How to calculate TDS on salary?

Published on: 9 June 2023

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

The applicable rate of TDS on salary determines the amount that you get as monthly compensation. However, remember that the TDS deduction is adjusted against your total tax liability. 

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

TDS on salary: An overview 

TDS is a form of tax deducted by the payer at the time of making the payment that is treated as income. As per the Income Tax Act of 1961, the payer is required to deduct a percentage of the total amount as TDS and deposit it to the IT authorities.

In the case of TDS on salary, the employer is required 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 TDS on salary. However, if your income is below the basic exemption limit, the total taxable value is zero. Here is the basic exemption limit for different age groups:

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

TDS on salary calculation 

TDS is generally mentioned on salary slips. However, if you wish to calculate how much TDS is deducted from your salary manually, you can follow these steps. 

• First of all, you need to calculate your total earnings for the year of assessment. Apart from your basic salary, your earning will also include perks, commissions, bonuses, etc
• 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. 
• Now you need to calculate your annual taxable income by deducting all the exemptions allowed as per Section 10 of the Income Tax Act from your annual gross income
• Add the amount of income from any other source (house rent property, interest income, etc.) to the amount from the previous step
• Subtract all the exemptions available under Sections 80C and 80D (i.e., up to ₹1.5 lacs in a financial year on your investment in PPF, NPS, ELSS, etc.) from that amount
• 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.
• Based on the tax regime you pick, TDS will be applied to your salary accordingly.

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.  

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Frequently Asked Questions

How to calculate TDS on salary with an example?

Let’s consider that you are below the age of 60 years and after all deductions, your gross taxable income is ₹10 lacs. In this case, your total tax as per the slab plus 4% cess will amount to ₹1,17,000. If TDS is deducted across the 12 months, your total monthly TDS will come to ₹9750 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 pay TDS at the time of payment of salary to the employee.

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 Income Tax Return and get a refund.