TDS Deducted But Income Below Taxable Limit? Here’s How To Claim Full Refund in FY 2026-27

Imagine receiving your salary, pension, freelance payment, or fixed deposit interest and discovering that tax has already been deducted. Later, after checking your tax liability using our Income Tax Calculator FY 2026-27, you realize that your total income is actually below the taxable limit.

Many taxpayers search for “TDS deducted but income below taxable limit” after seeing tax deducted from salary, FD interest or pension income.

A common question immediately comes to mind:

“TDS deducted but income below taxable limit—why did this happen, and can I get my money back?”

The good news is that, in most cases, the answer is yes.

In fact, one of our regular readers, Shri Chandan Khera, a retired Government officer, faced a similar situation after his retirement last year. Although his pension income was well below the taxable limit, approximately ₹39,000 was deducted as TDS during the financial year. Naturally, he was concerned and worried that he might have lost the money permanently.

After reviewing his case, we explained why the TDS had been deducted, helped him understand the refund process, and guided him through the necessary steps. Once his Income Tax Return (ITR) was filed correctly, he was able to claim the entire eligible refund.

Cases like Shri Khera’s are far more common than most taxpayers realize. Banks, employers, pension disbursing authorities, and other deductors often deduct TDS based on prescribed rules and estimated income without considering your final tax liability.

Before claiming a refund of excess TDS, it is important to understand why the deduction happened in the first place. Different types of income attract different TDS rates and thresholds. Our comprehensive TDS Rate Chart FY 2026-27 explains the latest rates, limits and deduction rules applicable during the financial year.

In this detailed guide, we explain why TDS may be deducted even when your income is not taxable, who can claim a refund, how to file an ITR, the role of Form 15G and Form 15H, refund timelines, common mistakes to avoid, and practical examples for FY 2026-27.

Let us first understand why TDS can be deducted even when your final tax liability is zero.

TDS Deducted But Income Below Taxable Limit: Why Does It Happen?

Yes, TDS can be deducted even when your total income is below the taxable limit. This is because TDS is generally deducted based on prescribed transaction thresholds and estimated income, not your final tax liability.

As a result, many taxpayers find themselves in a situation where income is below the taxable limit but TDS is deducted by their employer, bank, pension disbursing authority, or other deductor. If your actual tax liability is lower than the tax already deducted, you may be eligible to make a TDS refund claim by filing your Income Tax Return (ITR).

The deductor may not know:

• Your total annual income
• Eligible deductions and exemptions
• Tax regime chosen
• Rebate eligibility under applicable provisions

Therefore, income below taxable limit TDS deducted is a fairly common situation and does not necessarily mean that tax is actually payable.

Particulars	Result
Income below taxable limit	Yes
TDS deducted	Possible
Tax liability	Nil
Refund available	Yes
ITR filing required	Yes
Refund credited to bank account	Yes

Why Was TDS Deducted Even Though My Income Is Not Taxable?

TDS is often deducted based on specified payment thresholds and estimated income rather than your final tax liability. As a result, many taxpayers discover that their income is below the taxable limit but tax has already been deducted by the bank, employer, tenant, or payer, making them eligible to claim a refund through the Income Tax Return (ITR) process.

The most common situations include TDS deducted on FD interest, excess TDS deducted by employers, professional payments received by freelancers, commission income, and rental payments.

If the tax deducted exceeds your actual liability, you may be eligible for a TDS deducted from salary refund or claim TDS refund online by filing and verifying your ITR.

Fixed Deposit Interest

Banks deduct TDS once interest income crosses prescribed limits.

Example:

FD Interest	Annual Income
₹60,000	₹4,80,000

Although income may be non-taxable, TDS may still be deducted. However, TDS refund on FD interest is still available to the taxpayers.

Salary Income

Employer estimates annual taxable income based on your declaration but incorrect projections may result in excess TDS deduction.

Freelance Income

Companies deduct TDS before making professional payments. Thus, even if your total taxable income does not exceed the prescribed limit, TDS may have been deducted from the earnings disbursed to you from time to time.

Commission Income

Insurance agents, brokers and distributors often face TDS deductions. TDS is often deducted based on prescribed thresholds and estimated income rather than your final tax liability.

You can check the applicable deduction rates in our TDS Rate Chart FY 2026-27 to understand why tax may have been deducted.

If the tax deducted exceeds your actual liability, you may be eligible for a refund of excess TDS and can claim TDS refund online by filing your ITR.

Rent Income

Tenants are required to deduct TDS based on the applicable provisions and prescribed thresholds. They generally do not have visibility into your total annual income or overall tax liability. They deduct TDS based on the the applicable Income Tax act for rent payments.

Who Can Claim TDS Refund?

A common question many taxpayers ask is whether they are eligible to claim a refund of the TDS deducted from their income. The answer depends on your final tax liability, as shown below.

Situation	Can You Claim TDS Refund?	Reason
Total tax liability is zero	✅ Yes	No tax is payable, so the entire TDS deducted may be refunded.
TDS exceeds actual tax liability	✅ Yes	Excess tax paid can be claimed as a refund through ITR.
Eligible deductions were ignored	✅ Yes	Claiming deductions may reduce tax liability and create a refund.
Rebate under Section 87A reduces tax to zero	✅ Yes	The rebate can eliminate tax liability, making TDS refundable.
Wrong or excess TDS deduction occurred	✅ Yes	Incorrectly deducted tax can be recovered through the refund process.

TDS Deducted But Income Below Taxable Limit: Real Refund Calculation Examples for Different Taxpayers

Example 1: Salaried Employee

Particulars	Amount
Salary Income	₹9,80,000
Standard Deduction	₹75,000
Net Taxable Income	₹9,05,000
Tax Liability (New Regime)	Nil (Rebate)
TDS Deducted	₹18,000
Refund	₹18,000

How much refund will I actually get? The answer is ₹18,000.

Example 2: Senior Citizen FD Holder: Chandan Khera Sir

Particulars	Amount
Pension Income	₹6,20,000
FD Interest/ Post Office MIS/Sr Citizen Savings Scheme	₹3,70,000
Total Income	₹9,90,000
Standard Deduction	₹75,000
Net Taxable Income	₹9,15,000
Tax Liability	Nil
TDS Deducted	₹39,000
Refund Eligible	₹39,000

After filing his return correctly and completing e-verification, Shri Chandan Khera received a refund of approximately ₹39,000 along with applicable interest from the Income Tax Department.

His experience highlights a common situation where a TDS refund for senior citizen taxpayers becomes available because tax is deducted during the year even though the final tax liability is ultimately nil.

ArthikDisha Observation: In our experience, pensioners, FD holders, and freelancers are among the most common taxpayers who end up paying excess TDS despite having little or no final tax liability.

Example 3: Freelancer (Identity Withheld for Privacy)

Particulars	Amount
Professional Receipts	₹5,89,000
Expenses	₹1,48,000
Net Income	₹4,41,000
TDS Deducted	₹22,000
Actual Tax	Nil
Refund	₹22,000

ArthikDisha Observation: In our practical experience, the majority of refund cases arise from FD interest, pension income, salary estimation errors and freelance receipts where deductors apply TDS without visibility of the taxpayer’s final taxable income.

Can You Get Full Refund Under New Tax Regime FY 2026-27?

Before calculating your refundable TDS amount or understanding how to file an ITR to claim your refund, it is important to understand the applicable income tax slabs under the New Tax Regime for FY 2026-27.

Your final tax liability, rebate eligibility, and refund amount will largely depend on your total taxable income and the tax regime chosen.

This is especially important for taxpayers seeking a TDS refund for salaried employee income, TDS refund on FD interest, TDS refund for senior citizen pension and interest income, or a freelancer TDS refund, as their actual tax liability may be significantly lower than the tax already deducted during the year.

Understanding the latest tax slabs will help you determine whether you are eligible for a full refund, partial refund, or no refund at all.

New Tax Regime Slabs: FY 2026-27 (AY 2027-28)

Annual Income	💰 Tax Rate	Meaning
Up to ₹4L	NIL	No tax
₹4L – ₹8L	5%	Low tax
₹8L – ₹12L	10%	Moderate
₹12L – ₹16L	15%	Higher
₹16L – ₹20L	20%	High
₹20L – ₹24L	25%	Very high
⚫ Above ₹24L	30%	Maximum slab

Your refund eligibility today is heavily dependent on the following 3 aspects:

• Rebate provisions
• Standard deduction
• Current tax regime

TDS Refund Eligibility Matrix (FY 2026-27) Under New Tax Regime

Total Income	Typical Taxpayer	Tax Liability	TDS Deducted	Refund Eligibility
₹4,50,000	Pensioner / FD Holder	Nil	Yes	✅ Full Refund
₹5,50,000	Freelancer after expenses	Nil	Yes	✅ Full Refund
₹7,50,000	Salaried Employee (eligible for rebate)	Nil	Yes	✅ Full Refund
₹8,50,000	Salaried Employee with deductions	Reduced / Nil	Yes	✅ Full or Partial Refund
₹9,50,000	Professional / Consultant	Lower than TDS deducted	Yes	✅ Partial Refund
₹9,90,000	Senior Citizen (Khera Sir Case)	Nil	₹39,000	✅ Full Refund
₹12,00,000	Salaried Employee	Tax payable but lower than TDS	Yes	✅ Partial Refund
₹15,00,000	High-income taxpayer	Tax payable exceeds TDS	Yes	❌ No Refund
Any Income Level	Wrong or Excess TDS Deduction	Depends on actual liability	Yes	✅ Refund of Excess TDS

Important: Refund eligibility depends on your final tax liability after considering deductions, exemptions, rebates, and the tax regime chosen. Even if TDS has been deducted, many taxpayers become eligible for a full or partial income tax refund after TDS deduction because their actual tax liability is lower than the tax already deducted at source.

How To Check Whether TDS Has Been Deducted?

Before claiming a refund, verify your TDS details through the following 3 important documents such as Form 26AS, AIS and Form 16/16A:

Document	What It Shows
Form 26AS	TDS deposited, advance tax, and self-assessment tax details
AIS (Annual Information Statement)	Salary, interest, dividend income, securities transactions, and TDS entries
Form 16	TDS deducted on salary income
Form 16A	TDS deducted on non-salary income such as FD interest, professional fees, commission, or rent

Tip: Always cross-check your Form 26AS, AIS, and Form 16 (New Form 130) or Form 16A before filing your ITR to ensure all TDS credits are correctly reflected.

How To Claim Refund Of TDS Deducted?

If your income is below the taxable limit or the TDS deducted exceeds your actual tax liability, you can claim a refund by filing your Income Tax Return (ITR).

Steps: How to get TDS Refund

Step	Action
1	Check TDS details in Form 26AS and AIS
2	Collect Form 16 or Form 16A
3	Calculate your actual tax liability
4	File the correct ITR form
5	Report all income and TDS credits
6	E-Verify your return
7	Receive refund directly in your bank account

Important: Ensure your PAN, Aadhaar, and bank account details are correctly linked to avoid delays in refund processing.

How To Avoid TDS Deduction In The First Place?

The best way to avoid unnecessary TDS deduction is to plan in advance. Eligible taxpayers can submit Form 15G or Form 15H to banks and other deductors if their estimated tax liability is nil. It is also important to keep your PAN details updated, declare the correct income to the deductor, and regularly verify your tax records.

Salaried employees should submit their investment declarations and supporting proofs to their employer on time so that eligible deductions, exemptions, and rebates are properly considered while calculating TDS. Taking these simple steps can help prevent excess tax deduction and reduce the need to claim a refund later.

What Is Form 15G and Form 15H?

Form 15G helps eligible individuals request the payer not to deduct TDS and on the other hand, Form 15H is submitted by the senior citizens in India.

Form 15G vs Form 15H

Particulars	Form 15G	Form 15H
Age	Below 60	60 or above
Resident Indian	Yes	Yes
Tax liability	Nil	Nil
Purpose	Avoid TDS	Avoid TDS

Common Mistakes That Delay TDS Refund

Many taxpayers unknowingly make errors that delay the TDS refund process FY 2026-27, despite being fully eligible for a refund.

The following are some of the most common mistakes that can result in refund processing delays, verification issues, or additional scrutiny by the Income Tax Department.

Mistake	Impact
Wrong bank account details	Refund failure
ITR not e-verified	Processing delay
PAN-Aadhaar not linked	Refund issues
TDS mismatch in 26AS	Lower refund
Incorrect ITR form	Processing delay
Ignoring AIS entries	Notice risk

How Long Does TDS Refund Take?

There is no fixed timeline for receiving a TDS refund, as it depends on the processing of your Income Tax Return (ITR) by the Income Tax Department. Based on our experience, taxpayers who file their returns accurately and complete e-verification promptly generally receive their refund faster than those whose returns require additional verification.

Process	Approximate Time
ITR Filing	Day 1
E-Verification	Same Day
Processing	Few weeks to months
Refund Credit	After processing

Can Interest Be Received On Income Tax Refund?

Yes. In eligible cases, the Income Tax Department may pay interest on your refund at the prescribed rate, which is generally 6% per annum.

However, in our experience, filing your ITR after the due date may reduce or affect the interest payable on the refund amount, depending on the circumstances of the case.

What If TDS Was Deducted By Mistake?

In some cases, TDS may be deducted by mistake due to incorrect PAN details, duplicate deductions, excess tax withholding, or reporting errors, making it important to identify and rectify the issue promptly to claim the correct refund.

Possible Issue	What You Should Do
Wrong PAN reported	Verify PAN details and contact deductor
Duplicate TDS deduction	Check Form 26AS and request correction
Excess TDS deduction	Claim refund through ITR
Incorrect income reporting	File a corrected or revised return if required
TDS mismatch	Reconcile records with Form 26AS and AIS

Conclusion:

In conclusion, TDS deduction does not necessarily mean that tax is payable. Many taxpayers discover that their final tax liability is lower than the tax already deducted, making them eligible to claim a refund through their Income Tax Return (ITR).

In such situations, the deducted TDS can usually be recovered by filing an Income Tax Return and claiming a refund.

Always verify Form 26AS, AIS and TDS certificates, file the correct ITR form, and complete e-verification promptly to ensure a faster refund process.