Salaried employees in India often assume that their employer's TDS deductions mean their tax obligations are fully handled. In practice, most salaried individuals have additional compliance responsibilities — and gaps in compliance are increasingly being picked up by the income tax department's AI-driven systems.
How Salaried Income Is Taxed
Salary income is taxed under the head "Income from Salaries." The employer deducts TDS based on the employee's projected annual income and the tax regime chosen. From AY 2024-25, the new tax regime is the default unless you explicitly opt for the old regime.
New Tax Regime (Default) | Tax Rate | Old Tax Regime | Tax Rate |
|---|---|---|---|
Up to ₹3 lakh | Nil | Up to ₹2.5 lakh | Nil |
₹3L – ₹7L | 5% | ₹2.5L – ₹5L | 5% |
₹7L – ₹10L | 10% | ₹5L – ₹10L | 20% |
₹10L – ₹12L | 15% | Above ₹10L | 30% |
₹12L – ₹15L | 20% | ||
Above ₹15L | 30% |
What Salaried Employees Often Miss
1. Other Sources of Income
Savings account interest, fixed deposit interest, rental income, capital gains from mutual funds or shares, freelance income, and income from digital assets must all be reported in the ITR — even if TDS has been deducted. Many salaried employees fail to report these, leading to mismatch notices under Section 143(1).
2. Choosing the Wrong Tax Regime
The new regime is default but may not always be optimal. Employees with HRA, home loan interest, Section 80C investments, and other deductions often benefit from the old regime. The calculation must be done before April each year when you submit your regime choice to your employer.
3. Incorrect or Missing HRA Exemption
House Rent Allowance exemption requires rent receipts, landlord PAN (mandatory if annual rent exceeds ₹1 lakh), and proof of actual payment. Claims without documentation are increasingly scrutinised.
4. Form 26AS and AIS Mismatch
The Annual Information Statement (AIS) now captures almost all financial transactions — high-value purchases, mutual fund redemptions, property transactions, and foreign remittances. Any income not reported in your ITR that appears in AIS will trigger an automated mismatch notice.
Common Notices Received by Salaried Individuals
Notice Type | Common Cause | Response Required? |
|---|---|---|
Section 143(1) mismatch | Income in AIS not reported in ITR | Yes — within 30 days |
Section 148 reassessment | Significant unreported income in prior years | Yes — legal response needed |
Section 139(9) defective return | Wrong ITR form or incomplete filing | Yes — rectify within 15 days |
Section 245 refund adjustment | Outstanding demand from prior year | Yes — dispute if demand is incorrect |
Deductions Available to Salaried Employees
Standard deduction: ₹75,000 under new regime (₹50,000 under old regime)
Section 80C: Up to ₹1.5 lakh — EPF, PPF, ELSS, LIC, principal repayment on home loan
Section 80D: Health insurance premium — ₹25,000 self/family, ₹50,000 if parents are senior citizens
Section 24(b): Home loan interest — up to ₹2 lakh for self-occupied property under old regime
HRA exemption — actual HRA, rent paid minus 10% of salary, or 40%/50% of salary, whichever is least
LTA — Leave Travel Allowance for travel within India twice in a block of 4 years
How PGA & Co. Can Help
At PGA & Co. Chartered Accountants, we provide personalised income tax advisory for salaried individuals — including regime optimisation, ITR filing, AIS reconciliation, and professional handling of notices. Our team ensures you pay only what you owe and nothing more.
📞 +91 86998-87200 | ✉ info@pgaca.in | Book a free consultation at pgaca.in/contact
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