Union Budget 2026 Updates
- TCS on overseas tour packages reduced to 2%, easing cash flow for travellers.
- TCS on education and medical expenses under LRS reduced to 2%.
- TDS on manpower supply services standardised at 1% or 2%, reducing confusion.
- For NRIs selling property in India, TDS will now be deposited using the buyer’s PAN instead of TAN, simplifying compliance.
Understanding TDS On Salary with Example
TDS (Tax Deducted at Source) was introduced to ensure tax collection at the very source of income. Under this system, a person (deductor) responsible for making specified payments to another person (deductee) must deduct tax before making the payment and deposit it with the Central Government.
The deductee, whose income has been subject to TDS, can claim credit for the deducted amount based on Form 26AS or the TDS certificate issued by the deductor. An example of TDS can be seen when your employer deducts a portion of your salary as tax before crediting the remaining amount to your account. For instance, if your monthly salary is ₹50,000 and the TDS rate is 10%, ₹5,000 will be deducted as TDS, leaving you with ₹45,000.
Types Of TDS
- TDS on Salary
- TDS on Interest on Securities
- TDS on Dividend
- TDS on Interest other than Securities
- TDS on Winnings from Lotteries and Games
- TDS on Winnings from Horse Race
- TDS on Payment to Contractors
- TDS on Insurance Commission
- TDS on Commission or Brokerage
- TDS on Rent
- TDS on Fees for Professional and Technical Services
- TDS on Transfer of Immovable Property
How is TDS on Salary under Section 192 Calculated?
The formula to calculate TDS is,
Average Income Tax Rate = Income Tax Payable (computed with slab rates) / Estimated income for the financial year.
Let's break it down with a simplified example to understand how the TDS calculation works.
If Mr. Ramesh earns a salary of ₹1,00,000 in a year (please note that these rates change annually, so they are subject to the applicable financial year's tax rules):
- According to Section 192 of the Income Tax Act, based on the current year's tax slabs, the TDS on his total salary is ₹1,42,500.
- Adding the 4% education and higher education cess, his total payable tax becomes ₹1,48,200.
Now, to calculate the average TDS rate, we divide the total payable tax by the annual salary and multiply it by 100:
Average TDS Rate=(1,48,200/12,00,000)×100=12.35%
This means, each month, the TDS that will be deducted from Mr. Ramesh's salary is 12.35% of ₹1,00,000, which equals ₹12,350.
So, in simpler terms: Mr. Ramesh will have ₹12,350 deducted from his salary each month as TDS.
You can calculate the TDS with ease and quick via Tax2win TDS calculator, check here.
How to calculate TDS on salary U/S 192
Step 1: Estimate Total Salary Income
The employer begins by estimating the employee’s total salary for the financial year. This includes all components such as basic salary, dearness allowance (DA), perquisites, allowances (HRA, LTA, meal benefits), employer’s EPF contribution, bonus, commission, gratuity, and any salary received from a previous employer.
Step 2: Calculate Exemptions under Section 10
Next, eligible exemptions are computed as per Section 10 of the Income Tax Act. These may include House Rent Allowance (HRA), Leave Travel Allowance (LTA), children’s education allowance, uniform allowance, and others.
Additionally, deductions like professional tax and entertainment allowance are considered. The standard deduction is also applied—₹75,000 under the new tax regime (from AY 2025–26) or ₹50,000 under the old regime.
Step 3: Compute Taxable Salary
After subtracting applicable exemptions and standard deduction from the gross salary, the remaining amount is treated as taxable salary income.
Step 4: Include Other Income Sources
Any additional income disclosed by the employee—such as rental income or interest from bank deposits—is added to the taxable salary.
If the employee has a home loan, interest paid can be adjusted against income from house property. In some cases, this may result in a loss (negative income) under this head. The combined figure becomes the Gross Total Income (GTI).
Step 5: Apply Deductions under Chapter VI-A
Eligible deductions are then reduced from GTI. These include tax-saving investments like PPF, EPF, ELSS, NSC, and Sukanya Samriddhi Yojana, as well as expenses such as life insurance premiums, home loan principal repayment, and children’s tuition fees.
Additional deductions may also be claimed under sections like 80D (health insurance) and 80G (donations).
Step 6: Select Tax Regime & Calculate Tax Liability
The employer computes tax liability under both tax regimes:
- Old Tax Regime: Allows exemptions and deductions
- New Tax Regime: Offers lower tax rates but limited deductions
(The new tax regime is the default option. Employees must explicitly opt for the old regime during investment declaration if preferred. The choice of tax regime can be changed every financial year.)
The more beneficial option is applied, and TDS is deducted monthly based on the final tax liability.
Note: If you work with multiple employers at the same time, you can submit your salary and TDS details in Form 12B to one employer, who will then calculate TDS on your total income.
If you change jobs, provide Form 12B to your new employer. They will include your previous salary and deduct TDS for the remaining financial year.
If you don’t share these details, each employer will deduct TDS only on the salary they pay.
Time Limit to Deposit the Tax Under Section 192
The due date for depositing TDS deducted on salary under Section 192 is as follows:
-
For non-government employers:
- April to February: TDS must be deposited by the 7th of the following month
- March: TDS must be deposited by 30th April
-
For government employers:
- If paid without challan: Same day of deduction
- If paid with challan: 7th of the following month
Timely deposit is critical to avoid interest and penalties under the Income Tax Act.
TDS Return Filed by Employer
Employers who deduct TDS on salary under Section 192 are required to file quarterly TDS returns in Form 24Q. This return contains details of salary paid and TDS deducted for all employees.
Due dates for filing Form 24Q:
- Q1 (Apr–Jun): 31st July
- Q2 (Jul–Sep): 31st October
- Q3 (Oct–Dec): 31st January
- Q4 (Jan–Mar): 31st May
After filing the TDS return, the employer must also issue Form 16 to employees. This certificate provides a summary of salary paid and TDS deducted, which is required for filing the income tax return (ITR).
Timely filing is important to avoid late fees (₹200 per day) and penalties under the Income Tax Act.
How to calculate TDS for other than Section 192
To calculate TDS under different sections, you need to follow these steps:
Step 1: Identify the nature of income and the relevant section that applies to it.
Step 2: Check the threshold limit for that section. If the income exceeds the threshold limit, then TDS is applicable. Otherwise, no TDS is required.
Step 3: Apply the prescribed TDS rate for that section on the income amount. If there is no PAN of the payee, then apply a higher rate of 20% plus cess.
Tips to Save TDS on Your Salary
Some of the tips to save TDS as follows:
- Claim all the deductions you are eligible for. This includes deductions for HRA, medical expenses, investment deductions, and education expenses. You can claim these deductions by providing the relevant proof to your employer.
- Invest in tax-saving instruments. There are a number of tax-saving instruments available in India, such as the Employee Provident Fund (EPF), Public Provident Fund (PPF), National Pension System (NPS), and Equity Linked Savings Scheme (ELSS). Investing in these instruments will reduce your taxable income and, thereby, your TDS liability.
- Opt for the new tax regime. The new tax regime offers lower tax rates than the old tax regime. However, it also offers fewer tax deductions. If you do not have many deductions to claim, you may be able to save TDS by opting for the new tax regime.
Here are some additional tips for saving TDS:
- Plan your tax savings in advance. This will help you to make the most of the different tax-saving options available.
- Keep track of your income and expenses. This will help you to estimate your taxable income and TDS liability accurately.
- File your income tax return on time. If you file your income tax return on time, you can claim a refund of any excess TDS that has been deducted from your salary.
If you do not file your TDS return on time, you are liable to pay a late fee of ₹200 per day until the return is filed, subject to a maximum amount equal to the TDS deducted.
