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How to Calculate TDS on Salary: Formula, Calculation & Examples

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January 24, 2023


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Knowing how to calculate TDS on your salary is a crucial aspect of managing your finances. Understanding the calculation process ensures you meet your tax obligations while optimizing your take-home pay. Whether you're an employee or an employer, comprehending how TDS on salary works is essential. 

In this blog, we'll delve into TDS calculation on salary and provide a practical example along with the TDS calculation formula.

What is TDS?

TDS stands for Tax Deducted at Source, a provision under the Indian Income Tax Act where a percentage of your income (such as salary, consulting fees, or bank interest) is taken out before you receive it. The deducted amount is deposited with the Income Tax (IT) department. 

TDS applies to individuals and businesses. It is important for employers to deduct tax when paying out salaries to their employees. 

Who can Deduct TDS Under Section 192?

TDS deduction on salary can be done if the said employee’s salaried income is taxable. If the pay is equal to or less than Rs.2,50,000, then TDS on salary will not be deducted. 

Under Section 192, the TDS deduction on salary can be done by the following entities: 

  • Public and private companies
  • Individual taxpayers
  • Trusts
  • Hindu Undivided Families
  • Co-operative societies
  • Partnership firms

Is TDS Deducted from Your Salary Every Month? 

According to Section 192, the employer deducts TDS from the employee's salary when making the payment. Since employees receive their salaries on a monthly basis, TDS on salary is deducted each month. If the employer fails to deduct TDS, they may incur penalties and interest charges.

How Can I Qualify for TDS Exemption? 

An employee can be exempted from TDS deduction on their salary only if their estimated annual income falls below the basic exemption limit. Otherwise, TDS on salary is obligatory for all employers, even for employees without a PAN card.

Can TDS on Salary Be Refunded? 

TDS on salary is eligible for a refund when the deducted amount exceeds the employee's actual tax liability. Often, the declared investment details at the beginning of the financial year do not align with the actual investments made by year-end. In such cases, excess TDS on salary is refundable.

How to Calculate TDS on Salary?

To understand the TDS calculation formula, knowing what makes up your salary is important. This includes:

  • Basic
  • House Rent Allowance (HRA)
  • Medical Allowance
  • Travel Allowance (TA) or Leave Travel Allowance (LTA)
  • Dearness Allowance (DA)
  • Special/Other Allowances

TDS Calculation Formula 

Rate of Average Income Tax

Income Tax Payable (computed with slab rates) / Estimated income for the financial year.

TDS Calculation Steps

Step 1: Calculate Annual Gross Salary: Add all monthly income components and allowances to determine the annual gross salary.

Step 2: Determine Exemptions: Add exemptions like HRA, LTA, PPF, ELSS, and insurance. Multiply this total by 12 to get an annual exempt amount.

Step 3: Calculate Annual Taxable Income: Subtract the exempted amount from the annual gross salary to arrive at the annual taxable income.

Step 4: Deduct Standard Deduction: Subtract the standard deduction of ₹50,000 from the annual taxable income to calculate the net taxable income.

Step 5: Apply Tax Slabs: Calculate the tax on the net taxable income using the applicable tax slabs for individuals under the old tax regime.

Example of TDS Calculation

Let’s consider Manmeet’s gross salary of ₹13 lakhs as an example:

Basic Salary

₹ 7,00,000

Dearness Allowance 

₹ 2,00,000

House Rent Allowance 

₹ 1,00,000

Leave Travel Allowance 

₹ 1,00,000

Performance Incentive or Bonus 

₹ 2,00,000

For TDS computation, the net salary would be determined as follows:

Gross salary

13 lakhs

Less: Tax-exempted HRA

₹ 1 lakh

Less: Tax-exempted LTA

₹ 1 lakhs

Less: Standard deduction

₹ 50,000

Net salary


Less: Section 80C deductions declared by the employee

₹ 1,50,000

Less: Section 80D deductions declared by the employee

₹ 50,000

Net taxable salary


Tax payable

Up to ₹ 5 lakhs: 5% of ₹2.5 lakhs = INR 12,500

₹ 5 lakhs to INR 8.5 lakhs: 12,500 + 20% of 3.5 lakhs = INR 82,500

TDS deduction rate

Tax liability / gross total income x 100 

= 82500 / 13 lakhs x 100 

= 6.35%

So, every month, the employer would deduct tax at 6.35% on the salary income and then credit the salary to the employee.

To calculate your TDS, visit this TDS Calculator available on the Income Tax website: https://incometaxindia.gov.in/pages/tools/tds-calculator.aspx 

Major Changes in Income Tax Rules from April 1, 2023

The new default tax regime allows taxpayers to choose between the new and prior regimes.

  • The entire income is tax-free for individuals earning less than ₹7 lakhs.
  • Salaried individuals with taxable income exceeding ₹15.5 lakhs will benefit from a standard deduction of ₹52,500.
  • Pensioners will also enjoy the standard deduction.

The Revised tax rates are as follows:

  • 0% tax for income up to ₹3 lakhs
  • 5% for ₹3-6 lakhs
  • 10% for ₹6-9 lakhs
  • 15% for ₹9-12 lakhs
  • 20% for ₹12-15 lakhs
  • 30% for income above ₹15 lakhs.

The exemption limit for non-government employees' leave encashment has been increased to ₹25 lakhs.

Need help with which income tax regime to go with? Give this blog a read to choose the suitable tax regime based on your income.

How to Check if You are Eligible for a TDS Refund? 

If you’ve applied for a TDS refund, here are some steps to check your TDS refund status:

  1. Apply for a lower or nil TDS certificate in Form 13 if your taxable income exceeds the basic exemption limit.
  2. If the TDS deducted is more than the actual tax payable, file an Income Tax Return (ITR).
  3. Register on the IT department's website to file your TDS online.
  4. Download the relevant ITR form, fill in the required details, upload the form, and submit it.
  5. E-verify the ITR using a digital signature, Aadhaar-based OTP, or net banking account.
  6. Check the status of your TDS refund claim using the acknowledgement and refund processing email sent by the IT Department, your PAN card number on the Income Tax website, or by calling CPC Bangalore on their toll-free number.

We’ve got a whole article on claiming and checking your TDS refund status. Make sure to read it and share it with your friends.

TDS Certificate Issuance 

The issuance of a TDS certificate is the employer's responsibility, detailing the tax deducted from the employee's salary. Once the TDS return has been filed, a TDS certificate (Form 16) can obtained from the TRACES utility website

To learn more about Form 16, click here.


TDS is a way to collect taxes from the source of income in India. It applies to both individuals and businesses and can be complicated to calculate. However, accurate calculations can be made by understanding the formula and the different components of income, deductions, and exemptions. The Indian government has introduced new tax regimes, revised tax rates and limits for LTA, and increased tax rebate limits and standard deductions.

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Frequently Asked Questions

1. How is TDS calculated on salary? Can you provide an example?

To calculate TDS on salary, follow these steps:

  1. Calculate annual gross income.
  2. Deduct annual exemptions (e.g. HRA, LTA, medical allowances) and voluntary investments (e.g. health, life insurance, and retirement plans).
  3. Subtract ₹50K as the standard deduction.
  4. Calculate tax based on tax slabs.
  5. Divide the amount by 12 to get the monthly TDS deduction.

For a detailed example, please refer to an earlier section of the article.

2. What is the TDS rate on salary?

The TDS rate on salary depends on your net income tax amount and the slab it falls under. Under the new tax regime, the tax slabs for individuals under 60 years old range from 0-30%, while the old regime's tax slabs range from 0-30% for those earning above 2.5 lakh.

3. How to calculate the percentage of TDS in salary?

The employer deducts TDS from the employee's salary using their 'average rate' of income tax. This rate is calculated by dividing the income tax payable, which is calculated using slab rates, by the employee's estimated income for the financial year.

4. What is the formula for calculating TDS?

The formula for calculating TDS in salary is - Average Income Tax Rate = Income Tax Payable (computed through old/new slab rates) / Estimated Income for the year.

5. How much TDS do I deduct from my salary?

As an individual, you cannot deduct TDS from your salary. As per Section 192, the employer will deduct TDS from the salary when paying the employee.


Fi Money is not a bank; it offers banking services through licensed partners and investment services through epiFi Wealth Pvt. Ltd. and its partners. This post is for information only and is not professional financial advice.
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