Earning under ₹12 lakh? Here’s why you may still have to pay income tax

Employees earning up to ₹12.75 lakh may have seen no Tax Deducted at Source (TDS) from their salary this year after the Union Budget 2025 raised the Section 87A rebate limit under the new tax regime to ₹12 lakh. However, that does not automatically mean there will be no tax liability while filing the Income Tax Return (ITR).

The key difference lies between TDS on salary and tax calculated on total income. Employers deduct TDS only after estimating tax based on the salary they pay. If the salary remains within the eligible limit after factoring in the ₹75,000 standard deduction, no TDS is required.

However, while filing the ITR, all sources of income are considered together. Interest earned from fixed deposits, savings accounts, rental income or any other earnings are added to the total income. If these additional earnings push the total income beyond ₹12 lakh, tax may become payable even though no TDS was deducted from the salary.

Taxpayers exceeding the ₹12 lakh threshold by a small margin can still benefit from marginal relief, which ensures the tax payable does not exceed the amount by which the total income crosses the rebate limit.

For instance, a gross salary of ₹13.10 lakh translates into a taxable income of ₹12.35 lakh after claiming the ₹75,000 standard deduction. Since the taxable income is above ₹12 lakh, the Section 87A rebate is not available. Although the tax calculated under slab rates works out to ₹65,250, marginal relief limits the tax liability to ₹35,000, which is equal to the amount by which the taxable income exceeds the ₹12 lakh threshold.