Highlights
- Employees earning up to Rs 12 lakh may still have income tax obligations in certain cases.
- TDS exemption and final income tax liability are determined under different tax provisions.
- Additional income and deductions can affect the final tax payable while filing ITR.
Many salaried taxpayers believe that if no tax is deducted at source (TDS) from their salary, they do not have to pay income tax. However, TDS and final tax liability are two different concepts under the Income Tax Act. While TDS is deducted based on an employer's estimate of taxable salary, the final tax payable is determined only after all sources of income are considered during income tax return (ITR) filing. Therefore, the absence of TDS should not automatically be interpreted as zero tax liability.
Understanding the Difference Between TDS and Final Tax Liability
TDS is a mechanism through which employers collect tax on behalf of the government by deducting it from employees' monthly salaries based on estimated annual taxable income. However, the actual tax payable is calculated only when taxpayers file their ITR after the end of the financial year. During this process, total taxable income is assessed by including salary, interest income, rental income, capital gains, dividend income and any other taxable earnings. Depending on the combined income, taxpayers may either have to pay additional tax or become eligible for a refund.
Why Some Employees May Not See Salary TDS
For FY2025-26 under the applicable tax provisions, certain salaried individuals earning up to Rs 12 lakh may not have TDS deducted from their salary if their estimated tax liability becomes nil after considering available tax relief under the new tax regime. Employers calculate TDS based only on the salary information and declarations available to them. Since employers generally do not have details of other income unless employees disclose it, salary TDS may not reflect an individual's final tax position.
Additional Income Can Increase Tax Payable
Even if salary income does not attract TDS, taxpayers may still earn income from several other sources during the financial year. Interest earned on savings accounts and fixed deposits, rental income from property, capital gains from investments in shares or mutual funds, dividend income and earnings from freelance or professional work are all considered while calculating total taxable income. If these additional income sources increase the taxable income, taxpayers may have to pay self-assessment tax while filing their ITR despite not having any salary TDS deducted.
Why Accurate ITR Filing Matters
The income tax return serves as the final calculation of a taxpayer's tax liability. While filing the return, taxpayers should reconcile information available in Form 16 issued by the employer with Form 26AS, the Annual Information Statement (AIS), the Tax Information Statement (TIS) and details of income received from banks and investments. Any mismatch between estimated salary income and actual total income could affect the final tax payable or the refund amount.
New Tax Regime Does Not Eliminate Tax in Every Situation
Although the new tax regime provides tax relief for eligible taxpayers, it does not mean every individual earning up to Rs 12 lakh will automatically have zero tax liability. The final outcome depends on total taxable income after considering all eligible income sources and applicable provisions. Income earned outside salary can change the overall tax calculation and may require taxpayers to pay additional tax at the time of filing the ITR.
What Taxpayers Should Remember
Taxpayers should review all income earned during the financial year rather than relying only on salary slips or the absence of TDS. Verifying interest income, investment gains, rental receipts and other taxable earnings before filing the return can help ensure accurate tax computation and reduce the possibility of additional tax demands or interest due to underpayment.
Key Risks
- Undisclosed interest income may increase final tax liability.
- Capital gains can create additional tax despite zero salary TDS.
- Incorrect income reporting may lead to tax notices.
- Delay in paying self-assessment tax may attract interest.
Summary
No TDS on salary up to Rs 12 lakh does not necessarily mean no income tax is payable. TDS is based on estimated salary income, whereas final tax liability is calculated after considering total taxable income from all sources. Income such as interest, capital gains, rental earnings and dividends can increase tax payable. Reviewing all income records before filing the ITR can help taxpayers calculate their actual tax liability accurately.
FAQs
Q: Does zero TDS on salary mean no income tax is payable?
A: No. Final tax liability depends on total taxable income from all eligible sources and is determined when the income tax return is filed.
Q: Which additional income can increase tax liability?
A: Interest income, rental income, capital gains, dividend income and freelance earnings may increase taxable income and result in additional tax.
Q: Why should taxpayers review all tax documents before filing ITR?
A: Reconciling Form 16, AIS, TIS and Form 26AS helps ensure accurate reporting of income and tax liability while reducing filing errors.