GUIDESMONEY MATTERS
How to Calculate TDS on Salary: Formula, Calculation & Examples
6 MIN • 
LAST EDITED BY PRANAV KARNAD ON APRIL 25, 2025.
LAST EDITED BY PRANAV KARNAD ON APRIL 25, 2025.
GUIDES LAST EDITED BY PRANAV KARNAD ON APRIL 25, 2025.
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 to calculate TDS on salary is essential.
In this blog, we'll delve into TDS calculation on salary and provide a practical example along with the TDS calculation formula.
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.
The TDS rate for salary is determined by the income you receive from your employer, which corresponds to specific tax slab rates. Depending on your income bracket, the TDS deduction on your salary can vary, falling within the range of 10% to 30%.
To understand the TDS calculation formula and how to calculate TDS on salary, knowing what makes up your salary is important. This includes:
Let’s consider Manmeet’s gross salary of ₹13 lakhs as an example:
For TDS computation, the net salary would be determined as follows:
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
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:
According to Section 192, the employer deducts TDS from the employee's salary when paying. 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.
TDS on salary is eligible for a refund when the deducted amount exceeds the employee's 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.
If you’ve applied for a TDS refund, here are some steps to check your TDS refund status:
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.
All companies, whether government or private, are subject to a daily penalty of Rs. 200 for the late filing of TDS or TCS returns beyond the due date, as per Section 234E. However, this penalty will not exceed the total TDS amount for which the statement was required to be filed.
Furthermore, Section 271H imposes a penalty ranging from Rs. 10,000 to Rs. 1 lakh if a company provides inaccurate information or fails to submit returns by the due date. This penalty is imposed in addition to the penalty under Section 234E.
No penalty under Section 271H is applicable for delayed TDS/TCS return filing if the following conditions are met:
You can potentially save on TDS (Tax Deducted at Source) by considering the following strategies:
It's essential to consult with a tax professional or financial advisor to develop a customized tax strategy that aligns with your financial situation and goals.
The employer's responsibility is to issue a TDS certificate, 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 calculation of TDS on salary 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.
According to Section 192, the employer deducts TDS from the employee's salary when paying. Since employees receive their monthly salaries, TDS on salary is deducted each month. If the employer fails to deduct TDS, they may incur penalties and interest charges.
Yes, TDS (Tax Deducted at Source) deduction on salary is mandatory in India. Employers are required by law to deduct TDS from the salaries of their employees as per the applicable income tax slabs. The deducted TDS is then deposited with the government on behalf of the employee.
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.
