What is TDS on Salary?

TDS, or Tax Deducted at Source, is a portion of your salary that your employer deducts before paying you. So, TDS on salary is like a prepayment of your income tax. This amount is then deposited directly with the Income Tax Department on your behalf. Your TDS deduction on salary is based on your estimated annual income and the applicable tax slab rates. It's a way for the government to ensure regular tax collection and avoid evasion.

In India, if your annual income exceeds the basic exemption limit, you are eligible for TDS deductions on your salary. Currently the basic exemption limit is ₹2.5 lakhs under old regime, whereas under New regime basic exemption limit is ₹4 lakhs. So, if your estimated annual income is above this threshold, your employer is required to deduct applicable TDS on salary subject to applicability of rebate on income upto ₹5 lakhs under old regime, whereas under New regime on income upto ₹12 lakhs.

The TDS rate on salary is determined by your estimated total income and the applicable tax slab rates for the tax year. The rates can vary for different income slabs and are subject to change. For instance, for the tax year 2026-27, the TDS rates start from 5% for income above ₹2.5 lakhs and go up to 30% for higher income brackets. However, remember that you can claim deductions and exemptions to reduce your tax liability.

Calculating TDS on salary can seem a bit complex, but it is essentially based on your estimated annual income, applicable tax slab rates, and deductions you claim and opting old or new tax regime.

Here is a simplified example. Let's say your estimated annual salary is ₹6 lakhs and assuming you are opted old tax regime. You are eligible for deductions under Section 123 for ₹1.5 lakhs. After deductions, your taxable income becomes ₹4.5 lakhs.

Based on the tax slabs for 2026-27, your TDS would be calculated as follows:

• 5% on ₹2.5 lakhs to ₹5 lakhs = ₹12,500
• 20% on ₹5 lakhs to ₹6 lakhs = ₹20,000
• Total TDS on salary = ₹32,500

TDS is calculated on your gross salary, which includes various components like basic salary, allowances, and perquisites. Let's take a closer look at some common components.

Your employer is liable to deduct TDS from your salary if your income exceeds the basic exemption limit. It is their responsibility to calculate, deduct, and deposit the TDS with the government.

Yes, TDS is usually deducted from your salary every month. Your employer calculates the estimated TDS based on your projected annual income and deducts it proportionately from your monthly salary. However, the actual TDS may vary slightly each month depending on your income and deductions claimed.

Yes, TDS deduction on salary is mandatory if your income exceeds the basic exemption limit. It is a legal requirement for employers to deduct TDS from your salary and deposit it with the government. Failure to do so can result in penalties for both the employer and the employee.

To claim your TDS on salary, you need to file your Income Tax Return (ITR) at the end of the financial year. You can claim deductions and exemptions for various investments, expenses, and allowances to reduce your tax liability. If your actual tax liability is lower than the TDS deducted, you will get a refund for the excess amount.

There are certain situations where you can be exempt from TDS payment. For instance, if your estimated annual income is below the basic exemption limit.

Yes, TDS on salary is refundable if the TDS deducted from your salary is higher than your actual tax liability. You can claim a refund for the excess TDS amount while filing your ITR.

Our content given in this article is as per the existing provisions, laws and regulations as per the Income Tax Act, 2025 and Income Tax Rules, 2026 issued thereunder. Tax laws are subject to amendments made thereto from time to time. The benefits / guidance mentioned herewith should not be considered as opinion / view of the Company. We request to seek independent view from your personal tax advisor on applicable tax benefits / guidance under the said article.