Salaried employees beware! These 5 mistakes during ITR filing can trigger unexpected tax demands

For many salaried taxpayers, the last quarter of FY 2025-26 brought an unpleasant surprise. Monthly take-home salaries suddenly dropped as employers sharply increased Tax Deducted at Source (TDS) between January and March 2026. For many employees, the shock did not end there. While preparing to file income tax returns for AY 2026-27, many are now discovering an additional burden: a sizeable self-assessment tax liability along with interest for short payment of advance tax.

This trend is likely to continue for Tax Year 2026-27, which commenced on April 1, 2026, unless salaried taxpayers become significantly more proactive about tax planning, income disclosure and TDS management right from the beginning of the financial year.

Why salaried employees face TDS shocks

Under Section 192 of the Income-Tax Act, 1961 and the corresponding Section 392 of the Income-Tax Act, 2025, employers are required to deduct Tax Deducted at Source (TDS) on salary based on the estimated taxable income of employees. However, this estimation is heavily dependent on the declarations, proofs and disclosures furnished by employees during the financial year.


If the information provided is incomplete, delayed or inaccurate, the employer's tax computation may initially understate the employee's actual tax liability. The resulting shortfall typically gets adjusted later in the year, usually during the final quarter.

Under Rule 204 of the Income-Tax Rules, 2026, employees may voluntarily furnish prescribed particulars in Form No. 122 to help employers compute TDS more accurately.

Form No. 122 enables employees to disclose:

• Salary from previous or multiple employers
• Loss under the head "Income from house property"
• Other taxable income
• TDS already deducted on other taxable income
• TCS collected on specified payments and remittances

Similarly, under Rule 205 of the Income-Tax Rules, 2026, employees may submit supporting evidence through Form No. 124 for claims relating to:

• HRA exemption
• Leave travel concession
• Housing loan interest
• Deductions under Chapter VIII of the Income-Tax Act, 2025 (corresponding to Chapter VI-A of the Income-Tax Act, 1961)

If Form No. 122 is furnished late or supporting evidence for exemptions and deductions claimed through Form No. 124 is not submitted within the timelines specified by the employer, TDS adjustments during the last quarter of the financial year may substantially reduce take-home salary for the months falling in that quarter.

The bigger shock: Self-assessment tax and interest liability

An even bigger issue arises when employers do not have complete visibility into an employee's overall income.

This situation commonly arises where employees have multiple sources of income that were not considered by the employer while computing TDS, either due to non-submission of Form No. 122 by the employee or because such information was otherwise not available to the employer.

Many salaried taxpayers assume that if TDS has already been deducted from salary and other income such as interest, dividends, rent, professional receipts, etc., no additional tax liability would arise at the time of filing the income tax return. That assumption is often incorrect because the final tax liability computed under the applicable slab rates may be significantly higher than the rate at which TDS was deducted on other incomes such as interest income and professional or freelance income.

Under the law, employers are neither expected nor empowered to independently investigate all sources of employee income. Consequently, even where TDS has been correctly deducted on salary paid by the employer, it may still remain insufficient to cover the taxpayer's overall tax liability.

When employees later compute their total income while filing the income tax return, the shortfall typically surfaces as:

• Self-assessment tax payable
• Interest liability for advance tax defaults

This is where many salaried taxpayers get caught off guard.

In many such cases, the resulting tax and interest burden surfaces only at the time of preparing the income tax return.

To a considerable extent, such situations can be avoided for Tax Year 2026-27 if employees furnish relevant particulars in Form No. 122 at the earliest opportunity.

Five ways salaried employees can avoid tax shocks

Salaried taxpayers can no longer treat TDS as a "set-and-forget" process. They need to actively monitor whether the tax deducted during the year is sufficient to discharge their total tax liability under the tax regime opted by them.

Against this backdrop, salaried taxpayers may need to adopt a far more proactive approach towards tax planning and compliance for tax year 2026-27.

1. Disclose salary from previous employer and other income details in Form No 122

Employees changing jobs during the financial year or have other sources of income should furnish Form No. 122 to the new employer at the earliest opportunity. This enables the new employer to compute TDS more accurately after considering particulars of income including TDS and TCS details.

2. Avoid overstating investment declarations in Form No. 124

Many employees overstate proposed investments and payments for claiming exemptions and deductions merely to increase their take-home salary during the year.

If those investments or eligible payments are ultimately not made, the resulting TDS recovery in the final quarter can significantly impact monthly cash flows. Employees should therefore disclose only realistic and achievable claims.

3. Submit evidence to support claims made in Form No. 124 before payroll deadlines

Under Rule 205 of the Income-Tax Rules, 2026, before considering such claims while computing TDS deductions, the employer is required to verify documentary evidence for claims relating to:

• HRA
• Leave travel concession
• Housing loan interest
• Other permissible deductions and exemptions

Non-submission of such evidence before employer cut-off dates may result in denial of the claims while computing year-end TDS adjustments.

4. Estimate total annual income before advance tax due dates

Employees should periodically estimate their total annual income before the due dates for quarterly advance tax payments. Early estimation can significantly reduce the risk of year-end tax shocks in the form of substantial self-assessment tax liability and interest for short payment or deferment of advance tax.

5. Track Form 26AS and AIS periodically

Employees should periodically review:

• Form 26AS
• Annual Information Statement (AIS)

Regular monitoring helps identify discrepancies, omitted income, TDS mismatches and high-value transactions in time, allowing corrective action before filing the income tax return (ITR).

Why the 'TDS will take care of my taxes' approach no longer works

Salaried taxpayers can no longer depend entirely on employers for complete tax management or assume that TDS deductions alone will fully discharge their overall tax liability.

Employees who actively track income, monitor TDS, review AIS data, correctly disclose income particulars and pay advance tax, wherever required, are far less likely to face:

• Sudden reductions in take-home salary during the final quarter
• Large self-assessment tax demands
• Interest liability
• Stress during the return filing season

Tax planning is no longer only about saving tax. It is equally about avoiding unexpected tax shocks and interest exposure.

The author, O.P. Yadav, is a former IRS officer with over 36 years of experience in tax administration, education, and training. He is presently associated with Prosperr.io as a Tax Evangelist. The views expressed are personal.