ITR Filing for FY 2025-26 — Who Must File & What Income Is Taxable
A complete guide for salaried employees and pensioners — covering salary, pension, house property, FD & TDR interest, savings bank interest, and cooperative society interest, with eligibility, exemption limits, and TDS thresholds explained.
ITR Filing for FY 2025-26 — The Year That Bridges Two Tax Laws
The Income Tax Return you are filing right now — for income earned between 1 April 2025 and 31 March 2026 (FY 2025-26) — is assessed as Assessment Year 2026-27, and is governed entirely by the Income Tax Act, 1961. Even though the new Income Tax Act, 2025 came into force from 1 April 2026, it does not apply to this filing. The simple rule to remember: the return you are filing now follows the old Act; the new Act applies only from next year’s filing (Tax Year 2026-27, due in 2027).
This guide focuses specifically on what matters most to salaried employees and pensioners — who must file, the income that becomes taxable, and how five everyday income streams (salary/pension, house property, FD/TDR interest, savings bank interest, and cooperative society interest) are treated under the law.
• Due date: 31 July 2026 for salaried/pension filers using ITR-1 or ITR-2 (non-audit cases)
• Governing law: Income Tax Act, 1961 (the new 2025 Act does not apply to this year’s return)
• Basic exemption (New Regime — default): ₹4,00,000
• Basic exemption (Old Regime): ₹2,50,000 (below 60) / ₹3,00,000 (60-79) / ₹5,00,000 (80+)
• Section 87A rebate (New Regime): Income up to ₹12,00,000 is effectively tax-free (₹12,75,000 for salaried after standard deduction)
Is ITR Filing Mandatory for You? The Complete Test
Filing an ITR is mandatory if any one of the following conditions applies to you for FY 2025-26 — regardless of whether tax was already deducted at source.
A senior citizen aged 75 years or above, who has only pension income and interest income from the same bank that disburses the pension, is exempt from filing ITR — provided a declaration is submitted to that “specified bank,” which then deducts the correct final TDS after considering all eligible deductions and the Section 87A rebate. This is the only category of full ITR-filing exemption for individuals with taxable income.
ITR-1 (Sahaj) vs ITR-2 — Which One Applies to You?
Most salaried employees and pensioners fall into one of these two forms. Filing the wrong form makes your return defective.
| Criteria | ITR-1 (Sahaj) | ITR-2 |
|---|---|---|
| Total income limit | Up to ₹50 lakh | No upper limit |
| House property | Up to 2 properties (new for AY 2026-27) | 3 or more properties |
| Capital gains | Only LTCG u/s 112A up to ₹1.25 lakh, no carried-forward losses | Any capital gains, including STCG, property, unlisted shares |
| Foreign income/assets | Not allowed | Allowed — mandatory if applicable |
| Residential status | Resident only (not RNOR/NRI) | Resident, RNOR, or NRI |
| Business/professional income | Not allowed | Not allowed (use ITR-3) |
| Company directorship / unlisted shares held | Not allowed | Allowed |
Previously ITR-1 permitted only 1 house property. For AY 2026-27, this has been expanded to 2 house properties, and ITR-1 can now also include LTCG under Section 112A up to ₹1.25 lakh (provided there are no brought-forward or carry-forward capital losses). This means more taxpayers can now use the simpler ITR-1 form than before.
How Salary & Pension Income Is Taxed
Salary and pension are both taxed under the head “Income from Salary.” Family pension (received by a deceased employee’s family) is the one exception — it falls under “Income from Other Sources.”
- Basic salary, HRA, allowances, bonus — all taxable as per components
- Standard Deduction: ₹75,000 (new regime) / ₹50,000 (old regime)
- Employer issues Form 16 by 15 June each year
- HRA exemption available only under old regime
- Pension taxed under “Salary” head — eligible for Standard Deduction too
- Family pension taxed as “Other Sources” — 1/3rd or ₹15,000 deduction (whichever lower)
- Commuted pension (lump sum) generally exempt for government employees
- Higher basic exemption if 60+ (old regime only)
How Rental & Self-Occupied Property Is Taxed
If you have opted for the New Tax Regime, you cannot claim Section 24(b) interest deduction on a self-occupied house. This deduction is available only under the Old Tax Regime. For let-out property, the interest deduction continues to be available even under the new regime, since it reduces the rental income actually taxed.
Fixed Deposit & Term Deposit Interest — Taxability & TDS Rules
Interest from Fixed Deposits (FD) and Term Deposit Receipts (TDR) is fully taxable under “Income from Other Sources” at your applicable slab rate — TDS deduction does not mean the income is tax-free; it’s only a withholding mechanism.
| Payer | TDS Threshold (Below 60) | TDS Threshold (Senior Citizen 60+) | TDS Rate |
|---|---|---|---|
| Banks, Cooperative Banks, Post Office | ₹50,000 | ₹1,00,000 | 10% (20% without PAN) |
| Other payers (companies, NBFCs) | ₹10,000 | ₹10,000 (no special limit) | 10% (20% without PAN) |
The TDS threshold is calculated per bank/branch, per PAN — not aggregated across all your banks. If you earn ₹40,000 interest at Bank A and ₹40,000 at Bank B, neither bank deducts TDS, since each individually stays below ₹50,000. However, your total interest income of ₹80,000 is still fully taxable, and you must declare it in your ITR even though no TDS was deducted anywhere — the AIS captures this regardless.
Mrs. Lakshmi, 67, retired teacher — Pension ₹4,80,000 + FD Interest ₹1,40,000 (old regime)
Savings Account Interest — No TDS, But Still Taxable
Interest credited to your regular Savings Bank (SB) account is completely exempt from TDS under Section 194A, regardless of the amount. However, this does NOT mean it is tax-free — it is fully taxable income that must be declared under “Income from Other Sources,” subject to deduction under Section 80TTA or 80TTB.
| Deduction Section | Applicable To | Maximum Deduction | Covers |
|---|---|---|---|
| Section 80TTA | Individuals below 60 / HUF | ₹10,000 | Savings bank interest only (not FD/TDR) |
| Section 80TTB | Senior Citizens (60+) | ₹50,000 | Savings + FD + TDR + Post Office interest combined |
A senior citizen claims only 80TTB (the higher, more comprehensive ₹50,000 deduction covering all deposit types) — not 80TTA. A non-senior individual can claim only 80TTA (capped at ₹10,000, savings account only). Both deductions are available only under the Old Tax Regime — neither applies if you opt for the New Regime.
Interest from Cooperative Societies — A Special Case
Many retirees and salaried individuals deposit savings in cooperative credit societies (common in housing societies, employee credit cooperatives, and rural cooperatives). The taxability and TDS treatment here has an important nuance.
- Interest paid by a cooperative society to its own members is exempt from TDS — regardless of amount
- Interest between two cooperative societies is also exempt from TDS
- The income is still fully taxable in your hands — TDS exemption is not income exemption
- If the entity is a cooperative bank (not a plain cooperative society), normal TDS rules apply
- TDS deducted above ₹50,000 (₹1,00,000 for seniors) — same as a regular bank
- The “member exemption” for plain cooperative societies does NOT extend to cooperative banks
All Five Income Heads — Taxability Summary
| Income Source | Tax Head | Taxable? | TDS Applicability | Deduction Available |
|---|---|---|---|---|
| Salary | Income from Salary | Fully Taxable | Section 192 (monthly) | Standard Deduction ₹75K/₹50K |
| Pension | Income from Salary | Fully Taxable | Section 192 (if applicable) | Standard Deduction available |
| Family Pension | Other Sources | Fully Taxable | Generally none | 1/3rd or ₹15,000, whichever lower |
| House Property (Self-occupied) | House Property | NIL Value | N/A | Home loan interest (old regime) |
| House Property (Let-out) | House Property | Taxable | None (tenant doesn’t deduct unless rent > ₹50K/month) | 30% standard + interest |
| FD / TDR Interest | Other Sources | Fully Taxable | 10% above ₹50K/₹1L (senior) | 80TTB (senior only) |
| Savings Bank Interest | Other Sources | Fully Taxable | No TDS | 80TTA (₹10K) / 80TTB (₹50K) |
| Cooperative Society Interest | Other Sources | Fully Taxable | No TDS (society-to-member) | 80TTA / 80TTB if eligible |
Pre-Filing Checklist for Salaried & Pension Taxpayers
- Form 16 (salary) / Pension statement from bank or treasury
- Interest certificates — all FDs, TDRs, savings accounts
- Cooperative society passbook / interest statement
- Rent receipts / municipal tax receipts (if let-out property)
- AIS & Form 26AS downloaded from the e-filing portal
- Skipping SB interest because “no TDS was deducted”
- Not adding up FD interest spread across multiple banks
- Forgetting cooperative society interest entirely
- Claiming 80TTA + 80TTB together (only one applies)
- Claiming home loan interest u/s 24(b) under New Regime (self-occupied)
- Not e-verifying the return within 30 days of filing
2. Income Tax Act, 1961 — Section 139(1) (filing obligation), Section 194A (TDS on interest), Section 80TTA, Section 80TTB, Section 194P (senior citizen exemption)
3. CBDT Notification — ITR-1 (Sahaj) eligibility expanded for AY 2026-27: 2 house properties, LTCG u/s 112A up to ₹1.25 lakh
4. Budget 2025 — Revised TDS thresholds effective 1 April 2025: ₹50,000/₹1,00,000 (bank interest), ₹10,000 (other payers)
5. Finance Act 2026 — Bifurcated due dates: 31 July (ITR-1/ITR-2), 31 August (ITR-3/ITR-4 non-audit); revised return window extended to 31 March 2027
6. Note: This return (FY 2025-26 / AY 2026-27) is governed by the Income Tax Act, 1961. The Income Tax Act, 2025 applies only from Tax Year 2026-27 onwards (filed in 2027)