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. The governing provision — Section 192 of the Income-tax Act, 1961 — was renumbered Section 392 under the Income-tax Act, 2025, effective 1 April 2026; the calculation and employer obligation are unchanged.

At the start of the financial year, employers collect an investment declaration (Form 12BB, renumbered Form 124); based on declared investments, allowances, and the chosen regime, they calculate total annual tax, divide it across remaining months, 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. There is no employee-count threshold for TDS, unlike PF (20+) or ESI (10+) — it applies to any employer paying taxable salary.