TDS on Salary in India: How It's Calculated and What You Can Actually Control (2026)

For many salaried employees in India, TDS is one of the most familiar deductions on the payslip. Fewer know why the amount changes some months, whether they have any say in it, or what actually happens if it's wrong. This guide covers salary TDS specifically — under Section 392 of the Income-tax Act, 2025 (the provision formerly known as Section 192) — not TDS on rent, bank interest, or professional fees, which are separate rules with different rates and thresholds.

What Is TDS and Why Is It Deducted?

TDS — Tax Deducted at Source — is income tax collected in advance, month by month, instead of as one lump sum at the end of the year. Your employer estimates your total tax liability for the financial year, divides it across your remaining salary payments, and deducts a portion each month, remitting it directly to the government on your behalf.

The logic cuts both ways. For the government, it means tax revenue arrives steadily through the year instead of in one filing-season rush, and it's harder to evade tax that's already been collected before it reaches your bank account. For the employee, it spreads a liability that could be a significant lump sum into smaller monthly amounts, so there's no large tax bill waiting in July.

Who Has to Deduct TDS?

This is where salary TDS differs from PF and ESI, and it surprises people who assume the same size thresholds apply. PF and ESI each have their own employee-count and applicability rules (broadly 20+ and 10+ respectively, with further conditions beyond headcount alone). Salary TDS doesn't work that way at all — it has no employee-count threshold. An employer with a single employee is just as legally required to deduct TDS as a company with a thousand, the moment that employee's estimated annual income is taxable.

The obligation sits with the employer, not the employee. You don't request TDS or apply for it — if your projected annual salary is taxable, your employer is required by law to calculate and deduct it every month, correctly, without being asked.

How TDS Is Actually Calculated

At the start of the financial year (or when you join), your employer estimates your total salary for the year and asks which tax regime you want — new or old. Since FY 2024-25, the new regime is the default; if you don't declare a choice, you're placed in it automatically.

1. Estimate annual gross salary for the financial year.
2. Subtract the standard deduction (₹75,000 under the new regime, ₹50,000 under the old) and, if on the old regime, any declared exemptions and deductions — HRA, Section 80C investments, home loan interest — submitted via Form 124 (formerly Form 12BB).
3. Apply the applicable tax slabs to the resulting taxable income to get the base tax payable.
4. Apply the Section 87A rebate if eligible — full rebate up to ₹12 lakh taxable income under the new regime, or ₹5 lakh under the old — which brings tax to nil for eligible resident individuals within that limit.
5. Add 4% Health and Education Cess on the tax remaining after the rebate to arrive at the final annual tax liability. Unlike most other TDS provisions, salary TDS specifically requires cess to be included in the calculation.
6. Divide the annual tax by the number of remaining salary payments in the year to get the monthly TDS deduction.

That last step is why TDS isn't simply your final year's tax divided by 12 — it's recalculated periodically as your actual income, declarations, and proofs come in, and re-spread across whatever months are left.

TDS by Salary Level: Quick Reference (New Regime, FY 2026-27)

These figures assume the new tax regime (the default) with only the standard deduction applied — no other declarations — and include the mandatory 4% Health and Education Cess, which salary TDS requires but many other TDS provisions don't. They're for orientation, not a substitute for your own calculation once your actual deductions are factored in.

The zero-tax rows aren't a rounding simplification — the Section 87A rebate genuinely brings tax to nil for taxable income up to ₹12 lakh under the new regime (for an eligible resident individual), which is why gross salaries up to roughly ₹12.75 lakh (with only the standard deduction applied) see no TDS at all. The ₹12 lakh figure is a rebate threshold, not a tax-free slab — once taxable income exceeds it, the normal slab calculation applies to the full amount, though marginal-relief rules can soften the immediate jump in tax for incomes just above the threshold.

Worked Example: ₹15 Lakh Annual Salary

An employee on the new regime with ₹15,00,000 annual gross and no additional declarations: taxable income is ₹15,00,000 − ₹75,000 (standard deduction) = ₹14,25,000. Tax is calculated slab by slab — 5% on the ₹4–8 lakh band (₹20,000), 10% on the ₹8–12 lakh band (₹40,000), and 15% on the remaining ₹2,25,000 above ₹12 lakh (₹33,750) — for a base tax of ₹93,750. Adding 4% Health and Education Cess (₹3,750) brings the final annual liability to ₹97,500. Divided across 12 months, that's ₹8,125 deducted from each month's payslip. If this employee instead had ₹5.7 lakh in declared old-regime deductions (80C, home loan interest, HRA, NPS), the calculation would run on the old regime's slabs instead, landing at a broadly similar figure — the two regimes converge at this income level once deductions are substantial. For the full regime comparison, see our old vs new tax regime guide.

Why TDS Suddenly Spikes in a Given Month

This is one of the most common sources of payslip confusion. A bonus, arrears payment, or mid-year salary revision doesn't get its own separate, lighter TDS treatment — it gets added to your projected annual income, and your employer recalculates the tax owed for the whole year. The law gives the employer discretion to increase or reduce later deductions to correct an earlier shortfall or excess, and in practice that often means recovering some or all of the difference from the payment that triggered the recalculation — but there's no fixed rule that it must all come out of that one payment rather than being spread over the remaining months. Either way, the employee sees a noticeably larger deduction around that point and assumes something's wrong; usually nothing is — the annual total is just being corrected, not smoothed out.

If the spike is specifically from arrears — a delayed raise or bonus that relates to a prior year — you may be able to reduce the tax impact by claiming relief under Section 157 (formerly Section 89(1)) using Form 39 (formerly Form 10E) when you file your return. This relief effectively lets you spread the tax on that arrears amount across the years it was actually earned, rather than being taxed at your current year's marginal rate on all of it at once.

What Happens to Your TDS If You Change Jobs Mid-Year

Each employer calculates TDS independently, based only on what they've paid you. If you switch jobs in October, your new employer doesn't automatically know what your previous employer paid you from April to September, or how much TDS was already deducted. Left unaddressed, both employers apply the same standard deduction and the same tax-free slab from scratch — which under-deducts tax for the year, and leaves you with a balance to pay when you file your return.

The fix: when you join a new employer mid-year, provide details of your salary and TDS from your previous employer(s) for the financial year — historically done via Form 12B — so your new employer can calculate TDS using your combined income for the year, rather than treating you as a fresh joiner with no prior earnings.

Can You Opt Out of TDS?

No — not if your projected annual income is taxable. TDS on salary isn't optional for the employer or the employee; it's a statutory obligation on the employer the moment the income threshold is crossed. What you can genuinely influence is the amount: submitting an accurate investment declaration, claiming eligible exemptions, or choosing the regime that results in lower tax all reduce what gets deducted — but none of them let you decline the deduction itself.

A common misconception is that the declaration historically known as Form 15G or Form 15H — now consolidated into a single Form 121 under the Income-tax Act, 2025 — can be submitted to stop TDS on salary, the way it's used to avoid TDS on bank fixed deposit interest. It can't. Form 121 applies only to specified non-salary income — interest, dividends, rent, insurance commission, and mutual fund income among them — and has no effect on Section 392 salary TDS.

Can You Ask HR to Adjust When or How TDS Is Deducted?

Not by simply choosing a number. You can't ask HR to deduct less this month because it's tight, or more next month to catch up on your own schedule — payroll has to calculate TDS from your estimated taxable salary using the applicable rules, not a preference. What the law does allow is the employer adjusting subsequent deductions during the year to correct an earlier shortfall or excess once the estimate changes — which is a mechanism triggered by updated information, not a request.

What you can do is change the inputs to the calculation, which changes the output going forward: submit a revised Form 124 investment declaration if your actual investments differ from what you declared in April, or ask whether your employer permits a revised tax-regime declaration during the year — this varies by employer rather than being a fixed statutory rule, so check your own company's payroll calendar. Either change causes your employer to recalculate the remaining months' TDS against the new numbers, which is the legitimate version of "adjusting" what gets deducted. Your final tax position is, in any case, settled when you file your return, regardless of what regime was used for TDS during the year.

If You Don't Submit Your PAN

Under Section 397(2) (formerly Section 206AA), an employer must deduct TDS at a higher rate — 20%, or your normal applicable rate, whichever is greater — if you haven't furnished a valid PAN. An inoperative PAN (commonly because it isn't linked to Aadhaar) has historically been treated the same way, though the exact operational relief around inoperative PANs has changed more than once, so it's worth checking current guidance rather than assuming. This isn't a penalty applied selectively; it's a mandatory rule, and the only way to recover any excess deducted as a result is to file your ITR and claim it back.

If TDS Was Deducted Incorrectly

Responsibility splits in a way that surprises people. If an employer under-deducts or fails to deposit TDS correctly, the employer faces interest and penalties for the shortfall — that's on them, not you. But your own income tax liability doesn't change based on your employer's mistake. If less was deducted than you actually owe, you're still responsible for paying the balance — typically as self-assessment tax — before filing your return. If more was deducted than you owed, you claim the difference back as a refund when you file.

Form 130: Your Annual Proof of TDS

At the end of the financial year, your employer issues an annual TDS certificate — by 15 June following the year in question. For Tax Year 2026-27 onward under the Income-tax Act, 2025, this is Form 130, which replaces the Form 16 used under the 1961 Act; the notified rules for Form 130 confirm the certified tax figure includes income tax, surcharge, and Health and Education Cess. If you're filing a return for FY 2025-26 (AY 2026-27), you'll still be working with Form 16 issued under the old rules — the new form applies going forward, not retroactively. Either way, it shows your salary breakdown, the deductions and exemptions applied, and the total tax deducted and deposited on your behalf, and it's worth checking against your own payslip records rather than assuming it's automatically correct.

Common Mistakes and Misconceptions

• Assuming TDS only applies at larger companies. It applies to any employer, regardless of headcount, the moment an employee's income is taxable.
• Believing Form 121 (the consolidated Form 15G/15H) stops salary TDS. It doesn't — it applies to specified non-salary income only.
• Not sharing prior salary and TDS details with a new employer after a mid-year job change, leading to under-deduction and an unexpected tax bill at filing time.
• Assuming a large TDS deduction around one payment means an error. It's usually a bonus or arrears payment triggering a recalculation, not a mistake.
• Not updating the investment declaration when actual investments turn out lower than what was declared in April — this causes a large TDS catch-up later in the year instead of a smooth monthly deduction.
• Assuming the new Section 392/397(2)/Form 130 references apply to anything filed after 1 April 2026, regardless of period. They don't — what matters is the tax year the salary or filing relates to, not the calendar date it's processed on. Salary and filings relating to periods before 1 April 2026 can still fall under the old Act and old form numbers even if handled later.

The Bottom Line

TDS on salary isn't optional, isn't negotiable in timing, and applies regardless of company size — but it is genuinely responsive to accurate, timely information from the employee: the right regime choice, an honest investment declaration, and prompt paperwork when jobs change or PAN details need updating. Most of the confusion around a given month's deduction traces back to one of those inputs changing, not an error. And as of FY 2026-27, the law behind all of it goes by new section numbers — same rules, new references.