What is TDS and how does it work?

TDS (Tax Deducted at Source) is a mechanism under the Indian Income Tax Act where the payer of certain incomes is required to deduct tax at source before making the payment. The deductor deposits the TDS amount with the government, and the deductee receives credit for the deducted tax against their final income tax liability. TDS applies to salary, interest, rent, professional fees, commissions, and many other payment types under various sections of the Income Tax Act.

What is the TDS rate on salary?

TDS on salary is deducted under Section 192 at the applicable income tax slab rate based on the employee's estimated annual income. There is no fixed percentage — the employer estimates the employee's total income for the year, accounts for declared deductions (HRA, 80C, 80D, etc.), calculates the annual tax, and divides it by 12 to deduct monthly. For 2024-25 under the new regime, rates range from nil (up to Rs 7 lakh after rebate) to 30% on income above Rs 15 lakh.

What happens if TDS is deducted but not deposited by the employer?

If an employer deducts TDS from an employee's salary but fails to deposit it with the government, the employee is not at fault and can still claim TDS credit against their tax liability using Form 26AS and AIS (Annual Information Statement). However, TDS credit is only reflected in 26AS once the employer deposits and files the TDS return. The employer faces interest of 1.5% per month and penalties under Section 271C for non-deposit.

What is the TDS threshold for professional fees (Section 194J)?

Under Section 194J, TDS on professional and technical services fees is applicable when the total payment to a single party exceeds Rs 30,000 in a financial year. The TDS rate is 10% for professional services (technical consultants, lawyers, doctors, etc.) and 2% for technical services and call center work. For payments to companies, the 2% rate applies on all technical services. No TDS under 194J is required if the payee has a lower deduction or nil deduction certificate.

Can TDS be avoided by submitting Form 15G or 15H?

Yes, Form 15G (for individuals below 60 years) and Form 15H (for senior citizens aged 60 and above) allow eligible persons to declare that their total income is below the taxable threshold, requesting nil TDS deduction. To submit Form 15G, your total income for the year must be below the basic exemption limit (Rs 2.5 lakh for those under 60) and the interest income itself must be less than the basic exemption. These forms apply to TDS on interest income (Section 194A) and certain other incomes, not to TDS on salary.

TDS Calculator

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TDS Calculator

Nature of Payment

Amount of Payment

₹

Recipient Type

Individual / HUFCompany

Is PAN Available?

YesNo

Estimated TDS Amount

₹10,400

Effective TDS Rate10.40%

Net Amount (After TDS)₹89,600

Gross Amount₹1,00,000

Frequently Asked Questions

What is TDS on salary and who deducts it?

TDS (Tax Deducted at Source) on salary is the income tax your employer deducts from your monthly salary and deposits directly with the government on your behalf. The employer calculates your estimated annual tax liability based on your salary, declared investments, and deductions, then deducts it proportionately each month. This is governed by Section 192 of the Income Tax Act, 1961.

How is TDS on salary calculated?

TDS on salary is calculated by estimating the employee's total annual taxable income (gross salary minus deductions under Sections 80C, 80D, HRA, etc.), applying the applicable income tax slab rates to arrive at total tax liability, and then dividing by 12 to get the monthly TDS amount. Employers use the employee's Form 12BB declaration at the start of the financial year to determine the applicable deductions.

What is the difference between the old and new tax regime for TDS?

Under the old tax regime, employees can claim deductions like HRA, Section 80C (up to ₹1.5L), 80D (health insurance), LTA, and standard deduction, reducing their taxable income. The new tax regime (default from FY 2024-25) offers lower slab rates but disallows most deductions and exemptions (except standard deduction of ₹75,000). Employees should choose the regime that results in lower total tax based on their investment profile.

What happens if excess TDS is deducted from salary?

If excess TDS has been deducted from your salary — for example, because you forgot to submit investment proofs or your employer used incorrect projections — you can claim a refund by filing your income tax return (ITR). The excess TDS will be reflected in Form 26AS and AIS. After processing your ITR, the Income Tax Department refunds the excess amount, typically with interest under Section 244A.

How can I reduce TDS deduction on my salary?

You can reduce TDS deduction by submitting Form 12BB to your employer at the start of the financial year with all applicable declarations: HRA exemption, LTA, home loan interest (Section 24), and investments under Chapter VI-A (80C, 80D, 80CCD, etc.). If you switch to the old regime and maximise deductions, your taxable income reduces and therefore your TDS. You can also submit Form 15G/15H (not applicable for salary income) or apply for lower deduction under Section 197.