TDS (Tax Deducted at Source)

TDS is the income tax an employer deducts from an employee's salary each month and remits directly to the government, rather than the employee paying the full amount at year end. It's calculated based on the employee's estimated annual tax liability under their chosen tax regime.

At the start of the financial year, employers collect an investment declaration; based on declared investments, allowances, and the chosen regime, they calculate total annual tax, divide it by 12, and deduct that amount monthly. Employees who don't declare investments on time see a higher TDS deduction — and a smaller take-home salary — until the declaration is updated.