Learn how to calculate TDS on salary with step-by-step examples, tax-saving tips, regime comparison, and refund process. Updated for FY 2025–26. Ideal for Indian salaried employees and government staff.
Understanding how TDS (Tax Deducted at Source) is calculated on your salary is crucial—not just for financial planning, but to avoid surprises during income tax filing. Whether you're a salaried professional in the private sector or a government employee under the 7th CPC, this guide walks you through how your monthly salary deductions are calculated, and how you can optimize your take-home pay accordingly.
What Is TDS on Salary and Why Does It Matter?
TDS on salary refers to the tax your employer deducts every month before paying your salary. This is done under Section 192 of the Income Tax Act, and the deducted amount is then deposited with the Income Tax Department on your behalf.
It’s important because:
- It ensures timely collection of tax for the government.
- It prevents a lump-sum tax burden at the end of the financial year.
- It helps salaried individuals maintain tax compliance with minimal effort.
Your employer is responsible for calculating your total projected income for the financial year, applying applicable exemptions/deductions, and estimating tax liability. This amount is divided over the remaining months of the financial year and deducted monthly.
Difference Between Old and New Tax Regime (FY 2025–26)
When calculating TDS on salary, the choice of tax regime plays a major role. You can opt for the old tax regime, which allows exemptions like HRA, LTA, 80C, etc., or the new tax regime, which offers lower slab rates but no deductions.
Here’s a comparative slab structure for the financial year 2025–26:
| Income Range (₹) | Old Regime | New Regime (Default) |
|---|---|---|
| 0 – 2.5 lakh | Nil | Nil |
| 2.5 – 5 lakh | 5% | 5% |
| 5 – 7.5 lakh | 20% | 10% |
| 7.5 – 10 lakh | 20% | 15% |
| 10 – 12.5 lakh | 30% | 20% |
| 12.5 – 15 lakh | 30% | 25% |
| Above 15 lakh | 30% | 30% |
Note: Under Section 87A, a rebate of ₹25,000 is available for individuals with total income up to ₹7 lakh under the new regime, resulting in zero tax liability in such cases.
The regime selection must be declared to your employer at the start of the financial year. Otherwise, the employer will deduct TDS under the default new tax regime, as per recent CBDT guidelines.
You can refer to the official income tax website for the most recent updates on tax slabs and exemption policies.
Understanding Section 192: Legal Framework of TDS on Salary
TDS on salary is governed by Section 192 of the Income Tax Act, 1961, which is different from other TDS provisions in two key ways:
- No fixed TDS rate: Unlike TDS on interest or commission, salary TDS is based on the applicable income tax slab rate of the employee.
- Annualised calculation: TDS is not a flat cut per month—it is calculated on the estimated annual income.
Employers are obligated to:
- Consider declarations from employees about their deductions (like 80C, 80D, HRA).
- Deduct tax accordingly on a monthly average basis.
- Issue Form 16 at the end of the year reflecting total salary and TDS deducted.
If an employee fails to submit proofs, the employer may deduct higher TDS. You can view your TDS deducted every quarter in Form 26AS via TRACES, which is linked to your PAN.
When Is TDS Applicable and When It’s Not
TDS on salary is applicable when:
- You're earning more than the basic exemption limit (₹2.5 lakh under the old regime, ₹3 lakh under the new regime for senior citizens).
- Your employer has projected that your annual income exceeds the taxable threshold after allowable deductions.
TDS is not deducted if:
- Your total taxable income (after exemptions and deductions) is less than ₹5 lakh under the old regime (with rebate).
- You're not in receipt of taxable income at all.
- You're an employee under probation or internship without taxable monthly payouts.
It’s essential to note that TDS is not optional if you fall under the taxable bracket, even if you expect a refund later.
How to Calculate TDS on Salary: Step-by-Step with Example
TDS on salary is not deducted randomly or equally every month. It follows a structured, annualised formula based on your projected total income for the financial year, eligible deductions, and applicable slab rates. Let’s walk through the process in a detailed and simplified way.
Step 1: Estimate Your Total Annual Salary
Your employer first computes your gross annual salary, which includes:
- Basic Pay
- Dearness Allowance (DA)
- House Rent Allowance (HRA)
- Special Allowances
- Bonus or Performance Incentives
- Any other recurring benefits
Let’s say your gross salary is ₹10,00,000 per annum.
Step 2: Deduct Exemptions & Allowable Components
If you’ve opted for the old tax regime, you can claim exemptions such as:
- HRA (if you live in a rented house and pay rent)
- Standard Deduction (₹50,000 for all salaried individuals)
- LTA (Leave Travel Allowance, if applicable)
- Section 10 allowances (e.g., telephone reimbursement, conveyance, etc.)
For example:
| Component | Exemption Claimed |
|---|---|
| HRA (based on rent paid) | ₹1,50,000 |
| Standard Deduction | ₹50,000 |
| LTA | ₹30,000 |
| Total Deductions | ₹2,30,000 |
Taxable Salary after Exemptions = ₹10,00,000 – ₹2,30,000 = ₹7,70,000
Step 3: Apply Chapter VI-A Deductions
You’re then allowed to reduce your taxable income further under Chapter VI-A, which includes:
- Section 80C (up to ₹1.5 lakh) – LIC premium, PPF, ELSS, EPF, etc.
- Section 80D – Health insurance premiums
- Section 80E – Education loan interest
- Section 80G – Donations
Let’s assume you invest ₹1.5 lakh under Section 80C and pay ₹25,000 for health insurance (80D).
Total deductions = ₹1,75,000
Net Taxable Income = ₹7,70,000 – ₹1,75,000 = ₹5,95,000
Step 4: Calculate Tax Based on Applicable Slab
Now apply the income tax slab rates of the regime you've opted for. Here's how the tax would be computed under the old tax regime:
| Tax Slab | Tax Rate | Taxable Amount (₹) | Tax (₹) |
|---|---|---|---|
| 0 – 2.5 lakh | Nil | 2,50,000 | 0 |
| 2.5 lakh – 5 lakh | 5% | 2,50,000 | 12,500 |
| 5 lakh – 5.95 lakh | 20% | 95,000 | 19,000 |
| Total Tax Payable | ₹31,500 |
Note: If your income is below ₹5 lakh after deductions, you’re eligible for Section 87A rebate, making your tax zero. In this case, the person is not eligible as the final taxable income is above ₹5 lakh.
Step 5: Add Health & Education Cess
All calculated tax is subject to an additional 4% Health and Education Cess.
Total Tax: ₹31,500
Cess (4%): ₹1,260
Final Tax Payable: ₹32,760
Step 6: Calculate Monthly TDS Deduction
Assuming this tax is spread evenly across 12 months:
Monthly TDS = ₹32,760 ÷ 12 = ₹2,730 (approx)
This is the amount your employer would deduct every month from your salary.
Additional Case: Opting for the New Tax Regime
Had the same person opted for the new tax regime, the entire exemption under Section 80C, HRA, LTA, etc., would not be available, and taxable income would remain at ₹10,00,000. But the slab rates are lower under the new regime.
| Slab (New Regime) | Rate | Tax (₹) |
|---|---|---|
| Up to ₹3 lakh | Nil | 0 |
| ₹3 – ₹6 lakh | 5% | ₹15,000 |
| ₹6 – ₹9 lakh | 10% | ₹30,000 |
| ₹9 – ₹10 lakh | 15% | ₹15,000 |
| Total Tax | ₹60,000 | |
| + Cess (4%) | ₹2,400 | |
| Total Payable | ₹62,400 |
Hence, new regime may result in higher TDS in this example, despite lower rates, because exemptions are not allowed.
You can simulate such calculations using the TDS estimator provided by NSDL e-Gov or directly on the Income Tax Department calculator.
Use Our TDS Calculator or Calculate Manually – What Works Best?
For many salaried individuals, the manual method of TDS calculation on salary can feel complex, especially when dealing with multiple income sources, exemptions, and deductions. While understanding the calculation logic is essential, using a calculator streamlines the process and reduces the risk of errors.
If you're looking for a more efficient way, you can use a reliable TDS calculator that is officially hosted by the Income Tax Department. It takes into account your income type, tax regime selection, and age bracket to give you a precise estimate of monthly TDS liability.
Benefits of Using a TDS Calculator
- Accuracy: Automatically considers latest slabs, cess, and deductions.
- Time-Saving: Instant results after entering basic salary details.
- Decision Making: Helps choose between old and new regime wisely.
- Planning: Assists in forecasting how much to invest under 80C or 80D to reduce tax.
Manual Calculation Still Has Value
Despite the ease calculators offer, learning the step-by-step method allows you to:
- Cross-check the TDS deductions shown on your payslip.
- Estimate tax liability in case of job switch or mid-year hikes.
- Verify Form 16 data for any discrepancies before filing your return.
Many salaried professionals prefer manually estimating their TDS before submitting proofs to their employer. This practice also helps avoid under-deduction, which may lead to penalties during ITR filing.
How TDS Varies by Income and Investment Planning
Let’s understand how TDS deductions can differ for the same salary based on how well a person utilizes deductions under the old regime.
Example: Two Individuals with ₹9,00,000 Annual Salary
| Criteria | Person A | Person B |
|---|---|---|
| Investment under Section 80C | ₹1,50,000 | Nil |
| Health Insurance (80D) | ₹25,000 | Nil |
| HRA Claim | ₹1,50,000 | Nil |
| Standard Deduction | ₹50,000 | ₹50,000 |
| Taxable Income | ₹5,25,000 | ₹8,50,000 |
| Tax After Rebate (87A where applicable) | ₹0 | ₹75,000 |
| TDS Deducted Monthly (Approx) | Nil | ₹6,250 |
This shows that effective investment planning under the old tax regime can reduce TDS liability significantly—even bring it down to zero if the net income after deductions falls below the rebate threshold.
For professionals unsure about how much to invest and where, several government savings schemes such as Public Provident Fund (PPF) or National Pension System (NPS) are eligible under 80C and 80CCD(1B), respectively, and offer tax benefits.
TDS and Multiple Employers: What Happens When You Switch Jobs?
If you’ve changed jobs mid-year, both employers are supposed to deduct TDS based on your cumulative income. However, this often doesn’t happen automatically unless you:
- Disclose income earned from the previous employer to your current employer.
- Submit proof of past deductions and Form 16 Part A from the earlier company.
Failure to do this may result in under-deduction of TDS, which leads to a higher tax payment at the end of the year, possibly along with interest under Section 234B and 234C.
To avoid such issues:
- Always collect Form 16 from past employers.
- Combine income figures while estimating total taxable income.
- Cross-verify the deductions using Form 26AS or Annual Information Statement (AIS) available on the income tax portal.
Choosing Between Old and New Regime: TDS Impact on Take-Home Salary
Your choice of tax regime significantly affects your TDS deduction and overall take-home salary. Since the employer deducts TDS based on your declared preference, it’s essential to make an informed decision at the beginning of the financial year. If no declaration is made, the new tax regime is applied by default, as per the latest circular issued by the Central Board of Direct Taxes (CBDT).
Let’s break down how TDS varies between the two regimes based on the same income level.
Example: Annual Salary of ₹12,00,000 – Regime Comparison
| Details | Old Regime | New Regime |
|---|---|---|
| Gross Salary | ₹12,00,000 | ₹12,00,000 |
| Deductions (80C, 80D, HRA, etc.) | ₹2,00,000 | Not Applicable |
| Standard Deduction | ₹50,000 | ₹50,000 |
| Taxable Income | ₹9,50,000 | ₹11,50,000 |
| Total Tax (incl. cess) | ₹84,240 | ₹89,400 |
| Monthly TDS | ₹7,020 | ₹7,450 |
As seen above, the old regime can result in lower tax and, therefore, lesser monthly TDS—but only if you have significant exemptions to claim. Otherwise, the simplicity of the new regime may be more suitable for individuals with minimal tax-saving investments.
To compare which regime suits you better, the Income Tax Department’s tax regime comparison tool offers a detailed calculation interface.
Should You Opt for the New Regime?
The new tax regime is beneficial if:
- You don’t have housing rent or home loan interest.
- You’re not investing heavily under 80C (PF, LIC, ELSS).
- You want simplified compliance without having to collect proofs.
- You are a high-income earner with a flat salary structure.
On the other hand, the old regime makes sense when:
- You have high exemptions like HRA, LTA, standard deduction, or tax-saving investments.
- Your employer provides benefits like medical reimbursement or food coupons.
- You wish to claim deductions for tuition fees, NPS contributions, or Section 80D.
Decision Matrix: Old vs New Regime Suitability
| Scenario | Recommended Regime |
|---|---|
| Pays rent, claims HRA, invests in PPF and ELSS | Old Regime |
| Lives in owned house, no major investments | New Regime |
| Claims deductions for home loan interest and 80D | Old Regime |
| Receives only basic and special allowance, no claims | New Regime |
Evaluating your annual deductions beforehand can help avoid excess TDS deduction. If you change your mind mid-year, the employer might not revise your TDS; however, you can still file under the desired regime at the time of ITR filing, as permitted under Section 139(1).
Salary Restructuring to Reduce TDS
Employers often allow restructuring of salary components to make the pay structure more tax-efficient. Some options to reduce taxable income and thus lower TDS include:
- Increasing HRA component if you live on rent.
- Adding NPS contribution to claim an extra ₹50,000 under Section 80CCD(1B).
- Allocating part of your salary to meal vouchers or reimbursement allowances.
- Opting for education allowance if you have school-going children.
Before finalising your structure, always consult your HR department and request a cost-to-company (CTC) breakdown to see where optimisations can be applied.
What If TDS on Salary Is Over-Deducted? Here’s How to Claim a Refund
It’s common for employees to discover at the end of the financial year that more TDS was deducted from their salary than necessary. This often happens due to late submission of investment proofs, change in tax regime declaration, or job switches that weren’t properly accounted for. Fortunately, there is a systematic way to claim your excess TDS back as a refund.
Step 1: Verify TDS Deducted Using Form 26AS
The first thing to do is to verify how much TDS has been deposited against your PAN. You can do this by checking Form 26AS, which contains all TDS entries made by your employer and others, including banks and financial institutions.
Form 26AS can be accessed from the TRACES portal or via the e-filing account on the Income Tax Department portal. Ensure that:
- All TDS entries match with the figures on your Form 16.
- There are no missing or mismatched entries due to incorrect PAN or employer errors.
If there’s a mismatch or missing credit, approach your employer or the deductor to rectify the issue before filing your return.
Step 2: File Your Income Tax Return (ITR)
Even if your TDS has been deducted, you must file your Income Tax Return (ITR) to claim a refund. The system calculates your actual tax liability based on your total income and deductions, and compares it with TDS paid.
If TDS is higher than the actual tax due, the excess is refunded directly to your bank account, generally within a few weeks of successful processing.
Make sure to:
- Choose the correct ITR form (usually ITR-1 for salaried individuals).
- Link your PAN with Aadhaar (mandatory).
- Pre-validate your bank account for refund credit.
- E-verify your return within the stipulated timeline.
Step 3: Track Your Refund Status
After filing, you can track your refund using the “Refund Status” service available on the NSDL portal. Keep your PAN and assessment year ready to check the update.
In most cases, refunds are processed within 7 to 30 working days, but delays can occur if bank details are incorrect or there’s a discrepancy in the filing.
Common Reasons for Excess TDS Deduction
| Reason | Impact |
|---|---|
| Delay in submission of investment proofs | Higher estimated taxable income |
| Change in tax regime not declared in time | TDS under default regime |
| Incomplete HRA/80C documentation | Lower exemptions considered |
| Switch in jobs without disclosing previous salary | Dual deductions or shortfall |
| Incorrect PAN or employer TDS filing error | TDS not reflected in Form 26AS |
Preventing Over-Deduction in the Future
To avoid unnecessary TDS deductions in future financial years:
- Submit your investment declarations accurately at the beginning of the year.
- Declare your tax regime choice as early as possible.
- Inform your employer of any job switch, and submit previous Form 16 if needed.
- Keep a record of all tax-saving investments and expenses throughout the year.
By being proactive, you not only reduce the likelihood of excess TDS but also improve your take-home salary and cash flow throughout the year.
Questions About TDS on Salary
Despite being a routine part of every salaried employee’s life, many people still have doubts about how TDS on salary works, when it’s applicable, and how to handle unusual cases. Below are some of the most commonly asked questions, with practical answers based on current tax regulations.
Can I change my tax regime after TDS has already been deducted?
Yes. Even if your employer deducts TDS under a particular regime—either old or new—you can still file your ITR using the regime of your choice. However, the option to switch depends on your income type:
- Salaried employees can opt for either regime every financial year at the time of filing the return.
- Individuals with business/professional income can switch regimes only once, after which the choice becomes fixed (unless you cease your business activity).
This flexibility ensures that you're not penalised if you couldn’t declare your regime preference to your employer on time. When filing your return, make sure to choose the applicable regime correctly on the income tax e-filing portal.
How do I declare income from other sources to avoid shortfall in TDS?
If you earn income apart from your salary—such as interest from fixed deposits, rental income, or capital gains—you are required to disclose this to your employer. This helps in computing your total income accurately and avoiding tax underpayment.
Alternatively, you can:
- Estimate the additional tax liability yourself.
- Pay the balance as advance tax or self-assessment tax before 31st March.
For those unsure about how to calculate it, the Advance Tax Calculator provided by the Income Tax Department is a helpful resource.
What if TDS is deducted but my income is below the taxable limit?
If your total annual income is below the taxable limit (₹2.5 lakh for individuals below 60), ideally, your employer should not deduct any TDS. However, in cases where it has been deducted mistakenly:
- You can claim a full refund by filing your ITR.
- Make sure your income is accurately disclosed under exempt categories.
- Attach necessary documents to support your claim.
Such refunds are usually processed quickly if all details match with Form 26AS and your filing is verified.
Is TDS applicable on bonuses or arrears?
Yes. Any additional earnings, such as annual bonuses, incentives, or arrears paid due to revision in salary (e.g., after pay commission changes), are subject to TDS. These components are treated as part of your total income in the year of receipt.
However, if arrears relate to a previous financial year, you can claim relief under Section 89(1) to reduce the extra tax burden. You must submit Form 10E before filing your return in such cases.
You can refer to the government’s official guidance on this under Relief for Arrears.
Do I still need to file ITR if all my TDS is already deducted?
Yes, if your gross total income exceeds the basic exemption limit, filing an ITR is mandatory—even if full tax has been paid via TDS. Filing is also compulsory if:
- You want to claim a refund for excess TDS.
- You’re applying for a visa, loan, or financial aid and need proof of income.
- You have foreign assets or signatory authority in a foreign account.
Timely filing also helps in maintaining a clean tax record and enables faster processing of future refunds or corrections.
Summary and Smart Tips to Handle TDS on Salary Better
Managing TDS on salary doesn’t require complex tax expertise—it only needs awareness, planning, and timely action. Whether you're a government employee or a private sector professional, understanding how TDS is calculated can help you better control your monthly cash flow and avoid unnecessary deductions.
Here’s a quick wrap-up of what matters most when dealing with salary-based TDS:
Key Takeaways
| Area | Actionable Tip |
|---|---|
| Tax Regime Selection | Declare regime preference to employer at the start of the year to avoid mismatch. |
| Investment Planning | Invest under 80C, 80D, NPS, and claim HRA to reduce TDS in the old regime. |
| Salary Restructuring | Ask HR to structure salary with tax-friendly components like reimbursements. |
| TDS Verification | Cross-check deductions with Form 26AS and Form 16 regularly. |
| Refund Process | File ITR even if TDS is already paid to claim refunds or declare additional income. |
| Other Income | Disclose interest, rent, or freelance income to avoid underpayment penalties. |
Recommended Tools & Resources
To make your tax journey smoother, consider using the following official and reliable tools:
- ITR Filing Utility – File returns online, download ITR forms, and submit digitally.
- AIS and TIS Dashboard – View your Annual Information Statement for income tracking beyond Form 26AS.
- Digital Form 16 Generator for Employers – Used by companies to issue TDS certificates.
- NPS Contribution Checker – Monitor your contributions eligible under 80CCD(1B).
These platforms are updated frequently and provide authenticated data for filing and tracking tax deductions.
Final Words for Salaried Employees
Understanding TDS on salary is not just about knowing how much is cut from your pay—it’s about planning your income, saving smartly, and making your salary work more efficiently for you. If you delay investment declarations or ignore your Form 16, you may end up with excess TDS and less take-home pay.
Start each financial year with:
- A clear regime selection
- Early submission of proof and declarations
- Timely review of deductions
- Active use of income tax tools for simulation and planning
Remember, TDS is just an estimate—not your final tax. The more accurate and timely your declarations, the more control you gain over your finances.
FAQ
What is TDS on salary and who deducts it?
TDS on salary is the tax deducted by the employer on behalf of the employee based on estimated annual income and applicable tax slab.
How is TDS on salary calculated monthly?
TDS is calculated by estimating annual taxable income, applying relevant deductions, calculating tax liability, and dividing it over 12 months.
Can I change my tax regime after TDS deduction?
Yes, you can choose a different regime while filing your ITR, even if TDS was deducted under another regime during the year.
How can I reduce TDS on my salary legally?
You can reduce TDS by claiming deductions under sections like 80C, 80D, HRA exemption, and submitting valid proofs to your employer in time.
Is TDS applicable on bonuses or arrears?
Yes, bonuses, incentives, and salary arrears are all considered income and are subject to TDS in the year they are received.
What happens if excess TDS is deducted?
If excess TDS is deducted, you can claim a refund by filing your income tax return. The refund is credited to your bank account.
Is it compulsory to file ITR if TDS is already deducted?
Yes, if your income exceeds the basic exemption limit, you must file an ITR even if full TDS is already paid by the employer.
Where can I check my TDS deducted by the employer?
You can check the TDS deducted using Form 26AS or AIS from the Income Tax Department portal linked to your PAN.
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