ITR Filing AY 2026-27 Salaried Step by Step Guide

Tax & Investing · ITR filing rules for salaried · Quick answer 30 sec · Full read 25 min

ITR filing rules for salaried filers: what changed for AY 2026-27

Five ITR filing rules for salaried taxpayers changed this year. Three affect every filer with equity exposure. Handle all five before you open the portal.

Consider the most common way this goes wrong. A salaried filer has used ITR-1 for years. This year an ELSS holding completed its lock-in and they redeemed it. They file ITR-1 again, because that is what they always file. ITR-1 has no Schedule CG, so the return declares no capital gain. The department’s AIS, fed directly by the registrar, shows the redemption. The mismatch is automatic and the demand notice follows months later. Nothing was concealed — the filer simply did not know that one redemption changes which form is permitted. Five rules of that kind govern AY 2026-27.

Income-tax Act 2025 is now in force. The Income-tax Act, 1961 was repealed with effect from 1 April 2026 and superseded by the Income-tax Act, 2025. For AY 2026-27, the 1961 Act governs the FY 2025-26 transactions being declared — the capital gains happened under its provisions. But from FY 2026-27 onwards, compliance runs under the 2025 Act, and both sets of section numbers appear in official communications. In this guide, wherever 1961 Act sections are cited, the 2025 Act equivalent appears in brackets: Section 87A is Section 156; Section 111A is Section 196; Section 112A is Section 198; Section 139 is Section 263. The full mapping, and what the transition means for the return you file next year, is in our Income-tax Act 2025 guide.

Budget 2025 revised the new-regime slabs. The new-regime tax rates for FY 2025-26 are: 0% on the first Rs 4 lakh, 5% on Rs 4–8 lakh, 10% on Rs 8–12 lakh. The Section 87A / 156 rebate ceiling under the new regime rose to Rs 60,000, zeroing salary tax for most earners below Rs 12 lakh. The old-regime rebate ceiling stayed at Rs 12,500. Confirm which regime applied to your employer’s TDS deduction by checking Form 16 Part A.

The three changes that catch salaried filers out

CBDT Circular No. 13/2025 (19 September 2025) confirmed the 87A carve-out. Section 87A of the Income-tax Act, 1961 (Section 156, IT Act 2025) applies only to income taxed at regular slab rates. Capital gains taxed at flat special rates — short-term under Section 111A / 196 at 20%, long-term under Section 112A / 198 at 12.5% — fall entirely outside the rebate. The circular resolved a dispute that generated demand notices in AY 2025-26 when filers applied the rebate against capital gains tax and effectively zeroed out their CG liability.

Staggered deadlines apply this year. Salaried and non-audit filers using ITR-1 or ITR-2: 31 July 2026. Non-audit business filers using ITR-3 or ITR-4: 31 August 2026. Audit cases: 31 October 2026. Confirm your form’s applicable deadline on the portal before filing — these dates have moved in prior years and the portal is the authoritative source.

Form 12BAA (effective from FY 2024-25) allows salaried employees to declare their regime choice to their employer for correct TDS deduction from the beginning of the financial year. If you did not submit it for FY 2025-26, your employer defaulted to the new regime. You can still select the old regime at filing, but any shortfall in TDS carries monthly interest under Section 234B, Income-tax Act, 1961, from 1 April 2026.

ITR Form Selection: ITR-1 vs ITR-2

The ITR form is not a choice — it is 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.

The ELSS trap. 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.

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-2 form for AY 2026-27 is live on the portal. 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.

Schedule CG: Why Section 87A Does Not Reduce Your Capital Gains Tax

Start with the example that explains everything. Gross salary Rs 9.25L + STCG Rs 3L. After the Rs 75,000 standard deduction, taxable salary is Rs 8.5L, so total income is Rs 11.5L — within the Rs 12L Section 87A / 156 ceiling under the new regime, and the salary slab tax of Rs 25,000 is zeroed by the rebate. But the STCG tax of Rs 60,000 plus Rs 2,400 cess = Rs 62,400 is owed in full. Note the threshold test runs on total income including the capital gains — push the STCG to Rs 5L and total income crosses Rs 12L, at which point the rebate vanishes entirely and even the salary tax becomes payable. Section 87A of the Income-tax Act, 1961 (Section 156, IT Act 2025) does not reach capital gains tax. CBDT Circular No. 13/2025 dated 19 September 2025 confirmed this explicitly. Full mechanics in the Old vs New Tax Regime guide, and the demand notices this produced are set out in our piece on the Rs 62,400 Section 87A STCG demand notice.

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, Income-tax Act, 1961 (Section 196, IT Act 2025) — 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, Income-tax Act, 1961 (Section 198, IT Act 2025) — 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, Income-tax Act, 1961 — 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.

Compute your combined salary and capital gains liability under both regimes at the FinEstate tax calculator — the correct 87A logic is built in.

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, Income-tax Act, 1961 due dates for FY 2025‑26:

Note: Capital gains arising after 15 March can be paid as a lump sum by 31 March without attracting Section 234C, Income-tax Act, 1961 interest.

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 of the Income-tax Act, 1961 (Section 156, IT Act 2025) applies only to income taxed at regular slab rates — salary, interest, business income. Capital gains under Sections 111A (196), 112, and 112A (198) 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 No. 13/2025 dated 19 September 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 under Section 234B, Income-tax Act, 1961. 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.

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. What each status message means, and what to do when a refund stalls, is covered in our ITR refund status guide.

Made a mistake? File a revised return under Section 139(5) of the Income-tax Act, 1961 (Section 263, IT Act 2025) 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.)