How to calculate TDS on salary?

  • Updated on: 29 Dec 2023
  • Published on: 9 Jun 2023
How to calculate TDS on salary?

One of the main components of salary taxation is TDS on salary or Tax Deducted at Source on salary. The salary you get each month is generally lower than the CTC mentioned at the time of your hiring. This is because taxes are deducted from your gross salary before you receive it. 

The applicable rate of Tax Deducted on Source on salary determines the amount you get as monthly compensation. However, the tax authorities adjust TDS against your total tax liability. 

To know more about this and how to calculate TDS on your salary, read on.

TDS on Salary: An Overview 

TDS is a form of tax deducted by the payer when making the payment that is treated as income. As per the Income Tax Act of 1961, the payer must deduct a percentage of the total amount as TDS and deposit it to the IT authorities. The TDS percentage for salary depends on the income tax slab you fall under.

In the case of Tax Deducted at Source on salary, the employer needs to deduct TDS from your gross salary before making payment of the monthly dues. As per Section 192 of the Income Tax Act, TDS is compulsory and applicable to your regular salary as well as any advance or arrears. 

The annually issued Form 16 reflects Tax Deducted at Source on salary. However, the total taxable value is zero if your income is below the basic exemption limit. Here is the basic exemption limit for different age groups:

  • Indian residents under 60 years of age: ₹2.5 lakhs 
  • Indian resident seniors between 60 and 80 years of age: ₹3 lakhs
  • Indian resident seniors above 80 years of age: ₹5 lakhs

TDS on Salary Calculation 

Your salary slips generally mention TDS. However, if you wish to calculate the value of TDS deducted from your salary manually, you can follow these steps. 

  1. Step 1: Calculate your total earnings for the year of assessment. Apart from your basic salary, your earnings will also include perks, commissions, bonuses, etc.
  2. Step 2: Calculate your gross monthly salary by adding your basic salary with all other allowances and perks. Multiply this by 12 to compute your annual gross income. 
  3. Step 3: Compute your annual taxable income by deducting all the exemptions allowed as per Section 10 of the Income Tax Act from your annual gross income.
  4. Step 4: Add the amount of income from any other source (house rent property, interest income, etc.) to the amount from the previous step.
  5. Step 5: Subtract all the exemptions available under Sections 80C and 80D (i.e., up to ₹1.5 lakhs in a financial year on your investment in PPF, NPS, ELSS, etc.) from that amount.
  6. Step 6: The basic salary component of your monthly income is fully taxable. However, some exemptions are available that you can avail of on perks and allowances. Subtract these exemptions from the amount obtained in the previous step to get your total taxable income.
  7. Step 7: TDS applies to your salary at the applicable income slab rates based on the tax regime you choose.

Who is Liable to Deduct TDS on Salary?

The employer is responsible for deducting TDS on salary at the time of paying salary to the employee. Employers can only deduct TDS when making the actual salary payment if the employee’s salary exceeds the taxable income limit. If your salary is below or equal to ₹2.5 lakhs, employers will not deduct TDS from your salary. 

Here are the employers who are liable to make TDS deductions on salary:

  • Individuals
  • Partnership firms
  • Public or private companies
  • HUFs (Hindu Undivided Families)
  • Trusts
  • Co-operative societies

When is TDS Deducted Under Section 192?

Under Section 192, an employer is liable to deduct TDS from an employee’s salary while paying their salary. Therefore, they deduct TDS every month since the employees receive their salaries monthly. The employer may have to face penalties and interest charges in case they fail to deduct TDS. 

Now that you know about TDS on salary, you can plan your income and expenses along with the taxes based on this deduction. A large tax burden can sometimes strain your finances. However, you can get funds for all your financial needs with Fibe.  

Fibe’s Instant Personal Loan offers up to ₹5 lakhs and you can qualify for them with ease as a salaried employee. Download our Instant Loan App or log in to our website to enjoy convenient access to funds.

FAQs on TDS on Salary

How to calculate TDS on salary with an example?

Suppose that you are below the age of 60 years and after all deductions, your gross taxable income is ₹10 lakhs. In this case, your total tax as per the slab plus 4% cess will amount to ₹1,17,000. 

If the employer deducts TDS across the 12 months, your total monthly TDS will come to ₹9,750 as per the old regime. For ease and speed, you can use the TDS calculator on the Income Tax website.

What is the formula for calculating TDS on salary?

To calculate TDS on salary, you first need to calculate your annual gross income by adding all the perks, commissions, allowances, etc., to your basic salary. Deduct all the exemptions available under different sections of the Income Tax Act after adding income from any other source. 

This would be the total taxable income based on which your tax slab will decide the rate of TDS on your salary.  

How much TDS is deducted from salary?

As per Section 192 of the Income Tax Act of 1961, the TDS amount depends on the income tax bracket applicable to you.

Who pays TDS on salary?

The employer is liable to deduct TDS at the time of payment of salary to the employee and pay it to the Income Tax authorities.

How can I avoid TDS on my salary?

You cannot avoid TDS on your salary unless your income is under the minimum taxable threshold. However, you can reduce TDS by submitting investment proofs, insurance premium receipts and proof of other allowances and deductions to your employer at the start of the financial year. 

Can I get a TDS refund on my salary?

Yes, if you have paid tax in excess, you can file for an Income Tax Return and get a refund.


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