TDS (Tax Deducted at Source)
TDS (Tax Deducted at Source) on salary is the income tax that an employer deducts each month from an employee's salary based on their projected annual income and tax declarations, and deposits with the Income Tax Department.
What is TDS (Tax Deducted at Source)?
Under Section 192 of the Income Tax Act, employers must deduct TDS from salary income. The amount is worked out by projecting the employee's annual taxable income, applying the chosen tax regime (old or new), allowing eligible deductions and exemptions, computing tax liability, and dividing by the months remaining in the financial year.
Formula: Annual Taxable Income = Gross Salary − Exemptions (HRA, LTA, etc.) − Deductions (80C, 80D, etc.) Tax Liability = Tax on Taxable Income (per old or new regime slabs) + cess Monthly TDS = Tax Liability ÷ Months remaining in the FY
Example
An employee with ₹12 lakh annual taxable income under the new regime has a tax liability of about ₹71,500 (including cess). That works out to roughly ₹5,950 of monthly TDS spread over 12 months.
How TDS (Tax Deducted at Source) is used
TDS is deducted from the gross salary every month and shown on the payslip. The employer files quarterly TDS returns (Form 24Q) and issues Form 16 to employees by 15 June each year.
TDS (Tax Deducted at Source) FAQs
Can an employee choose the tax regime for TDS?
Yes. Employees declare their preferred regime (old vs new) at the start of the financial year via Form 12BB. The employer applies the chosen regime when computing TDS.
What if TDS deducted is more than actual tax liability?
The excess can be claimed as a refund when filing the income tax return.
When is Form 16 issued?
Form 16 is issued by the employer by 15 June after the financial year ends.