TDS on Salary — WorkWisely Knowledge Base

TDS on Salary — WorkWisely Knowledge Base

India Statutory

TDS on Salary

Tax Deducted at Source on employee salaries under Section 192 — understand the old vs new tax regimes, how taxable income is computed, slab rates, worked examples, and how WorkWisely automates every TDS calculation and deposit.

India Statutory Payroll

👥 Who uses this

  • Payroll admins calculating and depositing monthly TDS on employee salaries
  • HR teams collecting investment declarations and tax regime choices at the start of each financial year
  • Finance teams issuing Form 16 and filing quarterly TDS returns (Form 24Q)

✨ What you'll achieve

  • Understand the difference between old and new tax regimes and when each is beneficial
  • Calculate gross salary, exemptions, deductions, and taxable income step by step
  • Apply the correct income tax slabs and arrive at monthly TDS figures
  • Meet TDS deposit, return filing, and Form 16 issuance deadlines without manual tracking

What is TDS on Salary?

TDS (Tax Deducted at Source) on salary is the income tax an employer deducts from an employee's monthly pay before crediting it to their account. Governed by Section 192 of the Income Tax Act, 1961, it ensures tax is collected at the point of payment rather than at year-end. The deducted amount is deposited with the Income Tax Department on the employee's behalf.

The amount of TDS depends on the employee's estimated annual taxable income, the tax regime chosen (old or new), declared exemptions, and deductions. Not all salary components are taxable — exemptions like HRA reduce the taxable base before slab rates are applied.

Old Tax Regime vs New Tax Regime

Feature Old Regime New Regime (Default)
HRA exemption✅ Available❌ Not available
Standard deduction₹50,000₹75,000 (from FY 2024-25)
Section 80C deductions✅ Up to ₹1.5 lakh❌ Not available
Section 80D (health insurance)✅ Up to ₹25,000❌ Not available
Tax ratesHigher rates but more deductionsLower rates, fewer deductions
Best forEmployees with large investments/HRAEmployees with few deductions to claim

💡 Default regime

  • From FY 2023-24, the new tax regime is the default. If an employee does not declare a preference, TDS must be calculated under the new regime.
  • Employees can switch between regimes at the start of each financial year by submitting a declaration to the employer.

Income Tax Slabs

Old Regime — FY 2024-25 & FY 2025-26

Taxable Income Slab Tax Rate
Up to ₹2,50,000Nil
₹2,50,001 – ₹5,00,0005%
₹5,00,001 – ₹10,00,00020%
Above ₹10,00,00030%

New Regime — FY 2025-26

Taxable Income Slab Tax Rate
Up to ₹4,00,000Nil
₹4,00,001 – ₹8,00,0005%
₹8,00,001 – ₹12,00,00010%
₹12,00,001 – ₹16,00,00015%
₹16,00,001 – ₹20,00,00020%
₹20,00,001 – ₹24,00,00025%
Above ₹24,00,00030%

📋 Surcharge & cess

  • Health & Education Cess: 4% on total income tax — applies to all taxpayers.
  • Surcharge: Applies only when total income exceeds ₹50 lakh. Rates range from 10% to 37% of the tax amount depending on income level.

Step-by-Step TDS Calculation — Worked Example

Consider Divya, a senior analyst with the following monthly salary structure, opting for the old tax regime and living in a metro city on rent:

Salary Component Monthly Annual
Basic Salary₹42,000₹5,04,000
House Rent Allowance (HRA)₹21,000₹2,52,000
Special Allowance₹18,000₹2,16,000
Transport Allowance₹4,000₹48,000
Gross Salary₹85,000₹10,20,000

Step 1 — Apply Exemptions (Old Regime)

Exemption Amount Notes
Standard Deduction₹50,000Available to all salaried employees
HRA Exemption₹2,01,600Least of: actual HRA (₹2,52,000) | 50% basic in metro (₹2,52,000) | rent paid − 10% basic (₹2,01,600)*

* Assumes Divya pays ₹22,000/month rent. Calculation: (₹22,000×12) − (10% × ₹5,04,000) = ₹2,64,000 − ₹50,400 = ₹2,13,600. Minimum of three = ₹2,01,600. Total exemptions = ₹2,51,600.

Net taxable salary after exemptions: ₹10,20,000 − ₹2,51,600 = ₹7,68,400

Step 2 — Apply Chapter VI-A Deductions

Section Investment / Expense Deduction Amount
80CEPF contribution + ELSS mutual fund₹1,50,000
80DHealth insurance premium (self + family)₹25,000

Final taxable income: ₹7,68,400 − ₹1,75,000 = ₹5,93,400

Step 3 — Apply Old Regime Tax Slabs

Slab Calculation Tax
Up to ₹2,50,000Nil₹0
₹2,50,001 – ₹5,00,0005% × ₹2,50,000₹12,500
₹5,00,001 – ₹5,93,40020% × ₹93,400₹18,680
Total tax before cess₹31,180
Add: 4% Health & Education Cess4% × ₹31,180₹1,247
Total Annual Tax₹32,427

Monthly TDS to deduct: ₹32,427 ÷ 12 = ₹2,702/month

TDS Deposit & Filing Deadlines

Obligation Due Date
Monthly TDS deposit (April–February)7th of the following month
TDS deposit for March30th April
Quarterly TDS return — Form 24Q (Q1, Q2, Q3)31st July / 31st October / 31st January
Quarterly TDS return — Form 24Q (Q4)31st May
Form 16 issued to employees15th June of the following financial year

⚠️ Penalties for non-compliance

  • Late TDS deposit: Simple interest at 1.5% per month from deduction date to deposit date (Section 201).
  • Late filing of TDS return: Fee of ₹200 per day until the return is filed, subject to a maximum of the TDS amount.
  • Non-deduction or short deduction: 100% penalty of the TDS amount plus interest.
  • Employees cannot claim TDS credit for amounts not deposited by the employer — making timely deposits critical.

How WorkWisely Handles TDS on Salary

  1. Collect regime declarations: WorkWisely's self-service portal lets employees choose their tax regime (old or new) and submit investment declarations at the start of the financial year. If no declaration is made, the new regime is applied by default.
  2. Auto-compute taxable income: WorkWisely calculates gross salary, applies the declared HRA exemption, standard deduction, and all Chapter VI-A deductions automatically for each employee.
  3. Apply slab rates & calculate TDS: The annual tax liability is computed using the applicable regime's slab rates (including cess and surcharge where applicable) and divided by 12 for the monthly TDS figure.
  4. Deduct TDS on each pay run: TDS is deducted before the net salary is credited and shown on the employee's payslip under Statutory Deductions.
  5. Recalculate mid-year: When an employee submits revised investment proofs or changes their regime, WorkWisely recalculates the TDS and adjusts the remaining monthly deductions to recover or refund the difference by year-end.
  6. Generate Form 24Q: Download the quarterly TDS return file from Reports → Statutory Reports → TDS → Form 24Q for filing with the Income Tax Department.
  7. Issue Form 16: Generate and download digitally-signed Form 16 Part A and Part B for each employee from Reports → Statutory Reports → TDS → Form 16 after Q4 filing.
  8. Deadline reminders: WorkWisely alerts payroll admins 5 days before each TDS deposit deadline and quarterly return due date via the Payroll → Compliance Calendar.

🔗 Related articles