What is TDS on salary?
TDS stands for Tax Deducted at Source. When your employer pays your salary, the law asks them to hold back part of it as tax and deposit it with the government. That held-back amount is your TDS. It is not an extra tax — it is your own income tax, paid in advance through your employer. When you file your return, the TDS already deducted is counted against your final tax bill.
TDS is deducted at the time the salary is paid, not when it is earned or accrued. If your salary for March is paid in April, the TDS goes with the April payment.
Section 192 becomes Section 392
Until 31 March 2026, TDS on salary was governed by Section 192 of the Income-tax Act, 1961. From 1 April 2026 (Tax Year 2026-27), the same rule sits in Section 392 of the Income-tax Act, 2025. The calculation method, the slab rates, and the exemption limits are all unchanged. What changed:
- Section 192 → Section 392
- Form 16 (the annual TDS certificate) → Form 130
- Form 24Q (the employer’s quarterly TDS return) → Form 138
- The no-PAN higher-deduction rule (old Section 206AA) → Section 397(2)
If you are filing for an earlier year, you will still see the old numbers. From Tax Year 2026-27 onward, use the new ones. Our guide to the new form numbers covers the full list.
How is TDS on salary calculated?
There is no fixed percentage. Your employer follows the average-rate method:
Average rate = Income tax payable (at slab rates on your estimated yearly income) ÷ Estimated yearly income
Monthly TDS = Average rate × Monthly salary
Step by step, this is what your employer does:
- Estimate your total income for the year. Salary, bonus, allowances, and any other income you declare.
- Apply the regime you chose. The new regime is the default. If you picked the old regime, your declared deductions apply.
- Subtract the standard deduction. Rs 75,000 in the new regime, Rs 50,000 in the old regime.
- Subtract other deductions (Section 80C and others — Section 123 in the 2025 Act) if you are in the old regime.
- Work out the tax using the slab rates for that regime.
- Add 4% health and education cess on the tax.
- Apply the rebate, if any. In the new regime, Section 156 gives a full rebate of up to Rs 60,000 when total income is up to Rs 12 lakh. In the old regime, the rebate is up to Rs 12,500 and only when total income is up to Rs 5 lakh. See our full guide to the 87A rebate (now Section 156).
- Divide the final tax by 12 (or by the remaining months) to get the monthly TDS.
If your salary or declarations change during the year — a raise, a bonus, new investment proofs — your employer reworks the average rate and adjusts the later months. An excess or shortfall in one month gets corrected in the following months of the same year.
Worked example: Rs 15 lakh salary, new regime
| Item | Amount (Rs) |
|---|---|
| Gross salary (yearly) | 15,00,000 |
| Less: standard deduction | 75,000 |
| Taxable income | 14,25,000 |
| Tax: 0–4 lakh at 0% | 0 |
| Tax: 4–8 lakh at 5% | 20,000 |
| Tax: 8–12 lakh at 10% | 40,000 |
| Tax: 12–14.25 lakh at 15% | 33,750 |
| Tax before cess | 93,750 |
| Health & education cess (4%) | 3,750 |
| Total tax for the year | 97,500 |
| Average rate (97,500 ÷ 15,00,000) | 6.5% |
| Monthly salary | 1,25,000 |
| Monthly TDS | 8,125 |
Your employer deducts Rs 8,125 each month. Note that the average rate (6.5%) is far below the top slab rate (15%) that applies to the last part of this income. That is the point of the average-rate method: only the income inside each slab is taxed at that slab’s rate.
How much TDS on salary at different salary levels?
Rs 12 lakh salary, new regime: zero TDS
| Item | Amount (Rs) |
|---|---|
| Gross salary (yearly) | 12,00,000 |
| Less: standard deduction | 75,000 |
| Taxable income | 11,25,000 |
| Tax: 4–8 lakh at 5% | 20,000 |
| Tax: 8–11.25 lakh at 10% | 32,500 |
| Tax before cess | 52,500 |
| Health & education cess (4%) | 2,100 |
| Tax before rebate | 54,600 |
| Less: rebate under Section 156 (income up to Rs 12 lakh) | 54,600 |
| Final tax | 0 |
| Monthly TDS | 0 |
Because the total income is up to Rs 12 lakh, the rebate wipes out the whole tax. No TDS is deducted. Just above Rs 12 lakh, marginal relief caps the tax at the extra income, so the tax never jumps by more than the income rose.
Rs 12 lakh salary, old regime: Rs 9,750 per month
| Item | Amount (Rs) |
|---|---|
| Gross salary (yearly) | 12,00,000 |
| Less: standard deduction | 50,000 |
| Less: Section 80C investments | 1,50,000 |
| Taxable income | 10,00,000 |
| Tax: 2.5–5 lakh at 5% | 12,500 |
| Tax: 5–10 lakh at 20% | 1,00,000 |
| Tax before cess | 1,12,500 |
| Health & education cess (4%) | 4,500 |
| Total tax for the year | 1,17,000 |
| Average rate (1,17,000 ÷ 12,00,000) | 9.75% |
| Monthly TDS | 9,750 |
Side-by-side comparison
| Salary (yearly) | Regime | Tax for the year | Monthly TDS |
|---|---|---|---|
| Rs 12 lakh | New | Rs 0 (rebate) | Rs 0 |
| Rs 12 lakh | Old | Rs 1,17,000 | Rs 9,750 |
| Rs 15 lakh | New | Rs 97,500 | Rs 8,125 |
The same Rs 12 lakh salary can mean zero TDS or Rs 9,750 a month, depending on the regime. That is why telling your employer which regime you want — and giving correct declarations — matters so much. For the full slab tables, see our new tax regime slabs guide.
How to reduce TDS on salary
1. Give your investment declaration early
At the start of the year, your employer asks for an investment declaration: the deductions you plan to claim (80C, 80D, HRA, home loan interest, and so on). Fill it in honestly and early. If you wait, the employer deducts tax without those deductions.
2. Submit proofs before your employer’s deadline
Most employers ask for actual proofs — receipts, statements, premium certificates — in January or February. If you miss the deadline, the employer may deduct TDS without the deduction. You can still claim it when you file your return, but your monthly pay takes the hit until then.
3. Pick the right regime
If your total income is up to Rs 12 lakh, the new regime gives a full rebate and zero tax. If you have large deductions — Rs 1.5 lakh in 80C, HRA, home loan interest, health insurance — the old regime may still win. Work out both and pick the lower tax. Tell your employer your choice; they deduct TDS on that basis.
4. Declare other income to your employer
If you earn interest, rent, or freelance income, tell your employer. They can raise the average rate so the TDS covers your full tax. If you stay quiet, you will owe the balance when you file your return — possibly with interest.
5. Submit Form 12B when you change jobs
When you join a new company in the same year, give them Form 12B. It carries the details of salary and TDS from your previous employer. Your new employer then adjusts the deduction instead of starting from zero, which avoids both double deduction and a shortfall.
6. Always give your PAN
If you do not give a valid PAN, your employer must deduct TDS at the higher of the normal average rate or 20% (Section 397(2) of the 2025 Act). Giving your PAN keeps the deduction at the normal rate, which is almost always lower.
7. Keep track of Form 130 and AIS
From Tax Year 2026-27, Form 130 (the new Form 16) shows the TDS your employer deducted. The same figures appear in your Annual Information Statement (AIS) on the e-filing portal. Check both; if the numbers do not match your payslips, raise it with your employer early.
TDS refund on salary
If your employer deducted more tax than your final liability — for example, you submitted proofs late, or your income fell during the year — the extra is refunded after you file your return. File your ITR, enter the total TDS from Form 130 or AIS, and the department refunds the difference after processing. For the full walkthrough, see how to file ITR online.
If the excess is caught during the year, your employer can simply reduce the later months’ TDS. And if you missed the return deadline entirely, read our guide on belated ITR filing — you can still file until 31 December 2026 with a late fee.
FAQ
What is the TDS rate on salary?
There is no fixed rate. Your employer works out an average rate from your estimated yearly tax and income, then applies that rate each month. Two people with the same salary can have different TDS if their deductions or regimes differ.
Is TDS deducted if my salary is below Rs 12 lakh?
In the new regime, no — if your total income is up to Rs 12 lakh, the Section 156 rebate brings the tax to zero, so no TDS is deducted. In the old regime, the rebate is only up to Rs 12,500 and only for total income up to Rs 5 lakh, so TDS can still apply at a Rs 12 lakh salary.
What happens if I do not give my PAN to my employer?
Your employer must deduct TDS at the higher of the normal average rate or 20%. Give your PAN to avoid the higher deduction.
Can my employer deduct TDS at a flat 10%?
No. The employer must use the average-rate method. A flat 10% is not allowed unless the worked-out average rate happens to be 10%.
I changed jobs — how do I avoid double TDS or a short deduction?
Give your new employer Form 12B with the salary and TDS details from your previous employer. The new employer will adjust the deduction for the rest of the year.
How do I check how much TDS my employer deducted?
From Tax Year 2026-27, look at Form 130 (the new Form 16). You can also view the same figures in the Annual Information Statement (AIS) on the income-tax e-filing portal.
Official Sources
- Income Tax e-Filing Portal — AIS, ITR filing, and TDS statements
- Central Board of Direct Taxes (CBDT) — circulars and official guidance
- Income-tax Act, 2025 — India Code — full text of Sections 392 and 397(2)
Related guides
- TDS on FD Interest: Section 194A (Now Section 393) — Rates, ₹50,000/₹1 Lakh Limits & Form 121
- TDS on Rent 2026: 194-I vs 194-IB — ₹50,000/Month Rule and New Section 393
- New Tax Regime Slabs FY 2026-27: Complete Table, Rates & Zero-Tax Rules (Section 202)
Disclaimer: This article explains the law in simple terms for general information. Tax rules change often, and your own case may differ. Check the official portals above or talk to a qualified tax professional before acting on it.
Editorial byline for eircicai income tax guides — covering the Income Tax Act, 2025, section renumbering, regime comparison, and deductions. Content is reviewed by Asuthod Rathod, CA.