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!
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.
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 |
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.
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-
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.
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:
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.
Ans: Yes, your employer will calculate the TDS and deduct the amount from your monthly salary. You can find all the information regarding TDS payments in form 16 provided by your employer.
You can also check your TDS payments and all other details by viewing form 26AS from the income tax portal here.
Ans: TDS rates are different for various incomes. IT Act, 1961 prescribes TDS rates for various incomes. TDS on salary is calculated as per respective tax slabs.
Ans: One can download Form 26AS from the Income Tax portal to know about all the details related to TDS.
Ans: If your taxable income is below 2.5 lakh, you need not pay TDS.
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