Income Tax Filing for Dummies

In the last few posts we spent a lot of energy chasing returns. Here is the part nobody makes a reel about: the government wants its cut, and it wants you to calculate that cut yourself. The moment you graduate from a pure salary to a demat account, investing in the AI bubble in US(Because Nifty is beneath their investing intellect), and that one random night of buying shitcoins, your taxes stop being a one-click formality ordeal. The friendly single-page ITR-1 quietly stops applying to you, and you are now expected to moonlight as your own chartered accountant. This is me figuring out how to file my own return so I can boast about it to my friends and family.

Disclaimer/Attribution#

I am not a Chartered Accountant, a tax consultant, or anyone qualified to sign your return. I am a software engineer who has been filing my own returns for years. Everything here is from filing my own ITR(1,2,4). None of this is real tax advice. Tax law also changes every single Budget, so verify the numbers for your assessment year before copying anything.

• Sources: Income Tax Portal, Zerodha Varsity (Markets & Taxation), ClearTax
• Tools: AIS/TIS, your broker’s Tax P&L, Gemini

Glossary/Important Concepts#

Before we dive in, the alphabet soup. If you already know the difference between AY and FY, skip ahead.

• FY (Financial Year): The 12 months you earned the money — 1 April to 31 March. FY 2025-26 = April 2025 to March 2026.

• AY (Assessment Year): The 12 months in which you file and get assessed for that income — always the year after the FY. So income of FY 2025-26 is filed in AY 2026-27. Yes, the same period has two names; welcome to bureaucracy.

• PAN: Permanent Account Number. Your tax identity. Every rupee of interest, dividend, salary and stock sale is tagged to it, whether you like it or not.

• ITR (Income Tax Return): The form where you declare your income, claim your deductions, and reconcile what you owe against what’s already been paid. There are seven of them; you’ll use one.

• TDS (Tax Deducted at Source): Tax someone cut before paying you — your employer on salary, the exchange on crypto, a company on dividends above a threshold. It’s an advance on your final bill, not an extra tax. You claim it back as credit.

• TCS (Tax Collected at Source): Same idea, but collected on certain spends — e.g. sending money abroad under LRS to fund your gambling addiction. Also claimable.

• Form 16: Your employer’s certificate of salary paid and TDS deducted. Part B + Form 12BA is where the actual salary breakup (17(1), perquisites, etc.) lives.

• Form 26AS: The tax department’s official ledger of every rupee of TDS/TCS credited against your PAN. This is the source of truth for taxes paid.

• AIS (Annual Information Statement): The department’s much broader dossier — not just TDS, but every dividend, savings interest, FD interest, mutual-fund/stock sale and purchase, and crypto receipt it thinks you had.

• TIS (Taxpayer Information Summary): A cleaned-up, deduplicated summary of the AIS. This is what the portal uses to pre-fill your return.

• Gross Total Income (GTI): The sum of income across all heads, before Chapter VI-A deductions.

• Total Income: GTI minus deductions. This is what your tax is actually calculated on.

• Deductions (Chapter VI-A): The 80-series — 80C (PF/ELSS/insurance), 80D (health insurance), 80TTA (savings interest), 80CCD (NPS), etc. Most of these are switched off in the new regime.

• Regime (Old vs New): Two parallel tax systems. Old = higher rates but you can claim all the deductions. New = lower rates but almost no deductions. New is now the default; you have to actively opt out for old.

• Slab Rate: Your “normal” income (salary, interest, etc.) is taxed in progressive slabs — the more you earn, the higher the marginal rate.

• Surcharge: An extra tax on your tax for high earners — kicks in above ₹50L. Ignore it unless you’re comfortably into eight figures.

• Cess: A flat 4% “Health & Education Cess” slapped on top of your tax + surcharge. Non-negotiable, applies to everyone.

• Advance Tax: If your tax bill after TDS is more than ₹10,000, the government doesn’t want to wait till year-end — you’re supposed to pay it in four installments during the year (15 Jun / 15 Sep / 15 Dec / 15 Mar).

• 234A / 234B / 234C: The three flavours of interest the department charges for filing late (234A), underpaying advance tax (234B), and missing the quarterly installments (234C). We’ll come back to these, because they’re the reason you can be “fully paid up” via TDS and still owe money.

The Five Heads of Income#

Every rupee you earn belongs to exactly one of five buckets. The whole return is just filling these five buckets and adding them up.

Note: F&O and intraday trading are usually treated as business income, not capital gains. If that’s you, you’re in ITR-3 territory, and this post only gets you halfway.

Which ITR Form to File#

Picking the wrong form is the single most common way to get your return marked defective. Here’s the cheat sheet.

If you’re a salaried person who also dabbles in stocks, mutual funds, US shares or crypto — and you don’t run F&O as a business — ITR-2 is your form. That’s what the rest of this post assumes.

Warning: The moment you hold even one foreign stock (INDmoney, Vested, an RSU vesting in your US parent company), ITR-1 is off the table and Schedule FA becomes mandatory.

The Documents You Need#

Dump all of these into one folder before you start. Half the battle is just collecting them.

Three Sources of Truth (and Why They All Disagree)#

Here’s the thing they don’t tell you: you have three records of the same year, and they will not match.

1. Form 26AS — the tax paid ledger. Trust it for TDS/TCS.
2. AIS/TIS — the department’s income estimate, built from what banks, companies and exchanges reported (SFT filings). This is what pre-fills your return.
3. Your broker statements — the actual, trade-level truth of your capital gains.

The portal will confidently pre-fill your return from AIS and present it like gospel. It is not. Two real gotchas I hit:

• Dividends. AIS listed dividends from companies I hold, but missed two whose dividends I clearly received via my broker (the company just didn’t file the SFT). Meanwhile, a couple of dividends showed up in AIS that weren’t in my broker statement at all — shares held in a different demat. Neither source was complete. The correct number is the union of all of them. If you’d blindly trusted the prefill, you’d have under-reported income.

• Capital gains sale value. The “value of securities sold” in AIS (reported by the depository) rarely matches your broker’s Tax P&L to the rupee. Compute your gains from the broker statement, not AIS — and if the utility pre-fills the AIS figure, overwrite it and keep the broker statement as backup.

Note: Pre-filled ≠ correct. Treat AIS as a helpful reminder of what to look for, not as your return. The department is reconciling reports about you; you’re the only one reconciling reality.

Old vs New Regime#

The new regime is now the default. Unless you have a truck-load of deductions, it usually wins. Here are the FY 2025-26 (AY 2026-27) new-regime slabs:

A few things worth internalising:

• Standard deduction is ₹75,000 in the new regime (₹50,000 in old).
• Rebate 87A: with total income up to ₹12,00,000, your tax on normal income becomes nil. With the standard deduction, a purely salaried person earning up to ~₹12.75L pays zero. But this rebate does not shield capital gains or crypto — those get taxed from rupee one.
• The new regime switches off almost all deductions: no 80C, no 80D, no 80TTA, no HRA. The one meaningful survivor is 80CCD(2) — your employer’s NPS contribution (up to 14% of basic).

Note: The old regime only wins if your deductions are large — think full 80C (₹1.5L) + 80D + home-loan interest (₹2L) + HRA. Run both numbers once a year on the portal’s calculator before you decide. For most young, renting, no-home-loan folks, new regime is the answer.

How Capital Gains Are Taxed#

This is where the “for dummies” turns into “read carefully.” Post 23 July 2024, the rates changed, and the type of asset now matters as much as the holding period. (I covered the equity basics here; this is the filing-time version.)

Two traps I want to flag:

• US stocks are not “equity” for 111A. Sell an Apple share you held for 8 months and it’s a short-term gain taxed at your slab rate, not 20%. It also has to be reported in Schedule FSI (foreign source income).

• That “safe” debt fund is a slab-rate landmine. Any debt or specified mutual fund bought on or after 1 April 2023 is always short-term — no long-term rate, no indexation, taxed fully at your slab. The Banking & PSU fund you thought was tax-efficient is now just an FD with extra steps.

Note: The ₹1.25L LTCG exemption is per year, across all your 112A gains. If you only used ₹3,000 of it this year, you left ₹1.22L of tax-free gains on the table. (See “Ways to Save Tax” below.)

Crypto / VDAs — The Section 115BBH Punishment#

If you touched crypto, brace yourself. VDAs are taxed under Section 115BBH, and the rules are deliberately hostile:

• Flat 30% on every gain, plus cess. No slabs, no holding-period benefit.
• Only the cost of acquisition is deductible. Not gas fees, not exchange fees, nothing else.
• Losses cannot be set off against anything — not other crypto, not stocks, not salary — and cannot be carried forward. Each transfer is taxed on its own; a loss just floors at zero.
• 1% TDS u/s 194S is deducted by the exchange on every sale. It’s a claimable credit — you get it back even if your net crypto income is zero.
• In the return, every single transfer is its own row: date of acquisition, date of transfer, cost, consideration, income.

The most annoying part isn’t the rate — it’s cost basis. Those dust coins from 2021 you finally dumped for ₹200? You need the original purchase date and price for each, one row at a time. If your exchange’s export doesn’t go back far enough (mine didn’t), you’re reconstructing history from settlement records and airdrop dates.

Warning: You cannot use a crypto loss to reduce your stock gains or your salary tax. The government wants the upside at 30% and offers you nothing on the downside. Size your gambling “investing” accordingly.

Foreign Stocks & Schedule FA#

If you own even one foreign share — INDmoney, Vested, or RSUs from a US parent — you must fill Schedule FA (Foreign Assets). Two things trip everyone up:

• The reporting period is the calendar year (1 Jan – 31 Dec), not the financial year. A stock you bought in February this year is outside the window for this return. Yes, it’s the one schedule that ignores the Indian FY.
• You report the custodial account and each holding — peak value, closing value, dividends, sale proceeds — all converted to INR.

Also relevant: Schedule FSI/TR for the foreign income itself, and the DTAA relief (lower of the tax paid abroad or the tax due in India). If you filed a W-8BEN and no US tax was withheld on your gains, your relief is simply zero.

Warning: Non-disclosure of foreign assets falls under the Black Money Act, with penalties that can run to ₹10 lakh per year — regardless of whether the asset earned anything. This is not a “round it off” schedule. If you hold foreign stock, ITR-2 and Schedule FA are non-negotiable.

Advance Tax and the 234 Interest Trap#

Here’s the counter-intuitive one that cost me actual money. My salary TDS was fully paid. And I still owed interest. How?

Because TDS only covered my salary. The 20% on my equity gains, the tax on dividends and interest — none of that had been paid during the year. The law expects you to estimate and pay that as advance tax in four installments (15% by 15 Jun, 45% by 15 Sep, 75% by 15 Dec, 100% by 15 Mar). I paid ₹0 in advance, so:

• 234B: 1% per month on the unpaid tax, from 1 April until I actually paid.
• 234C: 1% per month for missing each quarterly installment.

The one mercy: capital gains and dividends get deferment relief under 234C — you’re only expected to pay the installment from the quarter the income actually arose, since you can’t predict a windfall in April. But this only works if you fill the quarter-wise breakup of your gains correctly. Leave it blank (the utility loves to leave it blank) and you either get a validation error or over-pay interest.

Note: 234B keeps accruing at ~1% every month until you pay. So the “I’ll file on 31 July” procrastination has a literal monthly cost. If you have big capital gains, pay advance tax in the quarter you book them.

Actually Filing It#

Once your numbers are straight, the mechanical part:

1. Log in to the portal, start ITR-2 for AY 2026-27, pick your regime.
2. Let it pre-fill from AIS — then fix everything, using your own reconciled numbers.
3. Fill each schedule: S (salary), CG + 112A + VDA (gains), OS (interest + dividend), FA + FSI (foreign), TDS.
4. Pay the balance as self-assessment tax (challan), enter the details in Schedule IT.
5. Validate. Fix the errors. Validate again. e-Verify with Aadhaar OTP.

From doing this, the errors the utility throws (or silently lets through) most often:

• Blank capital-gains quarterly breakup (Schedule CG item F) — a hard error if you have gains.
• Dividend dumped entirely in Q1 of the accrual table — technically valid, but it inflates your 234C. Spread it to the actual quarters.
• Perquisite “nature” left as Other with a blank description — the salary schedule rejects it.
• TDS “head of income” blank for the crypto 194S rows — the credit won’t link.
• Schedule FA still showing last year’s broker/holdings if you cloned an old draft.
• Schedule AL — only required if your total income crosses ₹50L. Below that, skip it.

Note: Save your JSON before every “Validate”. The utility has crashed on me mid-schedule more than once, and there is no autosave worth trusting.

Ways to (Legally) Save Tax#

Nothing here is a loophole — just the levers the law actually gives you. Confirm with a CA before acting.

• 80CCD(2) — employer NPS. The one deduction that survives in the new regime. Ask payroll to route part of your CTC into NPS (up to 14% of basic); it comes straight off your taxable salary.
• Pick the right regime. Run both once a year. If you rent and have no home loan, new regime almost always wins.
• Harvest your ₹1.25L LTCG exemption. Every year you can book up to ₹1.25L of long-term equity gains tax-free. If you’re sitting on long-term winners and used none of it, sell and rebuy to reset your cost basis — free step-up.
• Mind the holding period. Crossing the 1-year mark on equity turns a 20% short-term gain into a 12.5% long-term one (with the exemption on top). Sometimes waiting two weeks is the highest-return trade you’ll make.
• Tax-loss harvesting. Book capital losses before 31 March to offset your gains. (Doesn’t work for crypto — those losses are dead weight.)
• Pay advance tax on time to avoid feeding 234B/234C at 1% a month.

The Tool#

Doing this by hand once is educational; doing it every April is a chore. So I packaged the whole reconciliation into a small open-source skill: github.com/ahampriyanshu/itr.

You drop your documents into one folder — Form 16, 26AS, AIS, TIS, broker Tax P&Ls, INDmoney and crypto statements — and ask it to prepare your ITR-2. It reconciles every source (dividend-union and AIS-vs-broker gotchas included), sorts your gains into the right buckets (111A / 112A / slab / VDA), and builds a clean, fill-ready ITR-Data.xlsx with one tab per schedule and a summary of what you owe. It can even sanity-check a prepared ITR-2 JSON for the usual errors.

To use it, clone the repo (or grab the .skill file), skim the short README, and point it at your folder. It won’t file for you and it isn’t tax advice — it just turns a weekend of spreadsheet archaeology into a few minutes, so your energy goes into checking the numbers instead of collating them.