TDS on salary for FY 2025–26 is the monthly withholding of income tax by the employer based on the employee’s estimated annual taxable salary for the year, divided across the remaining months of service.
Calculate Your Income Tax Instantly
Use our Income Tax Calculator to estimate your tax liability under the latest applicable tax slabs. Compare old vs new tax regime and plan your salary and investments smarter.
Open Income Tax CalculatorNote: Tax calculation is indicative and subject to applicable Finance Act rules.
For most employees, the New Tax Regime under section 115BAC is the default. The Old Regime applies only if the employee explicitly opts for it.
.jpg)
Applicable tax regime and status (important)
- Financial Year: 2025–26
- Assessment Year: 2026–27
- Law status:Confirmed as per Finance Act, 2024, in force unless changed by Budget 2026.
- Employer practice: TDS is calculated based on current law at the time of deduction. Any later change is adjusted during the year.
Step-by-step TDS calculation on salary
Step 1: Estimate annual gross salary
Include:
- Basic, DA (if applicable)
- HRA
- Special allowances
- Bonuses, incentives
- Any other taxable perquisites
Exclude:
- Fully exempt reimbursements (if conditions met)
- Employer PF contribution within limits
Step 2: Deduct exemptions (only if eligible)
Under the New Tax Regime, most exemptions are not allowed.
Allowed under New Regime:
- Standard Deduction: ₹50,000
- Employer contribution to NPS (section 80CCD(2))
- Certain notified allowances (limited cases)
Under the Old Regime, exemptions such as HRA, LTA, and deductions under Chapter VI-A may apply if opted.
Step 3: Arrive at taxable salary
TaxableSalary= Gross Salary – Allowed Exemptions – Standard Deduction Step 4: Apply income tax slabs (New Regime – default)
Income Tax Slabs for FY 2025–26 (New Regime)
| Taxable Income | Tax Rate |
|---|---|
| Up to ₹3,00,000 | Nil |
| ₹3,00,001 – ₹7,00,000 | 5% |
| ₹7,00,001 – ₹10,00,000 | 10% |
| ₹10,00,001 – ₹12,00,000 | 15% |
| ₹12,00,001 – ₹15,00,000 | 20% |
| Above ₹15,00,000 | 30% |
Health & Education Cess: 4% on total tax
Step 5: Apply rebate (if applicable)
- Section 87A rebate applies if taxable income is up to ₹7,00,000
- Result: Net tax payable becomes zero
- If rebate applies, no TDS should be deducted
Step 6: Calculate annual tax liability
Income Tax (as per slabs) + Health & Education Cess (4%) = Total Annual Tax Payable Step 7: Compute monthly TDS
MonthlyTDS= Remaining Annual Tax ÷ Remaining months of employment Employers adjust TDS when:
- Salary structure changes
- Proofs are submitted
- Regime option is changed (where allowed)
- Bonus or arrears are paid
Worked example (New Tax Regime)
Assumptions
- Annual Gross Salary: ₹9,00,000
- Standard Deduction: ₹50,000
Taxable Salary
₹9,00,000 – ₹50,000 = ₹8,50,000 Tax calculation
- ₹0 – ₹3,00,000 → Nil
- ₹3,00,001 – ₹7,00,000 (₹4,00,000 × 5%) = ₹20,000
- ₹7,00,001 – ₹8,50,000 (₹1,50,000 × 10%) = ₹15,000
Total tax before cess: ₹35,000
Cess @ 4%: ₹1,400
Annual tax payable: ₹36,400
If deducted over 12 months:
Monthly TDS ≈ ₹3,033Old Tax Regime: when it matters
An employee may opt for the Old Regime if deductions like:
- HRA exemption
- Section 80C, 80D, etc.
materially reduce taxable income.
If opted, TDS is computed using old slab rates and deductions, but the option must be clearly declared to the employer.
Employer responsibilities in TDS on salary
- Obtain regime declaration from employee
- Consider income from previous employer (if any)
- Allow deductions only on valid declarations/proofs
- Issue Form 16 by the statutory due date
- Deposit TDS and file returns on time
Key points that commonly cause errors
- Assuming Basic must be 50% of CTC (not a tax rule)
- Claiming deductions not allowed under the New Regime
- Ignoring bonus or variable pay in annual estimation
- Not adjusting TDS after mid-year salary revisions
Practical takeaway
For FY 2025–26, TDS on salary is a projection-based, dynamic calculation, not a fixed monthly formula. Accuracy depends on:
- Correct regime selection
- Realistic annual salary estimation
- Timely employee declarations
- Ongoing adjustments during the year
This is the basis on which compliant payroll and accurate take-home pay are ensured.