ITR Filing AY 2026-27 Salaried Step by Step Guide
- Which ITR form? Sold any equity mutual fund unit or share in FY 2025‑26? File ITR-2, not ITR-1. Even one redemption makes ITR-2 mandatory.
- Last date without late fee: 31 July 2026. Miss this and Section 234F charges up to Rs 5,000. Interest under Sections 234B and 234C applies separately if advance tax was underpaid.
- Before you open the portal: Download your AIS from incometaxindia.gov.in and compare every capital gains entry against your broker’s statement. AIS mismatches are the leading cause of demand notices.
In March 2026, a Bengaluru product manager got a demand notice for Rs 27,840. She hadn’t done anything wrong — she just filed ITR-1 for a year when she had redeemed units from an ELSS fund. ITR-1 has no Schedule CG. The IT department’s AIS showed the redemption. Her return showed nothing. Eight months later, a demand notice arrived.
This guide helps you avoid exactly that, for AY 2026‑27. It covers the four things that trip up salaried equity investors every filing season: picking the wrong ITR form, misapplying Section 87A, skipping AIS reconciliation, and missing advance tax. Before any of this — decide your tax regime first. Use the free calculator at Old vs New Tax Regime FY 2025‑26: The Rs 62,400 Demand Notice Trap.
ITR Form Selection: ITR-1 vs ITR-2
The ITR form isn’t a choice — it’s determined by your income type. Filing the wrong form triggers a defect notice from the department. You get 15 days to correct it. Miss that window and your return is treated as if it was never submitted.
| Condition | File ITR-1 (Sahaj)? | File ITR-2? |
|---|---|---|
| Salary income + one house property + interest/dividends, total income ≤ Rs 50L, NO capital gains | YES | Not required |
| Any equity mutual fund redemption or share sale during FY 2025‑26 | NO — ITR-1 has no Schedule CG | YES, mandatory |
| Total income above Rs 50L (salary + other sources) | NO | YES |
| More than one house property, or foreign income / foreign assets | NO | YES |
The ELSS trap. Here’s one many 80C investors miss. You claimed ELSS deductions for years, the 3-year lock-in ended, and you redeemed. That one redemption — even if the gain is below the Rs 1.25L LTCG exemption — makes ITR-2 mandatory. You must declare it in Schedule CG. ITR-1 is not an option.
Old regime opt-in via Form 12BAA. Since FY 2024‑25, Form 12BAA lets you declare your regime choice to your employer so they deduct TDS correctly. If you missed it, your employer deducted TDS under the new regime by default. You can still pick the old regime when you file your ITR — but any tax shortfall will attract monthly interest charges (explained in the Advance Tax section below). Check your Form 16 Part A to confirm which regime was applied.
ITR form misselection is the most common first error in salaried returns. The filer who chose ITR-1 for five years simply chooses it again — without realising one ELSS maturity changed everything. The AIS system catches this automatically. Mutual fund redemption data flows directly from RTAs to the IT department. There’s no hiding it. You either catch the error before filing or the department catches it after.
Documents to Download Before You Start
Don’t open the e-filing portal until you have all of this ready. Incomplete prep is the main reason people abandon a half-finished session.
Filing on the e-Filing Portal: Step by Step
The ITR-1 and ITR-2 filing forms on the income tax portal typically go live around 1 June each year. For AY 2026‑27, expect the portal to open in early June 2026. Have all nine documents from the previous section ready before you begin.
AIS Reconciliation: The Check That Prevents Demand Notices
When you file your ITR, the department automatically matches what you declared against what’s in your AIS. Any unexplained gap triggers a processing flag — and eventually a notice. Reconcile before you file, not after.
TDS on Salary. Your AIS TDS, Form 26AS, and Form 16 Part A should all show the same number. If they don’t — use the Form 16 / Form 26AS figure in your return. That’s the authoritative employer record. Then flag the AIS discrepancy using the feedback option (see below) so there’s a paper trail.
Interest Income. AIS picks up interest from every savings account and FD linked to your PAN — including accounts you barely use. This income is taxable. Pull your bank statements and check every line.
Dividends. Equity and MF dividends appear in AIS and are taxable at slab rates. They go under “Income from Other Sources” in your ITR. Don’t skip them.
MF Redemptions and Share Sales — highest risk. AIS shows gross sale proceeds, not gain. To get the actual gain, you need your broker’s capital gains statement with cost of acquisition and FIFO accounting. Never copy AIS figures directly into Schedule CG. Use your broker’s statement as the primary source; treat AIS as a cross-check.
How to raise AIS feedback. If AIS shows something wrong — a transaction belonging to someone else, or a misclassified redemption — open the AIS portal, find the entry, click “Submit Feedback,” and select the right response. It doesn’t fix AIS immediately, but creates a record you can reference if challenged.
AIS data quality for MF redemptions has been patchy. In AY 2024‑25, SIP units redeemed across multiple dates sometimes appeared as a single bulk sale with no cost-of-acquisition figure at all. Accepting AIS’s numbers without checking your broker’s fund-wise capital gains report is the fastest way to get Schedule CG wrong. Broker and fund house statements use correct FIFO cost accounting. Use those as your source of truth, and treat AIS as the verification layer.
Schedule CG: Why Section 87A Does Not Reduce Your Capital Gains Tax
Start with the example that explains everything. Gross salary Rs 10L + STCG Rs 3L. After standard deduction, taxable salary is Rs 9.25L — within the Rs 12L Section 87A ceiling under the new regime, so salary slab tax is zeroed. But the STCG tax of Rs 60,000 plus Rs 2,400 cess = Rs 62,400 is owed in full. Section 87A doesn’t reach it. CBDT Circular No. 13/2025 confirmed this explicitly. Full mechanics in the Old vs New Tax Regime guide.
Schedule CG in ITR-2 is where you declare capital gains from equity, debt, and other assets. For salaried investors with equity MFs or shares, three sub-sections matter:
Section 111A — STCG on listed equity and equity MFs held under 12 months. Taxed at a flat 20% for FY 2025‑26. No deductions, no exemptions, and no Section 87A rebate — even if your salary tax is fully covered by it. Enter the gross gain from your broker’s statement.
Section 112A — LTCG on listed equity and equity MFs held 12 months or more. The first Rs 1.25L of LTCG is exempt each year. Gains above that are taxed at 12.5%. Enter your total long-term gains; the portal calculates the taxable portion automatically.
Section 112 — LTCG on other assets (debt funds, gold ETFs, property). Rates vary by asset type after Budget 2024. If you only hold equity MFs and listed shares, Sections 111A and 112A are the only two sub-sections you need. For debt or property gains, consult a CA.
Advance Tax: What You Owe If You Sold Equity During the Year
You must pay advance tax whenever your total tax bill for the year — after subtracting TDS already deducted — is likely to exceed Rs 10,000. Your employer’s TDS covers salary. It does not cover capital gains. First-time equity investors regularly miss this and find out about the interest charges only when the demand notice arrives.
Section 211 due dates for FY 2025‑26:
| Instalment | Due Date | Cumulative % to Pay |
|---|---|---|
| First | 15 June 2025 | 15% |
| Second | 15 September 2025 | 45% |
| Third | 15 December 2025 | 75% |
| Fourth (final) | 15 March 2026 | 100% |
Note: Capital gains arising after 15 March can be paid as a lump sum by 31 March without attracting Section 234C interest.
Advance tax on capital gains is the most consistently overlooked obligation for salaried equity investors. TDS creates a “tax is handled” feeling — and for salary income, it is. But from the moment you sell equity in April, the clock starts. If your CG tax crosses Rs 10,000 by 15 June, the first instalment is due. The right sequence: sell equity → estimate the gain → check advance tax liability → pay by the next quarterly due date. Use the tax calculator to estimate your combined liability before each instalment date.
Four Mistakes That Trigger Demand Notices
These four errors account for the large majority of demand notices received by salaried equity investors in AY 2025‑26.
Mistake 1: Filing ITR-1 when AIS shows capital gains. There’s no grey area — AIS receives MF redemption and share sale data automatically from RTAs and depositories. Filing ITR-1 and leaving Schedule CG blank is a mismatch the system detects automatically. File ITR-2 if you had any equity redemption in the year.
Mistake 2: Applying Section 87A against capital gains tax. Section 87A applies only to income taxed at regular slab rates — salary, interest, business income. Capital gains under Sections 111A, 112, and 112A are taxed at flat special rates and fall entirely outside the rebate. Even if your salary tax is zero, your capital gains tax is payable in full. This applies under the new regime (Rs 12L threshold) only; old regime 87A threshold remains Rs 5L. CBDT Circular 13/2025 confirms the carve-out. No exceptions.
Mistake 3: Not declaring interest and dividends visible in AIS. Savings account interest, FD interest, and equity dividends are all in AIS and all taxable. Any income visible in AIS that doesn’t appear in your ITR is an automatic mismatch. Either declare it or submit AIS feedback explaining why it doesn’t belong to you.
Mistake 4: Missing old-regime opt-in and advance tax on capital gains. If you didn’t submit Form 12BAA, your employer deducted new-regime TDS. You can still opt for old regime at filing, but any balance tax comes with monthly interest from 1 April. Separately: if your CG tax exceeded Rs 10,000 and you paid nothing by 15 March 2026, Section 234B interest accrues on the full unpaid amount.
One check specific to AY 2026‑27: confirm any guide or calculator you use has the correct Budget 2025 parameters. The new regime slabs changed — 0% up to Rs 4L, 5% on Rs 4–8L, 10% on Rs 8–12L — and the Section 87A ceiling under the new regime rose to Rs 60,000 (old regime remains Rs 12,500). Anything written before February 2025 has the wrong slabs. The FinEstate tax calculator applies the right rules for each AY automatically — just select AY 2026‑27 before calculating.
After Filing: E-Verification, Refund Tracking, Revised Returns
Submitting the ITR is not the last step. An unverified return is treated as if it was never filed. You have 30 days to e-verify.
Refund Tracking. Refunds go directly to your pre-validated bank account. Track status at: eportal.incometax.gov.in → e-File → Income Tax Returns → View Filed Returns → Refund/Demand Status. Most e-verified returns process in 30–60 days.
Made a mistake? File a revised return under Section 139(5) before 31 December 2026 — no late fee. The revised return replaces the original; no need to withdraw it first. (Subject to CBDT extensions — verify at eportal.incometax.gov.in before the deadline.)
Key Takeaways
Pick your regime first. Then choose the right ITR form. Get Schedule CG and AIS reconciliation right. Everything else follows from those three steps.
- Any equity MF redemption or share sale in FY 2025‑26 — even a single ELSS maturity — makes ITR-2 mandatory. ITR-1 has no Schedule CG, and filing the wrong form triggers a defect notice.
- Since FY 2024‑25, submit Form 12BAA to your employer to ensure old-regime TDS. If you missed it, you can still opt for old regime at filing — but balance tax carries monthly interest from 1 April.
- Download your AIS and compare every capital gains entry against your broker’s capital gains statement before you open the portal. AIS has shown classification errors in prior years. Your broker’s fund-wise report is the authoritative Schedule CG source.
- Section 87A (new regime, Rs 12L threshold) zeroes out salary tax — but capital gains tax under Sections 111A and 112A must be paid in full regardless. CBDT Circular 13/2025 is explicit on this.
- If your CG tax liability exceeds Rs 10,000, advance tax was mandatory. Anything unpaid by 15 March 2026 attracts Section 234B interest from 1 April. Pay the balance via Challan 280 before filing.
- E-verify within 30 days of submission — Aadhaar OTP takes under 2 minutes. The last date to file without a late fee is 31 July 2026.
Frequently Asked Questions
Sources: Income Tax Act 1961 — Sections 87A, 111A, 112A, 112, 115BAC, 139, 211, 234B, 234C, 234F; Finance Act 2024 (effective 23 July 2024) — STCG/LTCG rate revision; Finance Act 2025 (Union Budget, February 2025) — New Regime slab revision; CBDT Circular No. 13/2025 dated 19 September 2025 — Section 87A capital gains carve-out; eportal.incometax.gov.in; incometaxindia.gov.in. External links point to government sources only.
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