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

Personal Finance

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:

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.

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

Let us understand this by a simple numerical example -:

Calculating tax -:

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:

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

Taking similar numerical value:

Calculating tax:

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

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Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.