How to Calculate TDS on Salary

What is TDS on Salary?

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The process used by the Indian government to collect taxes at the source of revenue is called Tax Deducted at Source (TDS). When the payer makes payments to the recipient, a specific proportion of taxes is subtracted, and the money is subsequently sent to the government. Salaries, interest on fixed deposits, rent, commissions, and other types of income are all subjected to TDS.

Who Can Deduct TDS Under Section 192?

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TDS under Section 192 must be deducted by employers, which include:

• Private and public companies

• Individuals

• Hindu Undivided Families (HUFs)

• Trusts

• Partnership firms

• Cooperative societies

All these entities are required to deduct TDS from employees' salaries every month and deposit it with the government within the prescribed timeline.

Steps to Calculate TDS on Salary

Calculating TDS on salary involves a systematic process. Here’s a step-by-step guide^[2]:

Step 1: Calculate Your Gross Salary

The employee's overall pay for the fiscal year is determined by the company.

 

This comprises:
- The base pay
- The allowance for dearness
- Commissions, bonuses, and gratuities
- Perquisites (meal coupons, LTA, HRA, etc.)
-  EPF contributions
- Previous employer's salary (if any)

Step 2: Section 10 Exemptions

Taxable income is decreased by specific deductions and allowances, including:
- Travel, uniform, and HRA allowances
The allowance for children's education
Professional tax paid; ₹50,000 standard deduction

 

Step 3: Calculate Your Net Taxable Income
The amount that remains after subtracting exemptions from the gross monthly income is regarded as taxable salary.

Step 4: Adjust for House Property & Add Other Income

Additional income (such as bank interest or rental income) that the employee reports is added to their net taxable income. Home loan interest is deductible under "income from house property"; if there is no rental income, this lowers taxable income.

Step 5: Deduct Eligible Investments

 

The employer reduces  the investment amounts declared by employees under Chapter VI-A of the Income Tax Act based on their submitted investment declarations.

These declarations may include investments like PPF, Employee Provident Fund, ELSS mutual funds, NSC, and Sukanya Samriddhi Account. They may also cover expenses such as home loan repayments, life insurance premiums, and contributions to National Savings Certificate and Sukanya Samriddhi Account.

Deductions under (Section 80G), health insurance premiums (Section 80D) are also included.

New vs. Old Tax Regime

The new tax regime is the default for FY 2023–2024. Although it offers reduced tax rates, the majority of exemptions and deductions are eliminated.

Before choosing, make sure to review the most recent income tax slabs  under the new tax regime (Budget 2025)*  and contrast them with the previous tax regime.

Revised Income Tax Slabs for FY 2025-26:

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As of the latest available information, the old tax regime in India for individuals below 60 years of age is structured as follows:^[4]

Income Tax Slabs and Rates:

For senior citizens (aged 60 years and above but below 80 years), the slabs are:

For super senior citizens (aged 80 years and above), the slabs are:

 

Example of TDS Calculation

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Conclusion

For efficient financial planning and tax law compliance, it is essential to comprehend how to compute TDS on salaries. Employees can estimate their tax liabilities and make sure they make well-informed decisions regarding investments and deductions by following the aforementioned steps. In contrast, employers are required to follow the rules set forth by the Income Tax Department in order to avoid fines.

FAQs

1. What is TDS on salary?

TDS, or Tax Deducted at Source, is a system where the payer deducts tax from specific income before paying it to the recipient and deposits it with the government on their behalf. This mechanism helps minimize tax evasion by ensuring tax collection at the source of income. ^[5]

2. Who is responsible for deducting TDS on salary?

Companies (Private or Public), individuals, Hindu Undivided Families (HUFs), trusts, partnership firms, and cooperative societies are required to deduct TDS on salary every month and deposit it with the government within the specified timeframe. ^[2]

3. How is TDS on salary calculated?

TDS on salary is calculated by estimating the employee’s annual salary, deducting exemptions like HRA and standard deduction, adding other incomes, and subtracting eligible investments and expenses to determine the taxable income. ^[2]

4. What is Form 16, and why is it important?

Form 16 is a TDS certificate provided by the employer, confirming that tax has been deducted from the employee's salary and deposited with the government. It acts as proof of tax deduction at source and is necessary for filing income tax returns. ^[6]

5. Can I get a refund if excess TDS is deducted from my salary?

Yes, if excess TDS is deducted, you can claim a refund by filing your income tax return (ITR). ^[1]

6. What happens to the TDS deducted by the employer/customer?

Since TDS deductions are directly related to PANs, Form 26AS will provide the entire TDS amount. In addition to advance taxes and self-assessment taxes, it can be utilized to claim a tax credit against the entire tax burden when submitting annual income tax returns. ^[7]

7. Where can I find out how much TDS credit I have available?

You can check the amount of TDS credit under Form 26AS. ^[8]

8. Situations in which section 192 does not require the deduction of taxes?

If the employee's taxable income is less than Rs. 2.5 lakhs, no tax must be withheld. (Rs. 3 lakhs for senior persons, Rs. 5 lakhs for super senior citizens). If the employee's income tax liability is "NIL" after deductions or any applicable refunds, no tax must be withheld. ^[9]

 

9. What is the deadline for section 192 tax deposits? 

According to Section 192, the deadline for depositing the TDS payment is:

March TDS deductions must be made by April 30 at the latest.

TDS is deducted within seven days of the next month in any other month besides March. ^[9]