As the Income Tax Return (ITR) filing season for 2026 kicks into high gear, a common misconception is causing sleepless nights for many salaried professionals. Many employees whose annual salary falls within the ₹12 lakh threshold—often resulting in zero TDS (Tax Deducted at Source) deductions by their employers—erroneously believe that their total tax liability is nil. However, tax experts are sounding a warning: your tax status isn't determined solely by your employer's salary calculations, and you might face an unexpected tax bill when filing your ITR.The 'TDS-Free' Trap ExplainedThe confusion stems from the government’s Budget 2025 reforms, which raised the Section 87A tax exemption limit under the new tax regime. When you factor in the standard deduction of ₹75,000, employees earning up to ₹12.75 lakh often see zero TDS on their monthly paychecks. Because your employer only tracks your salary, they are unaware of your external income streams. Consequently, while your salary slip may show no tax deduction, your total taxable income is a different story once you aggregate all your earnings.Why Your Salary Slip Isn't the Whole PictureYour employer is legally responsible for deducting tax only on the income they pay you. They have no visibility into other financial gains that significantly impact your tax bracket, including:Interest earned on Fixed Deposits (FDs).Savings account interest.Rental income from properties.Dividends or other incidental income. Chartered Accountant Govind Kumar explains that the real trouble starts at the ITR filing stage. Once these additional income sources are added to your primary salary during the computation of total income, your earnings may push you past the exemption limit.Total Income Determines Your LiabilityIt is critical to remember that income tax in India is levied on your total annual income, not just your base salary. If your combined earnings—salary plus interest and other sources—surpass the ₹12 lakh mark, the benefits of Section 87A begin to phase out, and your tax liability kicks in. Failing to account for these "hidden" income sources can lead to notices from the Income Tax Department later on. To avoid penalties or last-minute tax shocks, taxpayers are advised to calculate their total gross income comprehensively before filing their ITR, ensuring that all interest and non-salary income are accurately reported.
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