by TDS (Tax Deducted at Source) on salary is one of the most common concepts in personal finance and payroll accounting. Whether you are a student, an employee, or learning TallyPrime, understanding how TDS works on salary is very important.
- What is TDS?
- How is TDS on salary calculated?
- New vs Old tax regime
- Real-life examples
- 3 practice assignments
What is TDS on Salary?
TDS on salary is the income tax deducted by the employer from an employee’s monthly salary and deposited with the government.
It is calculated under Section 192 of the Income Tax Act. It is not a fixed percentage. It is calculated based on your annual income and tax slab.
Income Tax Slabs for FY 2025–26
There are two regimes for calculating income tax:
1. Old Tax Regime (with deductions like 80C, HRA, LTA)
| Income Range | Tax Rate |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
2. New Tax Regime (lower rates but fewer deductions)
| Income Range | Tax Rate |
|---|---|
| Up to ₹3,00,000 | Nil |
| ₹3,00,001 – ₹6,00,000 | 5% |
| ₹6,00,001 – ₹9,00,000 | 10% |
| ₹9,00,001 – ₹12,00,000 | 15% |
| ₹12,00,001 – ₹15,00,000 | 20% |
| Above ₹15,00,000 | 30% |
Employees can choose either regime and inform their employer during the year.
How is TDS on Salary Calculated?
The TDS amount is calculated as:
TDS = Total annual income tax liability / number of months employed
The employer estimates the employee’s annual salary and deducts tax every month.
TDS calculation considers:
- Salary amount
- Chosen tax regime
- Deductions (80C, HRA, etc., if old regime)
- Standard deduction of ₹50,000
- Rebate under Section 87A
- Previous employment (if any)
Example 1: Salary = ₹3,50,000 (New Regime)
- Income up to ₹3,00,000 → No tax
- Next ₹50,000 → Taxed at 5%
- Tax = 5% of ₹50,000 = ₹2,500
- Now check for Section 87A rebate:
- If total income ≤ ₹7,00,000, you get a rebate of up to ₹25,000.
- So final tax = ₹2,500 – ₹2,500 = ₹0
- No TDS will be deducted in this case.
Example 2: Salary = ₹7,50,000 (New Regime)
- Up to ₹3L → Nil
- ₹3L–₹6L (₹3L) → 5% = ₹15,000
- ₹6L–₹7.5L (₹1.5L) → 10% = ₹15,000
- Total Tax = ₹30,000
- No 87A rebate because income > ₹7L
- TDS per month = ₹30,000 / 12 = ₹2,500
- ₹2,500 per month will be deducted as TDS.
Example 3: Salary = ₹5,00,000 (Old Regime)
- Up to ₹2.5L → Nil
- ₹2.5L–₹5L (₹2.5L) → 5% = ₹12,500
- Section 87A rebate = ₹12,500
- Final Tax = ₹0 → No TDS
What is Section 87A Rebate?
If your total income is:
- ≤ ₹5,00,000 (old regime) or
- ≤ ₹7,00,000 (new regime)
- You get a rebate of up to ₹12,500 or ₹25,000, respectively.
- This makes your final tax = ₹0 → No TDS.
🎓 Final Tips:
- TDS is calculated based on estimated annual income
- Always declare investments and deductions to your employer (if using old regime)
- File ITR even if TDS is already deducted
- Use TDS certificates (Form 16) to check tax details
- Rebate under Section 87A is a powerful tax benefit
