There is one question that will decide most income tax interviews this year, and it is not a technical one.
"Which Act are we under right now?"
The Income-tax Act, 1961 was repealed on 1 April 2026. The Income-tax Act, 2025 replaced it — roughly 819 sections consolidated into about 536 across 23 chapters, with "Previous Year" and "Assessment Year" merged into a single "Tax Year." Section 80C, Section 115BAC and the entire 194 series no longer exist by those numbers.
But FY 2025-26 returns are still filed under the old Act. So the correct answer is "both, depending on the tax year of the income" — and candidates who cannot explain that split are being filtered out.
This guide covers 35+ income tax interview questions under the law as it stands.
Jump to a section
The structural changes
The Income-tax Act, 2025 came into force on 1 April 2026. The statute was consolidated from roughly 819 sections into about 536, arranged sequentially across 23 chapters with schedules, and rewritten in plainer language with alphabet-suffixed section numbers eliminated.
Rates, slabs, deduction limits and rebate amounts were not changed. This was a redrafting exercise, not a tax increase. A candidate who believes the new Act raised taxes has misread it entirely.
Tax Year replaced Previous Year and Assessment Year
The two-year concept was collapsed into a single Tax Year — the twelve months from 1 April to 31 March in which income is earned. Tax Year 2026-27 covers income earned between 1 April 2026 and 31 March 2027.
Key renumbering
ProvisionOld (1961 Act)New (2025 Act)TDS on salarySection 192Section 392TDS on non-salary paymentsSections 193–194TSection 393TCSSection 206C seriesSection 394Deductions (Chapter VI-A)Sections 80C–80USection 123 read with Schedule XVNew tax regimeSection 115BACSection 202Standard deduction (salary)Section 16(ia)Section 63
Verify each mapping against the official section correspondence published by the Income Tax Department before quoting it. Secondary sources currently disagree on some of the finer references.
Old matters continue under the old Act
Section 536 of the new Act preserves pending assessments, appeals, penalties and rectifications for earlier years under the 1961 Act, using the old section numbers.
The transition question
Which Act applies to a return being filed today?
It depends on the tax year of the income, not the date of filing or the date of a notice.
Income earned in FY 2025-26 is computed and assessed under the 1961 Act. Income earned from 1 April 2026 falls under the 2025 Act. So through 2026 and into 2027, tax professionals are working under both statutes simultaneously — deducting current TDS under Section 393 payment codes while finalising prior-year filings under Section 194C.
What sets you apart: the phrase "tax year of the income, not the date of the transaction." It signals you have worked through the transition rather than skimmed a summary.
What practical problems did the transition cause?
Software and challan mapping, mainly. Section codes on TDS challans and returns were replaced by numeric payment codes, so accounting and payroll systems had to be remapped and new return and certificate forms adopted. Quoting a legacy section code after the changeover causes a payment mismatch.
Basic income tax questions for freshers
What is income tax and what is it levied on?
A direct tax on the income of a person for a tax year, levied by the central government. "Person" includes individuals, Hindu Undivided Families, firms, companies, LLPs, associations of persons, bodies of individuals, local authorities and artificial juridical persons.
What is the difference between direct and indirect tax?
A direct tax is borne by the person on whom it is levied and cannot be shifted — income tax, corporate tax. An indirect tax is levied on transactions and passed on to the final consumer — GST, customs duty.
What is gross total income and total income?
Gross total income is the aggregate of income under all heads after applying set-off provisions. Total income is gross total income reduced by permissible deductions, and is the figure on which tax is computed.
What is a Tax Year?
The twelve-month period from 1 April to 31 March in which income is earned. It replaced the earlier pairing of Previous Year and Assessment Year under the 2025 Act.
What is a PAN?
Permanent Account Number — a ten-character alphanumeric identifier issued by the Income Tax Department, required for filing returns, for specified financial transactions above prescribed limits, and for claiming TDS credit. Quoting a wrong PAN in a TDS return is the most common cause of missing tax credit.
What is the difference between exemption and deduction?
An exemption keeps income outside the scope of taxation entirely, so it never enters the computation. A deduction is subtracted from income that has already been included. Both reduce tax, but they operate at different stages, and a candidate who confuses them will struggle with the computation questions that follow.
Residential status and heads of income
Why does residential status matter?
Because it determines the scope of income taxable in India. A resident and ordinarily resident is taxed on global income. A resident but not ordinarily resident and a non-resident are taxed on a narrower base, broadly income received or accruing in India.
How is residential status determined for an individual?
Through tests based on physical presence in India during the tax year and in preceding years, with modified thresholds for certain categories such as Indian citizens leaving for employment and persons of Indian origin visiting India. There are also deeming provisions for high-income Indian citizens not liable to tax elsewhere.
What sets you apart: say clearly that you would apply the day-count tests against the specific facts rather than reciting numbers, and note that the thresholds have specific carve-outs. Interviewers respect precision about where the complexity lies.
What are the heads of income?
Salaries; income from house property; profits and gains of business or profession; capital gains; and income from other sources. Every item of income must be classified under one of these, and the head determines the computation rules available.
How is income from house property computed?
From the annual value, reduced by municipal taxes paid, then by a standard deduction at the prescribed percentage of net annual value and by interest on borrowed capital. Rules differ for self-occupied and let-out property, and loss set-off against other heads is capped.
What is the difference between business income and professional income?
Both fall under the same head but differ in presumptive taxation eligibility, applicable turnover thresholds for audit, and the books required. The classification matters most when deciding whether a presumptive scheme is available.
What is clubbing of income?
Provisions that tax income of one person in the hands of another to prevent avoidance through transfers to family members — typically income of a spouse or minor child arising from assets transferred without adequate consideration.
Old regime vs new regime
What is the difference between the old and new tax regimes?
The new regime offers lower slab rates but withdraws most deductions and exemptions. The old regime has higher rates but permits the full range of deductions. The new regime is the default, with the option to choose the old one available subject to conditions that differ for salaried individuals and those with business income.
How do you advise someone which regime to choose?
By computing tax under both for their actual figures. The break-even depends entirely on how much deduction they can genuinely claim — housing loan interest, insurance premiums, retirement contributions, house rent allowance. Someone with a large home loan and full deduction utilisation often does better under the old regime; someone with few deductions almost always does better under the new one.
What sets you apart: refusing to give a blanket answer. Interviewers ask this specifically to see whether you compute or generalise.
Can a taxpayer switch between regimes?
A salaried individual without business income can generally choose each year. A taxpayer with business income faces restrictions on switching back once they have opted out. Confirm the current conditions before answering definitively.
Deductions and exemptions
Where do the old Chapter VI-A deductions now sit?
Under Section 123 read with Schedule XV of the 2025 Act. The deductions themselves were retained — none were withdrawn — and the limits carried forward unchanged, including the ₹1.5 lakh ceiling that previously sat under Section 80C.
What kinds of investments and payments qualify for the main deduction?
Life insurance premiums, provident fund contributions, public provident fund, equity-linked savings schemes, principal repayment on a housing loan, tuition fees for children and specified small savings instruments, subject to the overall ceiling.
What is the standard deduction for salaried individuals?
A flat deduction from salary income, available without proof of expenditure. It now sits under Section 63 of the 2025 Act, having previously been Section 16(ia). Confirm the current amount, as it has been revised in recent Budgets.
What is house rent allowance and how is the exemption computed?
An allowance paid to salaried employees to meet rent, exempt to the extent of the least of three amounts: the actual allowance received, rent paid in excess of a prescribed percentage of salary, and a prescribed percentage of salary that differs for metro and non-metro cities.
Which deductions are not available under the new regime?
Most of the Chapter VI-A equivalents and several salary exemptions are withdrawn, though a limited set — including the standard deduction and the employer's contribution to the national pension scheme — continue. Verify the current list, since it has been expanded in successive Budgets.
<h2 id="capitalgains">Capital gains</h2>
What is a capital asset?
Property of any kind held by a taxpayer, whether or not connected with business, with specified exclusions such as stock in trade, personal movable effects and certain agricultural land.
What is the difference between short-term and long-term capital gains?
Holding period. The threshold differs by asset class — listed securities and units have a shorter qualifying period than immovable property and unlisted shares. The distinction matters because the rates and the availability of indexation differ sharply.
How is capital gain computed?
Full value of consideration, less cost of acquisition, cost of improvement and expenditure incurred wholly in connection with the transfer. For long-term gains on certain assets, indexation of cost may apply, subject to the current rules — verify these, as the indexation position has been amended recently.
What exemptions are available on capital gains?
Reinvestment-based exemptions, principally for investing the gain or the consideration in a residential house, and for investing in specified bonds within a prescribed window, each subject to ceilings and lock-in conditions. Also relevant is the capital gains account scheme, used where reinvestment has not been completed by the return filing date.
How are gains on listed equity shares taxed?
Short-term and long-term gains on listed equity and equity-oriented units where securities transaction tax has been paid are taxed at specified concessional rates, with a threshold below which long-term gains are not taxed. Confirm the current rates and threshold before quoting them.
Advance tax, returns and assessment
What is advance tax and who pays it?
Tax paid during the tax year itself in instalments, rather than at the end, where the estimated liability exceeds a prescribed threshold after accounting for TDS. Senior citizens without business income are generally exempt from the requirement.
What happens if advance tax is underpaid?
Interest is charged — one provision for deferment of instalments and another for shortfall in overall payment. Candidates should know that both can apply to the same return.
What is self-assessment tax?
The balance tax paid by the taxpayer before filing the return, after adjusting TDS, TCS and advance tax already paid.
What are the main ITR forms?
Different forms apply by taxpayer category and income type — simple salaried returns, returns with capital gains or multiple house properties, business and professional income, firms and companies. Under the 2025 Act, forms have been renumbered, so confirm which form applies to the year you are discussing.
What is the difference between a revised return and an updated return?
A revised return corrects an original return within the permitted window. An updated return allows a taxpayer to report additional income after that window has closed, on payment of additional tax, subject to conditions and a longer outer time limit.
What are the types of assessment?
Summary processing, scrutiny assessment, best judgment assessment where the taxpayer fails to comply, and reassessment where income is believed to have escaped assessment. Faceless procedures apply to much of this.
What is Form 26AS and the Annual Information Statement?
Form 26AS is the consolidated tax credit statement showing TDS, TCS, advance tax and self-assessment tax against a PAN. The AIS is broader, reporting interest, dividends, securities transactions and other financial information. Both should be reconciled before filing, because a mismatch is the most common trigger for a notice.
Practical questions
A client's TDS credit in 26AS is lower than their Form 16. What do you do?
Reconcile the two line by line, identify which quarter is short, and check whether the deductor filed the relevant return and quoted the correct PAN. The fix sits with the deductor, who must file a correction statement — the client cannot claim credit that is not reported. Advise them not to claim the higher figure in the return, since it will be adjusted in processing and generate a demand.
A salaried client wants to know whether to switch regimes. Walk me through it.
Collect actual figures for deductions claimable — housing loan interest, insurance, retirement contributions, HRA, standard deduction — compute the liability under both regimes, and compare. Explain the switching restriction if they have any business income. Document the computation so the choice can be evidenced.
A client received a notice for a mismatch between their return and AIS. How do you respond?
Identify the specific transaction flagged, verify it against the client's records, and determine whether the AIS entry is correct, duplicated or wrongly attributed. Respond through the compliance portal within the stated timeline, either accepting and revising or providing the explanation with supporting documents. Do not let the deadline lapse.
How do you stay updated with tax law changes?
Name your actual sources — the Income Tax Department portal, CBDT circulars and notifications, the annual Finance Act, and a professional publication or two. Then give a recent example. In 2026 the obvious one is the transition to the new Act, and being able to describe what you did to prepare for it is a strong answer.
How to prepare
Master the transition first. Which Act applies to which year, and why. It is the single highest-probability question in any 2026 income tax interview.
Learn concepts, not section numbers. The numbers changed; the logic did not. Someone who understands how a deduction works adapts to renumbering. Someone who memorised "80C" does not.
Say so when you are unsure. "The deduction is capped, and I would confirm the current limit against the Finance Act" is a stronger answer than a confident wrong figure. In tax, that judgement is the skill being hired.
Compute, don't generalise. The regime question, the capital gains question and the residential status question are all designed to catch people who give blanket answers.
Practise with a role-specific AI mock interview on BeSkill — browse the Taxation interview library.
Related reading: TDS Interview Questions 2026 · GST Interview Questions 2026 · Accounts Executive Interview Questions 2026