When you have only a salary, your employer does most of the heavy lifting — TDS is deducted monthly, Form 16 is issued in June, and you file a relatively simple return. Add a business or capital gains into the picture and several things change at once.

First, TDS no longer covers your full liability. Business income typically attracts no TDS (or partial TDS on professional fees under Section 194J), and capital gains from equity sales are rarely subject to TDS. The tax on these sources accumulates invisibly through the year and then lands as a self-assessment demand — along with interest under Sections 234B and 234C if you did not pay advance tax on time.

Second, the regime choice becomes genuinely consequential. A salaried employee with heavy deductions — home loan, 80C investments, HRA — often does better in the Old Regime. But if that same person has substantial business income and opts for Section 44ADA presumptive taxation, the interaction between business income and the regime switches can create unexpected constraints. Once a business taxpayer switches to the New Regime, they can only come back to the Old Regime once in their lifetime. That is a one-time decision, not an annual one.

Third, the AIS (Annual Information Statement) now captures virtually every financial transaction — broker statements, bank interest, property registrations, foreign remittances, even UPI credits above certain thresholds. A mismatch between what you declared and what the AIS shows is now almost certain to generate a notice. With multiple income sources, the reconciliation task is significantly more involved.

Most salaried employees claim the obvious deductions — 80C investments, maybe 80D — and leave the rest. Here is what many miss:

Employer NPS Contribution — Section 80CCD(2)

This is the single most underutilised salary benefit in India. If your employer contributes to your NPS account, that contribution is deductible from your salary income — up to 14% of basic salary for government employees and up to 10% for private sector (which effectively becomes 14% under ITA 2025 from Tax Year 2026-27). Crucially, this deduction is available in the New Regime too. It sits outside the ₹1.5 lakh Section 80C limit entirely. A ₹6 lakh basic salary with a 10% employer NPS contribution means ₹60,000 of deduction that does not compete with any of your other investments. If your employer offers it and you have not activated it, that conversation with HR is worth having.

HRA — Get the Calculation Right

HRA exemption is the least of three figures: actual HRA received, actual rent paid minus 10% of basic salary, and 50% of basic (metro) or 40% (non-metro). Many people calculate only one of these and claim it — getting the arithmetic wrong in both directions. Run all three numbers and use the lowest. And maintain actual rent receipts along with the landlord’s PAN if annual rent exceeds ₹1 lakh — without the PAN, the deduction can be challenged.

Home Loan Interest — Old Regime Only, But Powerful

Under Section 24(b), interest on a self-occupied property’s home loan is deductible up to ₹2 lakh per year — but only in the Old Regime. If you have a substantial home loan, this deduction alone can make the Old Regime more attractive even after accounting for the New Regime’s lower tax rates. For a taxpayer in the 30% slab with ₹2 lakh of interest: that is ₹60,000 in direct tax savings that vanishes the moment you switch to the New Regime.

Presumptive Taxation — When It Makes Sense

Section 44ADA allows specified professionals (architects, doctors, lawyers, engineers, consultants, IT professionals, CAs, etc.) to declare 50% of gross receipts as net income — without maintaining books of accounts or supporting every expense with documentation — provided gross receipts stay below ₹75 lakh. Section 44AD does the same for most businesses at 8% of turnover (6% if receipts are digital).

The appeal is simplicity. The trade-off is accuracy. If your actual profit margin is below 50% (for 44ADA) or below 8% (for 44AD) — meaning your real expenses are substantial — presumptive taxation may result in you paying more tax than necessary. A consultant who earns ₹40 lakh and spends ₹25 lakh on genuine business expenses has a real profit of ₹15 lakh. Under 44ADA, they would declare ₹20 lakh. The decision between presumptive and actual taxation depends entirely on whether your documented expenses exceed the presumptive threshold.

If You Use Actual Taxation — Document Everything

Internet connection used for work, the proportion of home rent attributable to the office space used, professional subscriptions, software tools, a laptop — these are all legitimate deductions if they are genuinely used for the business and properly documented. The word “documented” is doing a lot of work in that sentence. Every expense needs a supporting invoice or receipt, a clear business purpose, and — for significant amounts — a traceable payment record. The AIS and SFT frameworks mean that large cash payments are increasingly visible. Pay business expenses through banking channels.

Depreciation — The Non-Cash Deduction

Business assets like computers, equipment, office furniture, and vehicles used for business qualify for depreciation under the IT Rules. Depreciation reduces your taxable business income without a cash outflow in the current year. A ₹1.5 lakh laptop claimed at 40% WDV depreciation reduces business income by ₹60,000 in year one. If you are not claiming depreciation on legitimate business assets, you are overstating your taxable profit.

The Current Rate Structure (Post-Budget 2024)

The ₹1.25 Lakh Annual LTCG Exemption on Equity

Long-term capital gains from equity shares and equity-oriented mutual funds are exempt up to ₹1.25 lakh per financial year. This resets every April. If you are sitting on unrealised long-term gains, booking up to ₹1.25 lakh annually — selling and then buying back the same units or shares — means those gains are permanently washed out of your tax liability. Over a 10-year investment horizon, systematically using this exemption can shelter a significant amount of wealth creation from taxation. This strategy is sometimes called LTCG harvesting and it is entirely legal, requires only a demat account and a few minutes in March, and costs nothing beyond brokerage charges.

Tax Loss Harvesting

The other side of LTCG harvesting: if you have positions running at a loss, selling them before March 31 crystallises the loss and allows it to be set off against realised gains in the same year. Short-term capital losses can be set off against both STCG and LTCG. Long-term capital losses can only be set off against LTCG — but can be carried forward for eight years if unused. You can buy the same units back after selling, so the underlying investment exposure does not have to change.

Section 54F — Reinvesting Capital Gains into a House

If you sell any long-term capital asset other than a residential house — shares, gold, a commercial property, bonds — and reinvest the net sale consideration into a new residential property, the capital gains are exempt under Section 54F. The exemption is proportionate: invest 60% of sale proceeds, get 60% of the gain exempted.

Key conditions to know for 2026: you must not own more than one residential house on the date of sale (other than the one being purchased). The new property must be purchased one year before or two years after the sale, or constructed within three years. The maximum investment considered for the exemption formula is capped at ₹10 crore. Under the ITA 2025, this provision is renumbered as Section 86 — but the rules are substantively unchanged for AY 2026-27.

The critical caveat: this exemption is available only in the Old Regime. If you are in the New Regime in the year of the sale, you cannot claim Section 54F. This single fact can determine which regime makes sense for a given financial year.

Section 54EC — Infrastructure Bonds

Property LTCG can also be deferred by investing in specified infrastructure bonds within six months of the sale. The bonds currently eligible are NHAI, REC, PFC, and — newly notified via Notification 31/2025 (April 7, 2025) — HUDCO. The investment cap is ₹50 lakh per financial year, the lock-in is five years, and the interest earned is fully taxable at slab rate. This is not an exemption on the interest — just on the capital gain that triggered the bond investment.

Capital Gains Account Scheme — Bridge Funding

If you have sold a property and plan to reinvest under Section 54 or 54F but have not yet identified or purchased the new property, you can deposit the gain amount in a Capital Gains Account Scheme (CGAS) at any nationalised bank before your ITR filing date. The deposit preserves your exemption eligibility while giving you time to complete the investment. The funds must be used for the specified purpose within the original time limit — any amount left unspent after the period becomes taxable as capital gains in the year of expiry.

For a taxpayer with only salary, the regime decision is a straightforward annual exercise — compare total deductions against the benefit of lower rates and pick whichever gives the lower liability. For someone with business income, it is more complicated.

When your total tax liability after TDS exceeds ₹10,000 for the year, advance tax becomes mandatory. The employer’s TDS covers the salary portion — but business income and capital gains typically have little or no TDS deducted. The shortfall accumulates silently.

If you sell shares in November and book ₹4 lakh in capital gains, revise your advance tax estimate before the December installment. The law does not penalise you for under-estimating in June — it penalises you for cumulative shortfalls at each due date. A large capital gain mid-year is manageable if you adjust at the next installment; it becomes costly if you ignore it until March.

Advance Tax Due Dates and Interest — Complete Guide 2026

The Annual Information Statement aggregates data from your employer, every bank where you have deposits, your broker (share and mutual fund transactions), property registrar (property purchases and sales above certain values), and LRS/foreign remittances. With multiple income sources, the AIS is a rich document — and any income that appears in the AIS but not in your ITR is a notice waiting to happen.

Before filing your ITR, download your AIS and cross-check it against your own records. Common mismatches I encounter:

• Dividend income reported by mutual funds that was not declared in Schedule OS
• Capital gains from a broker that match the AIS figures but not the ITR computation (often because the ITR used purchase price incorrectly)
• Bank interest from a smaller account the taxpayer forgot about
• Business receipts credited to a personal account that were not included in Schedule BP

If you find a discrepancy — either the AIS is wrong or your records are incomplete — the portal allows you to submit a feedback on incorrect AIS data. Do this before filing, not after a notice arrives.

Back to my client. Here is what his situation actually looked like once we ran the numbers properly.

His original estimate — treating everything as a single slab calculation — was ₹3.4 lakh. The difference came from correctly applying HRA, claiming the employer NPS deduction he had not known about, using 44ADA instead of declaring net consultancy profit, and applying the ₹1.25 lakh LTCG exemption. None of these required any additional investment. Just correct application of existing provisions.

Filing with the wrong ITR form:
If you have business or professional income — even a small consultancy — ITR-1 is not available to you. You need ITR-3. Filing in the wrong form makes the return defective under Section 139(9), triggering a notice. With 44ADA, ITR-4 is also an option if you meet the turnover threshold and other conditions.

Not adjusting advance tax after a large capital gain:
Selling a property or booking a large equity gain mid-year without revising advance tax is the most common cause of interest under Section 234C. The formula is unforgiving — even if you pay 100% of the total tax by March 15, interest on earlier installment shortfalls has already accrued. Revise after every major transaction.

Claiming Section 54F while in the New Regime:
The reinvestment exemptions under Section 54, 54F, and 54B are not available in the New Regime. This is clearly stated in the law but widely unknown — several online tax calculators do not flag this. If you sold an asset and invested in a new house expecting to claim 54F, verify which regime you declared at the start of the year. If you are in the New Regime, the exemption does not apply and the capital gain is fully taxable.

Not maintaining books when presumptive taxation is not applicable:
If your professional income exceeds ₹75 lakh (44ADA threshold) or you want to declare income below 50%, you cannot use presumptive taxation and must maintain books. Trying to claim 44ADA above the threshold, or declaring less than 50% without books and audit, is a common audit trigger. Know the limits and stay within them or comply with the conditions.
Section 44AA — Books of Accounts Complete Guide