Local Authority for AY 2026-27: Returns, Forms, Tax Rate, Exemption and Deductions

What is treated as a local authority

The department page states that the expression person in section 2(31) of the Income-tax Act, 1961 includes a local authority. For the purposes of section 10(20), the page then lists the specific meanings of local authority for that exemption provision.

• Panchayat referred to in Article 243(d) of the Constitution
• Municipality referred to in Article 243P(e) of the Constitution
• Municipal Committee and District Board legally entitled to, or entrusted by Government with, control or management of a municipal or local fund
• Cantonment Board as defined in section 3 of the Cantonments Act, 1924

When ITR-5 is commonly used

The local-authority page lists ITR-5 as a form that can be used by a person such as a local authority, along with several other non-company categories.

• Firm
• Limited Liability Partnership
• Association of Persons
• Body of Individuals
• Artificial Juridical Person referred to in section 2(31)(vii)
• Local Authority referred to in section 2(31)(vi)
• Representative Assessee referred to in section 160(1)(iii) or (iv)
• Co-operative Society
• Society registered under the Societies Registration Act, 1860 or similar state law
• Trust other than trusts eligible to file ITR-7
• Estate of deceased person
• Estate of insolvent
• Business Trust referred to in section 139(4E)
• Investment Fund referred to in section 139(4F)

When ITR-7 can also become relevant

The same page lists ITR-7 for persons, including companies, who are required to file under sections 139(4A), 139(4B), 139(4C), or 139(4D). It also specifically notes that some persons with unconditional exemption under section 10, and who are not otherwise mandatorily required to file under section 139, may use ITR-7. The page gives local authority as an example in that note.

• Section 139(4A): income from property held under trust wholly or partly for charitable or religious purposes
• Section 139(4B): Chief Executive Officer of a political party
• Section 139(4C): specified entities such as research associations and news agencies mentioned in section 10
• Section 139(4D): university, college, or other institution referred to in section 35
• The page notes that certain unconditionally exempt cases may still use ITR-7, for example a local authority

Important forms local authorities commonly review

The page lists a narrower set of forms for local-authority cases, mainly focused on reconciliation and audit.

• Form 26AS: TDS and TCS related tax-credit view
• AIS: broader annual information statement showing TDS, TCS, SFT information, taxes paid, demand or refund details, and other information
• Form 3CA-3CD: audit report and statement of particulars where section 44AB applies and audit is under another law
• Form 3CB-3CD: audit report and statement of particulars where section 44AB applies
• Form 16A: TDS certificate on income other than salary

Tax rate, surcharge, and cess for AY 2026-27

The department page states a simple rule for the main tax rate: for AY 2026-27, a local authority is taxable at 30 percent.

It further states that surcharge is levied at 12 percent if taxable income exceeds Rs. 1 crore, and that marginal relief is available so that tax plus surcharge on income just above Rs. 1 crore does not exceed the tax on Rs. 1 crore by more than the excess income.

Health and education cess at 4 percent applies on income tax plus surcharge, if any.

• Local authority tax rate: 30 percent
• Surcharge: 12 percent if taxable income exceeds Rs. 1 crore
• Marginal relief applies around the Rs. 1 crore threshold
• Health and education cess: 4 percent

Section 10(20) exemption point

The page separately explains the exemption or income not included in total income under section 10(20). According to that summary, income of a qualifying local authority can be excluded where it is chargeable under the head house property, capital gains, or income from other sources, or where it arises from the trade or business described on the page in relation to supply of commodities or services within the jurisdictional rules mentioned there.

This is an important point because for many local-authority cases, the real starting question is not only the tax rate, but whether the income falls into the section 10(20) exemption framework at all.

Key deduction sections shown on the local-authority page

The page lists a smaller deduction set than some of the other entity pages, but it still covers donation and business-linked provisions that may matter depending on the facts and the exact legal conditions.

• Section 80G: deduction for eligible donations, subject to category rules and the cash-payment restriction
• Section 80GGA: deduction for specified scientific-research or rural-development donations, subject to conditions
• Section 80JJA: deduction for profits from collecting and processing biodegradable waste, subject to conditions
• Section 80JJAA: deduction for additional employee cost where section 44AB applies and the other conditions are met
• Section 80IA: deduction linked to industrial parks and power undertakings, subject to conditions
• Section 80IAB: deduction for development of Special Economic Zone, subject to conditions
• Section 80IB: deduction for specified industrial undertakings and related activities, subject to conditions
• Section 80IC: deduction for specified undertakings in Himachal Pradesh, Sikkim, Uttarakhand, and North-Eastern states, subject to conditions

A practical checklist before filing

Local-authority filing usually becomes easier when the exemption point is checked first, the return form second, and the audit and tax-credit forms third. Many errors come from skipping that order.

• First check whether any income is covered by the section 10(20) exemption framework
• Then confirm whether the case belongs in ITR-5 or ITR-7
• Review AIS, Form 26AS, and Form 16A before final computation
• Check whether audit under section 44AB requires Form 3CA-3CD or 3CB-3CD
• Apply surcharge and marginal relief only after the basic taxable-income position is correctly worked out
• Verify any Chapter VI-A deduction against the exact section conditions before claiming it