deduction, and it's also the document you'll need for loan applications, visa processing, and claiming any refund arising from excess TDS or additional deductions not considered by your employer.

Q10. What documents should I reconcile before filing?
Form 16, Form 26AS, and the AIS should all be cross-checked against each other before filing. Discrepancies between these three are one of the most common reasons salaried taxpayers receive post-filing notices.

Conclusion

None of this is difficult once you approach it methodically — the right form, a genuine regime comparison rather than a default assumption, and a proper reconciliation against Form 26AS and the AIS before you file. Most of the notices and mismatches I see every year trace back to one of these three steps being skipped, not to any genuine complexity in the law itself. Give yourself time before 31st July, keep your documents organised, and treat the return as a record that outlives this filing season, not just a box to tick.

About Allied Business Consultancy

Allied Business Consultancy is a Chartered Accountant firm based in Jaipur, Rajasthan, working with salaried employees, freelancers, business owners, professionals, partnership firms and companies on Income Tax Return filing, tax planning, GST, accounting and ROC compliance. If you'd like to discuss your ITR filing for FY 2025-26, choose between the old and new tax regime with an actual computation, or get help with GST or business registration, you can reach out through our contact page or visit alliedbizconsultancy.com.