income tax
Published on 24 July 2025
A Comprehensive Guide to TDS Calculation on Salary
Understanding TDS on Salary for FY 2025–26: A Step-by-Step Guide
Tax Deducted at Source (TDS) on salary is one of the most common ways the government collects income tax. If you're a salaried employee, your employer deducts tax from your monthly salary and deposits it directly with the Income Tax Department.
1. What Exactly Is TDS on Salary?
TDS, simply put, is the income tax your employer deducts from your salary before it’s paid to you.
- Legal Backing: Section 192 of the Income-tax Act, 1961
- Who deducts it? Your employer
- What’s required? A valid TAN (Tax Deduction and Collection Account Number)
2. Basic Formula for TDS Calculation
TDS per month = Total Estimated Annual Tax Liability ÷ Number of Months of Employment
So if your annual tax liability is ₹36,000 and you're employed for 12 months, ₹3,000 will be deducted every month as TDS.
This monthly deduction can be adjusted if your salary changes mid-year, or if you switch tax regimes.
3. Step-by-Step: How to Calculate TDS
Step 1: Estimate Gross Annual Salary Include everything — basic pay, HRA, conveyance, special allowances, bonuses, and perquisites.
Step 2: Subtract Exemptions (Under Section 10) You can deduct things like:
- HRA (if you pay rent)
- Leave Travel Allowance (LTA)
- Reimbursed medical expenses (if allowed)
Step 3: Add Any Other Income Such as:
- Rental income from house property
- Interest from savings or FDs
- Capital gains (if declared to employer)
Step 4: Subtract Chapter VI-A Deductions This includes:
- ₹1.5 lakh under Section 80C (PPF, ELSS, LIC, EPF, etc.)
- Up to ₹25,000 (₹50,000 for seniors) under Section 80D for medical insurance
- ₹50,000 under Section 80CCD(1B) for NPS contributions
- Other applicable deductions
Step 5: Apply Standard Deduction
- Old Regime: ₹50,000
- New Regime: ₹75,000
Step 6: Calculate Net Taxable Income Your total salary minus exemptions and deductions.
Step 7: Apply the Appropriate Tax Slabs Depending on whether you chose the old or new regime (see slab tables below).
Step 8: Add 4% Cess Apply 4% Health and Education Cess to the total tax amount.
Step 9: Divide by Months of Employment This gives you the monthly TDS.
4. Income Tax Slabs for FY 2025–26
Old Tax Regime
| Income Slab | Tax Rate |
|---|---|
| Up to ₹2.5 lakh | Nil |
| ₹2.5L–₹5L | 5% |
| ₹5L–₹10L | 20% |
| Above ₹10L | 30% |
- For senior citizens (60–79 yrs): Exemption up to ₹3 lakh
- For super seniors (80+ yrs): Exemption up to ₹5 lakh
New Tax Regime (Default from FY 2023–24)
| Income Slab | Tax Rate |
|---|---|
| Up to ₹4 lakh | Nil |
| ₹4L–₹8L | 5% |
| ₹8L–₹12L | 10% |
| ₹12L–₹16L | 15% |
| ₹16L–₹20L | 20% |
| ₹20L–₹24L | 25% |
| Above ₹24L | 30% |
Standard Deduction:
- Old Regime: ₹50,000
- New Regime: ₹75,000
Section 87A Rebate:
- Old Regime: Up to ₹12,500 rebate if taxable income ≤ ₹5 lakh
- New Regime: Up to ₹60,000 rebate if taxable income ≤ ₹12 lakh
5. Example: TDS Calculation for FY 2025–26
Let’s walk through a practical example.
Assumptions:
- Monthly Salary: ₹80,000 → Annual: ₹9.6 lakh
- LTA Exemption: ₹2,250/month → ₹27,000/year
- Home Loan Interest: ₹1.5 lakh
- Investments (80C + 80D): ₹1.5 lakh
- Standard Deduction: ₹50,000 (Old) or ₹75,000 (New)
Old Regime
Step-by-step:
- Gross Salary: ₹9,60,000
- Less LTA: ₹27,000 → ₹9,33,000
- Less Home Loan Interest: ₹1,50,000 → ₹7,83,000
- Less 80C/80D: ₹1,50,000 → ₹6,33,000
- Less Standard Deduction: ₹50,000 → ₹5,83,000
Tax:
- ₹0 on first ₹2.5L
- ₹12,500 on next ₹2.5L
- 20% on ₹83,000 = ₹16,600
- Total = ₹29,100
- Cess (4%) = ₹1,164
- Total = ₹30,264 → Monthly TDS = ₹2,522
New Regime (Simplified)
- Fewer deductions apply. Only ₹75,000 standard deduction.
- Calculate taxable income, apply slab, add cess, and divide by 12.
- Use Section 87A rebate if post-deduction income is up to ₹12 lakh.
6. Employer’s Role and Your Responsibilities
** TDS is deducted at payment time**, not when salary accrues. ** Only employers with a valid TAN can deduct TDS.** ** Employees must submit Form 12BB** to declare tax-saving investments. ** TDS refunds (if excess) can be claimed while filing your ITR.** ** Form 15G/H cannot be used for salary TDS.**
7. Salary Components to Consider
TDS is based on total taxable income from all salary components, including:
- Basic Salary
- Dearness Allowance (DA)
- House Rent Allowance (HRA)
- Conveyance, Medical Allowances
- Bonuses and Incentives
- Perquisites (e.g., car, accommodation)
8. Key Differences: Old vs. New Regime
| Feature | Old Regime | New Regime |
|---|---|---|
| Exemptions (LTA, HRA, etc.) | Allowed | Mostly not allowed |
| Chapter VI-A Deductions | Yes (80C, 80D, etc.) | Limited (e.g., NPS employer) |
| Standard Deduction | ₹50,000 | ₹75,000 |
| 87A Rebate | Up to ₹5L (₹12,500) | Up to ₹12L (₹60,000) |
9. Final Pointers
- Review your salary slip and Form 16 periodically.
- Keep proof of all deductions and exemptions.
- File your ITR on time to claim any excess TDS back.
- Understand your regime choice—don’t just default to one