Stox N Tax

TDS Not Deducted? Why Even Zero-TDS Employees Must Be Reported in Quarterly Returns

Introduction

A common misconception among employers is that if no TDS has been deducted from an employee’s salary, the employee does not need to be included in the quarterly Form 24Q TDS return. However, this is not correct under Indian tax laws.

The Income Tax Rules mandate that all employees who are paid salaries during a financial year — whether or not tax was deducted — must be reported in Form 24Q. Ignoring this can lead to compliance issues, penalties, and employee grievances.

What the Law Says

As per Rule 31A(4) of the Income Tax Rules, 1962, employers must report salary payment details of every employee in Form 24Q, even when no TDS is deducted.

The Central Board of Direct Taxes (CBDT) has also clarified, through various circulars and FAQs, that:

“If an employee has worked during any quarter and salary is paid to them, they must be reported in the TDS return for that quarter, regardless of whether tax was deducted.”

This means: Salary paid → Form 24Q reporting is mandatory.

Why Reporting Zero-TDS Employees Matters

1. Ensures Legal Compliance

Mandatory reporting under Form 24Q helps fulfill the employer’s statutory obligations under the Income Tax Act.

2. Enables Form 16 Generation

Employees — even those with zero TDS — are entitled to receive Form 16 Part B for income reporting. Form 16 cannot be generated unless the employee is included in quarterly TDS returns.

3. Prevents Form 26AS Mismatches

If an employee is left out, the salary won’t reflect in Form 26AS, leading to confusion during ITR filing and possible compliance scrutiny.

4. Avoids Penalties

Non-reporting of employees can attract penalties under Section 272A and late fees under Section 234E for each day of default.

Simple Examples to Understand

Example 1: Mr. Ravi

Mr. Ravi earns ₹2.3 lakh per annum. Since this is below the basic exemption limit, no TDS is deducted.
However, Mr. Ravi’s salary still needs to be reported in Form 24Q with zero TDS.

Example 2: Ms. Priya

Ms. Priya earns ₹5.5 lakh but submits investment declarations (via Form 12BB) to bring taxable income below ₹2.5 lakh.
Again, no TDS is deducted.
Still, her salary details must be included in the quarterly TDS returns.

What Can Go Wrong If You Don’t Report?

  • TDS mismatch notices from the Income Tax Department
  • Employees unable to file returns due to missing Form 16 or 26AS entries
  • Loss of employee trust in employer’s payroll compliance
  • Penalties:
    • ₹200 per day under Section 234E (late fee)
    • Up to ₹100 per failure under Section 272A(2)(k)

What Should Employers Do?

  • Include every salaried employee in Form 24Q, whether or not TDS is deducted
  • Validate PAN details and salary records before submission
  • Maintain Form 12BB, investment proofs, and supporting salary records
  • Use TRACES portal for accurate TDS filing and Form 16 issuance
  • File returns on or before the due dates (15th of the month following each quarter)

Frequently Asked Questions (FAQs)

Q1. Do I have to include employees in TDS returns even if no TDS was deducted?

Yes. Every salaried employee must be reported in Form 24Q, regardless of whether TDS was deducted or not.

Q2. What happens if I don’t include zero-TDS employees?

You may face:

  • Penalties under Section 234E and Section 272A
  • Difficulties for employees in receiving Form 16
  • Errors in Form 26AS, affecting employee ITRs

Q3. Is Form 16 required for employees with zero TDS?

Yes. Part B of Form 16 must still be issued, showing salary breakup and TDS (which may be zero). Only Part A will show no tax deduction.

Q4. Does this apply to interns or part-time employees?

If they are paid under the head “Salaries” and are part of the payroll, yes, they must be included in Form 24Q.

Final Thoughts

The notion that no TDS means no reporting is a serious compliance myth. The Income Tax Act mandates reporting of all employees receiving salary, even when their tax liability is zero.

By ensuring complete and timely reporting:

  • Employers avoid legal penalties
  • Employees get accurate Form 16s
  • Tax filings are smoother for everyone involved

Accurate TDS compliance today helps avoid complex issues tomorrow. Stay consistent, stay compliant — and trust Stox N Tax to keep you informed.

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