What Is TDS On Salary: Calculation, How To Reduce TDS On Salary And How To Claim TDS Refund

If you check your salary slip, you will find a segment that mentions TDS deduction. TDS on salary varies depending on the income tax slabs. But what is TDS and why is it deducted from your salary? This article helps you understand what is TDS on salary, how to calculate it, how to reduce TDS and how to claim a TDS refund in simple terms. Read on! 

What is TDS on Salary?

TDS (full form -Tax Deducted at Source) is simply tax levied on the income and deducted at the source level. Every salaried employee has to pay tax against the income earned. To make it hassle-free for the employees, the Government introduced TDS on salary under Section 192 of the Income Tax Act. Under this section, TDS is deducted by the employer (at source) before paying the salary to the employees. This TDS deduction is reflected on your salary slip. 

The employer provides the TDS certificates to its employees, commonly known as Form 16/16A. This form furnishes all the details related to TDS payment by the employees.

TDS for Salaried Employees

If you are a salaried employee, it is deducted from your salary (which is your source of income) by your employer and paid to the government. It is deducted as per the respective tax slabs. If your income is below 2.5 lakh per annum, you do not have to pay T

If you are a salaried employee, it is deducted from your salary (which is your source of income) by your employer and paid to the government. It is deducted as per the respective tax slabs. 

However, if your income is below the basic exemption limit, you are NOT liable to pay TDS. Here’s a table:

Minimum Income	Age
Rs. 2.5 Lakh	Indian resident below 60 years
Rs. 3 Lakh	Senior Citizen between 60-80 years
Rs. 5 Lakh	Super Senior Citizens over 80 years

How to Calculate TDS on Your Salary?

Finding your TDS on salary is easy. Follow this step-by-step guide.

Step 1-: Write your CTC. 

Step 2-: Deduct perquisites or perks such as house rent allowance, leave travel allowance, fuel allowance, etc. from your CTC.

Step 3-: Reduce standard deduction (Rs. 50,000)

Step 4-: Reduce investments under sec. 80 of Income Tax Act, 1961. (maximum limit is 1.5 Lakh). This gives your taxable income.

Step 5 -: If it is above 2.5 Lakh, then calculate tax as per the below tax slabs.

0-2.5 Lakh	Nil
2.5 – 5 Lakh	5%
5-10 Lakh	20%
Above 10 lakh	30%

Step 6 -: Add 4% Cess and divide by 12. This gives your monthly TDS.

Let us understand this by a simple numerical example -:

CTC	Rs. 8,00,000
Reduce HRA, LTA, etc…	Rs. 1,00,000
Reduce standard deduction	Rs. 50,000
Reduce investments under sec. 80	Rs. 1,50,000
Taxable income	Rs. 5,00,000

Calculating tax -:

0-2.5 Lakh	Nil
2.5 – 5 lakh (5%) -: 5% of 2,50,000	12,500
Cess (4%)-: 4% of 12,500	500
Total TDS	13,000
TDS/ month (Rs. 13,000/12)	Rs. 1083.33

Note: This is a simplified version of the various provisions under the Income Tax Act, 1961. Do not forget to consult your chartered accountant for expert advice.

The Budget 2020 introduced a new tax regime that reduced the tax rates and introduced different slabs. The new system is applicable for income earned from 1 April 2020 (FY 2020-21), which relates to AY 2021-22. But, the taxpayer was not allowed to claim major deductions offered under the old regime.

Let us understand the TDS calculation in the new regime:

The new tax rates and slabs are mentioned below:

0-2.5 Lakh	Nil
2.5 – 5 Lakh	5%
5-7.5 Lakh	10%
7.5-10 Lakh	15%
10-12.5 Lakh	20%
12.5-15 Lakh	25%
Above 15 Lakh	30%

Note: No deductions like HRA, Standard deduction, or section 80C, 80D, 80E, etc. deductions are allowed.

Taking similar numerical value:

CTC	Rs. 8,00,000
Taxable income	Rs. 8,00,000 (no deductions allowed)

Calculating tax:

0-2.5 Lakh	Nil
2.5 – 5 lakh (5%) -: 5% of 2,50,000	12,500
5-7.5 Lakh (10%) -: 10% of 2,50,000	25,000
7.5 -8 Lakh (15%) -: 15% of 50,000	7,500
Total-:	45,000
Cess @4% of 45,000	1,800
Total TDS	46,800
TDS/month	3,900

Note: This is a simplified version of the tax regime application. Certain deductions are allowed subject to the Income Tax Act & rules. Please, consult your financial adviser for any specific advice.

What is the time limit to Deposit TDS under Section 192?

• TDS deducted by a Government employer has to be deposited on the same day.
• If the salary is credited, the TDS of the previous month deducted by a non-Government employer has to be deposited before the end of the current month. 
• If the salary credited and TDS is deducted in any other month than March,  within the 7 days from the end of the month.

Reduce Your Tax Deducted at Source (TDS)

Everyone wants to save taxes. There are certain deductions under the Income Tax Act, 1961, which any taxpayer can claim and reduce his total taxable income. The most common deductions are- 

• Standard deduction of Rs. 50,000 is provided to all the salaried persons.
• Sec. 80 provides deductions up to Rs. 1.5 lakh on various investment options like PPF, EPF, ELSS, NPS among others.

Using these deductions, one can reduce the total taxable income and in turn reduce the TDS. For better tax planning, consult your financial adviser.

Did you know that you can save Income tax if you have a personal loan to repay? Read this simple guide to understand the tax benefits you can claim. 

What is TDS Refund & How to Claim it?

A TDS refund is the difference between your actual tax liability and the TDS deducted by your employer.  Employers deduct TDS based on estimated investments & deductions. But, the actual deductions & investments may differ at the end of the year. When such a difference occurs, a TDS refund can be claimed.

For instance, you have invested in tax-saving instruments like health insurance, PPF, ELSS, etc. at the end of the financial year. In such a case, the TDS deducted could be higher than your actual tax liability. Therefore, a TDS refund can be claimed. 

A simple process allows us a TDS refund. It is as such:

• File your Income Tax return.
• Mention your investments and TDS deduction (form 16/16A)
• After calculating your tax liability, extra TDS would be refunded to your account by the Income-tax department. 

Final Word

Every employer needs to deduct TDS on salary of their employees. Depending on your annual income, TDS will be deducted every month from your salary. This is also beneficial for the salaried employees as it reduces the burden of paying a lump sum amount of tax at the end of a financial year. You can also claim a TDS refund if excess amount has been deducted from your salary.

FAQs on TDS on Salary

Before you go… 

• Looking for instant 🚀 personal loans 24*7 anywhere, anytime? Install the Navi app on Android or iOS now!
• Or, maybe you’re looking to buy that house you’ve been eyeing 🏠 and you need a loan of up to Rs. 10 crores. Install the Navi app on Android or iOS now and get instant in-principle approval right away! Interest rates starting at 6.71% p.a.
• How about an affordable health insurance policy 👨‍⚕️ starting at a monthly premium of just Rs. 241? Install the Navi app on Android or iOS now and get your policy in under 2 minutes.
• Instead, want to put your savings into action and kick-start your investment journey 💸 But don’t have time to do research. Invest now with Navi Nifty 50 Index Fund, sit back, and earn from the top 50 companies.