TDS on Salary

TDS on Salary refers to the tax deducted by an employer from the employee’s monthly salary, based on the estimated total income for the financial year. It ensures that taxes are collected regularly instead of a lump sum at the year-end.

As per Section 192, the employer is required to deduct tax at the time of payment of salary, not on accrual.

Applicability of Section 192

• Applies to individuals drawing salary income.

• Employer can be:

  • Individual

  • HUF

  • Company

  • Partnership firm

  • Trust or AOP

Even foreign companies employing individuals in India must deduct TDS on salaries paid.

Time of Deduction

• TDS is deducted at the time of actual salary payment, not when it is due.

• Even advance salary or arrears are covered.

How TDS on Salary is Calculated

The employer must compute TDS based on the estimated total income of the employee during the financial year.

Steps to Calculate:

1. Estimate Gross Salary (Basic, DA, Bonus, Allowances, etc.)

2. Add other incomes if declared by the employee (like interest, rent, etc.)

3. Allow deductions (u/s 80C, 80D, 80G, etc.)

4. Apply standard deduction: ₹50,000 (for salaried individuals)

5. Choose Tax Regime:

   • Old Regime: Deductions & exemptions allowed

   • New Regime (default): Lower tax rates but limited deductions

6. Calculate income tax based on applicable slab rates

7. Divide tax payable by months remaining to deduct TDS monthly

Declaration by Employee (Form 12BB / Regime Opt-in)

• Employees must declare investments and deductions using Form 12BB.

• For new vs old regime, declaration must be made at the start of the year.

• Employees who want to opt for the Old Regime must submit Form 10-IEA.

Deduction and Deposit by Employer

• Monthly TDS must be deposited to the government by the 7th of next month.

• For March salary, deadline is 30th April.

• Deposit via Challan No. ITNS-281.