Synopsis: It might be confusing as to whether an individual should file an Income Tax Return, when the annual income equals ₹7 lakh, especially when the liability to tax turns to zero under the new regime. This article identifies the tax regime disparities, compares the calculations of tax, and the reason why ITR filing is still relevant, and mandatory despite the differences in tax results.
The Government of India levies income tax on the income earned by individuals and entities during a financial year. In case of salaried persons, the tax rate is computed according to prescribed tax slabs which stipulate the tax rate to be imposed on various amounts of income. As reforms have been incorporated in the system of taxation, taxpayers are now being given the choice of two tax regimes: the old tax regime and the new tax regime each having its own structure of slab and how deductions and exemptions are to be treated.
In the previous tax system, taxable income can be reduced by the taxpayer through a number of deductions including under Section 80C investments, health insurance premiums under Section 80D and house rent allowance (HRA). Conversely, the new tax regime has reduced rates of the tax slabs but limits the majority of deductions and exemptions. Also rebates, like section 87A, are very influential in the tax payment that an individual will end up paying.
In the case of people whose annual income is 7 lakh rupees, the combination of tax slabs, rebates and the preferred type of tax regime may lead to confusion on whether they are required to submit an Income Tax Return (ITR). Although in some situations liability to tax might be eliminated, the necessity to file a return is determined by certain provisions to the law and income limits.
Old Tax Regime vs New Tax Regime: The Biggest Differences
To know whether an individual with an income of ₹7 lakh needs to file an Income Tax return or not, one needs to first understand the structural difference between the two tax regimes available. The choice between the old and the new regime directly affects the taxable income, tax liability and deductions and rebates eligibility.
The structure of the traditional, old tax regime is, the tax rates are relatively high, but the taxpayers can reduce their taxable income using the several deductions and exemptions, which encourages savings and investments, by providing tax benefits to some instruments and expenditures.
The new tax regime which is given under Section 115BAC has lower slab rates yet most of the deductions and exemptions have been abolished. This is developed to simplify the taxation process as it makes the compliance process simple and eliminates the issue of tax planning.
Tax Slab Rates
In the old tax structure, the slab structure of those under the age of 60 years will be as follows:
- Up to ₹2.5 lakh – Nil
- ₹2.5 lakh to ₹5 lakh – 5%
- ₹5 lakh to ₹10 lakh – 20%
- Above ₹10 lakh – 30%
The new tax system has lower incremental slab rates which starts at 0% and gradually increases but without allowing majority of the deductions. Further, under the new regime a rebate is availed to an individual whose taxable income does not exceed ₹7 lakh under Section 87A resulting in zero tax liability.
Deductions and Exemptions
Old Tax Regime allows:
- Section 80C (up to 1.5 lakh)
- Section 80D (health insurance premiums)
- House Rent Allowance (HRA)
- Deduction of home loan interest.
- Standard deduction
New Tax Regime:
- Most of the deductions and exemptions are prohibited.
- Standard deduction.
- Focuses on lower rates instead of tax saving investment.
Also read: Top 10 Income Sources That Are Completely Tax-Free in India (2026)
Flexibility and Suitability
The old regime is proven to be more beneficial to individuals who invest intensively in tax saving products, rent or mortgage. The new regime may be advantageous to those who prefer simplicity or do not make any significant deductions.
Comparison: ₹7 Lakh Salary – Old vs New Tax Regime
Assumptions:
Annual Salary = ₹7,00,000
Standard Deduction = ₹50,000
Taxable Income = ₹6,50,000
| Particulars | New Tax Regime | Old Tax Regime |
| Annual Salary | ₹ 7,00,000 | ₹ 7,00,000 |
| Standard Deduction | ₹ 50,000 | ₹ 50,000 |
| Taxable Income | ₹ 6,50,000 | ₹ 6,50,000 |
| Tax on First Slab | Nil (Up to ₹3,00,000) | Nil (Up to ₹2,50,000) |
| Tax on Next Slab | ₹15,000 (5%) | ₹12,500 (5%) |
| Tax on Remaining Income | ₹5,000 (10%) | ₹30,000 (20%) |
| Total Tax Before Rebate | ₹ 20,000 | ₹ 42,500 |
| Rebate under Section 87A | ₹ 20,000 | Not Available |
| Final Tax Payable | ₹ 0 | ₹42,500 (+ cess) |
Is Filing Income Tax Return Mandatory at ₹7 Lakh?
The table shows that different tax regimes lead to differing tax rates to pay. The rebate can ensure that the new regime brings the tax to zero whereas the old regime may impose tax. Filling an income tax return does not depend on the final tax amount. Since an annual salary of ₹7 lakh is exceeding the basic exemption limit, filing ITR is mandatory. In brief, both on the old and the new regime the amount of taxes may vary, but the obligation to file ITR has to be fulfilled. In addition, an ITR serves as official evidence of income in addition to compliance, loan and card applications, visa processing, and refund filing and carrying forward of losses, which makes it a mandatory document in finance.
Conclusion
As much as there is a variation between the old and new tax regimes in slab rates, deductions, and rebates, gross income levels, an individual needs to file an Income Tax Return. An individual with an annual income of 7 lakh per annum, the income exceeds the basic exemption limit and hence filing ITR is usually mandatory regardless of the final tax payable which is zero under the new regime. Therefore, it is important to understand the two regimes and the legal regulations that should be followed to guarantee an appropriate compliance and make informed decisions based on what suits the best for an individual.
Written by Boyapati Sai Jasmitha
