TDS on salary is the income tax your employer deducts from your pay each month and deposits with the government against your PAN. Under Section 192, the employer estimates your tax for the whole year, spreads it across your monthly salary, and issues a Form 16 recording every rupee deducted. It is not an extra tax – it is your own tax, paid in instalments.
So by the time you file your return, most of your tax is usually already paid. The return is simply where you reconcile what was deducted against what you actually owe – and claim a refund if too much came out.
Salary TDS at a glance
What is TDS on salary?
TDS stands for Tax Deducted at Source. Section 192 of the Income Tax Act requires any employer paying a taxable salary to deduct income tax before the money reaches you, and to deposit it with the government. The employer files quarterly TDS returns, and the tax deducted against your PAN shows up in Form 26AS and your Annual Information Statement (AIS).
The point is collection at source: rather than waiting for you to pay a lump sum at year-end, the government collects a slice every month. You still file a return, but you are settling a mostly-paid bill.
How does your employer calculate the TDS?
The estimate runs in four steps:
- Project your annual salary – basic pay, allowances, and any expected bonus.
- Subtract what is allowed – the standard deduction (₹75,000 under the new regime, ₹50,000 under the old), plus any exemptions and deductions you have declared.
- Apply the slab rates for your chosen regime to get the estimated yearly tax, add 4% health and education cess, and subtract the Section 87A rebate if you qualify.
- Divide across the remaining months and deduct that amount from each pay cheque.
The employer recalculates through the year. A mid-year appraisal, a bonus, or investment proofs you submit in January all reset the maths, so your monthly TDS can rise or fall.
Which tax regime does your employer use?
The new regime has been the default since FY 2023-24. At the start of the financial year your employer asks you to declare your choice; if you say nothing, they deduct under the new regime.
The regime changes what counts. Under the new regime the salaried standard deduction is ₹75,000, but most Chapter VI-A deductions – 80C, 80D and the rest – do not apply. Under the old regime the standard deduction is ₹50,000, and the employer can factor in HRA exemption, 80C, 80D, home-loan interest and more, provided you declare them. Under the new regime the 87A rebate makes tax nil up to ₹12 lakh of taxable income for FY 2026-27, so employees below that level often see little or no deduction.
You can generally still switch regimes when you file, even if the other one was used for your TDS all year – the return is the final word.
What about other income and deductions?
You tell your employer about eligible old-regime deductions through Form 12BB, backed by proof. Declare a deduction but skip the proof, and the employer deducts as if you never claimed it.
You can also report other income – bank interest, for instance – so the employer deducts a little more and you avoid a shortfall at filing. But there are limits: the employer will not lower your salary TDS for capital gains or business losses, and only a loss from house property can be set off against your salary for this purpose. Anything the employer cannot see, you square up yourself in the return.
Where do you see the TDS, and how does it square up?
The deducted tax appears in Form 26AS and the AIS on the income tax portal, and is summarised in the Form 16 your employer issues by 15 June. When you file, you total your income, compute the tax, and set off the TDS already paid. Deducted too much, and you get a refund; too little – say you had interest income the employer never knew about – and you pay the balance, sometimes with interest.
This is general information, not tax advice. The figures here are for FY 2026-27; slabs and limits change in the annual Budget and depend on your own situation.
Related NYVO guides
- What is Form 16, and How to Read It – the certificate that records the salary paid and the TDS deducted, and the document you file your return from.
- Old vs New Tax Regime: How They Differ – the choice that decides which deductions your employer can factor into your TDS.
- Section 87A Rebate: How the Zero-Tax Threshold Works – why salary up to ₹12 lakh can see little or no TDS under the new regime.
TDS is not a tax you pay on top of your salary – it is the same tax, taken in monthly bites so nothing lands as a shock in July. Get your regime and declarations right early, and the return at year-end is mostly a formality.
