TDS on salary: how your employer works out the tax every month
Salary TDS is not a flat rate. Your employer estimates your tax for the whole year, divides it across the remaining months, and adjusts as your pay and declarations change. From 1 April 2026 the rules sit in section 392 of the Income-tax Act, 2025.
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Quick answer
Employers deduct TDS on salary by estimating your tax for the whole year under the regime you choose, then spreading it over the remaining months. From 1 April 2026 this is section 392 of the Income-tax Act, 2025; Form 16 is now Form 130 and Form 12BB is Form 124.
- New regime is the default if you do not choose
- Standard deduction ₹75,000 (new) or ₹50,000 (old)
- Form 130 issued by 15 June
Official source: Income Tax Department: FAQs on forms under the Income-tax Rules, 2026
How the monthly TDS is calculated
- Estimate annual salary: basic, allowances, bonus, perquisites and any arrears expected in the year.
- Apply the regime: the new regime is the default. If you want the old regime, tell your employer at the start of the year; otherwise TDS follows the new regime.
- Subtract exemptions and deductions allowed in that regime: the ₹75,000 standard deduction in the new regime (₹50,000 in the old), and in the old regime HRA, LTA, 80C and the rest, based on your declarations.
- Compute tax at slab rates, apply the rebate, add surcharge if any and 4% cess.
- Divide the remaining tax by the months left in the year, and deduct that from each month’s pay.
Example. Annual salary ₹18 lakh, new regime, no other income. Taxable income ₹17.25 lakh after the standard deduction. Tax on the first ₹16 lakh is ₹20,000 + ₹40,000 + ₹60,000, plus 20% on the ₹1.25 lakh above it (₹25,000): ₹1,45,000. Add 4% cess of ₹5,800 and the year’s tax is ₹1,50,800, so monthly TDS is about ₹12,567.
What you give your employer
| Document | When | Purpose |
|---|---|---|
| Regime choice | April, or when you join | Decides which slabs and deductions apply |
| Form 124 (formerly Form 12BB) | Declaration in April; proofs usually by January | HRA with landlord PAN above ₹1 lakh rent a year, LTA, home loan interest, 80C and other deductions (old regime) |
| Details of other income and TDS | Any time | Employer can include interest, rent and other income, and credit TDS or TCS deducted elsewhere, so you are not short at year-end |
| Previous employer’s salary and TDS | When you join mid-year | Prevents under-deduction when two employers each apply the lower slabs |
More on the declaration form in our Form 12BB (Form 124) guide.
Perquisites, arrears and relief
- Perquisites like a company car, rent-free accommodation, interest-free loans and ESOP allotments are valued under the rules and added to salary. ESOPs are covered in our ESOP taxation guide.
- Employer-paid tax on non-monetary perquisites is allowed and is not taxed again in your hands.
- Arrears of salary received in a later year can push you into a higher slab. Relief is available by filing the prescribed form (formerly Form 10E) before claiming it in the return.
- Employer NPS contribution up to 14% of basic plus DA is deductible even in the new regime.
What the employer must do
| Obligation | Deadline |
|---|---|
| Deposit TDS | 7th of the following month; 30 April for March |
| Quarterly return in Form 138 (formerly 24Q) | 31 July, 31 October, 31 January, 31 May |
| Form 130 to employees (formerly Form 16) | By 15 June after the year |
| Salary details for perquisites (formerly Form 12BA) | With Form 130 |
No TDS is needed if the employee’s estimated income is below the taxable limit after rebate. Our Form 16 guide explains how to read the certificate.
When the TDS is wrong
- Too much deducted: common when proofs are missed or you switch regime at filing. Claim the refund in your return.
- Too little deducted: common with two employers in a year or with interest income. Pay self-assessment tax before filing to avoid interest.
- TDS missing from Form 26AS: ask the employer to correct the 24Q; your credit depends on it.
Switching jobs mid-year
Each employer computes TDS as if its salary were your only income, so both apply the lower slabs and the ₹75,000 standard deduction. The result is usually a tax shortfall in the return.
- Give the new employer the old employer’s salary and TDS figures; they will spread the extra tax over the remaining months.
- If you forget, compare your total tax with total TDS before filing, and pay self-assessment tax on the gap.
- Claim the standard deduction only once in the return, even though both Form 130s show it.
Frequently asked questions
How is TDS on salary calculated?
The employer estimates your annual taxable salary under the regime you chose, computes the year’s tax with rebate, surcharge and cess, and divides it across the remaining months.
Is TDS on salary deducted at 10%?
No. Salary TDS uses the slab rates of your chosen regime on your estimated annual income, not a flat rate.
What if I do not tell my employer my regime?
TDS is deducted under the new regime, which is the default. You can still choose the old regime when filing your return, if you are salaried.
Can my employer consider my FD interest for TDS?
Yes. You can declare other income and TDS or TCS deducted elsewhere, and the employer can factor it in, reducing the year-end tax gap.
What is the new name of Form 16?
Under the Income-tax Rules, 2026, the salary TDS certificate is Form 130, and the investment declaration formerly called Form 12BB is Form 124.
Salary TDS not matching your actual tax?
A FilingBase CA reconciles Form 130, AIS and your deductions and files your return from ₹499.
Keep reading.
Form 12BB (now Form 124)
What goes in the declaration, the proofs, landlord PAN above ₹1 lakh, and what happens if you miss the deadline.
Read guide→GuideForm 16 Explained: Part A and Part B, How You Get It, What to Check Before Filing, and What to Do Without One
What Part A and Part B contain, why only your employer can download it, the 15 June deadline, the five checks before filing, and how to file without it.
Read guide→GuideTDS Return Due Dates for FY 2026-27: Deposits, Quarterly Statements, Certificates and Late Fees
Deposit by the 7th, quarterly statements by 31 July, 31 October, 31 January and 31 May, certificates 15 days later, and the ₹200-a-day fee no officer can waive.
Read guide→Official references
The statutory sources behind this page. We keep our guidance aligned to them — verify anything time-sensitive directly.
- Ministry of Corporate AffairsCompanies Act filings, forms and fee schedules
- Income Tax DepartmentReturns, forms, rates and e-filing utilities
- GST PortalRegistration, returns and rate notifications
Facts on this page are checked against these sources; the date of the last check is shown at the top of the page. It is general guidance, not advice on your specific facts. How we write and check our guides.