Introduction
TDS (Tax Deducted at Source) plays a vital role in India’s tax system for both employers and employees. If you are a salaried individual, understanding how TDS is deducted from your salary helps you avoid surprises at the end of the financial year. TDS ensures timely tax compliance and prevents the burden of paying a large lump-sum tax during return filing.
From FY 2025–26 onwards, as per the Finance Act, 2025, salary income up to ₹12.75 lakh (under the new tax regime) is exempt from tax. This will significantly reduce or even eliminate TDS for a large number of salaried individuals.
In this guide, we break down how TDS is calculated, deducted, and adjusted, along with real-life examples for clarity.
What is TDS from Salaries?
TDS from salaries is a mechanism where the employer deducts income tax from an employee’s monthly salary before crediting the net amount. The deducted tax is deposited directly with the government, ensuring compliance and spreading tax payment evenly across the year.
Who is Responsible for Deducting TDS?
Employers are legally mandated to deduct TDS from salaries where taxable income exceeds the exemption limit. Employees, on their part, must submit:
- PAN
- Form 12BB (for investment and exemption declarations)
- Proofs for deductions and exemptions
Accurate disclosures ensure correct TDS computation.
Impact of the Finance Act, 2025: Salary Exempt up to ₹12.75 Lakh
A major change now applies from FY 2025–26:
- Salary income up to ₹12.75 lakh (under the new tax regime) is not taxable.
- This is the default regime unless the employee opts for the old regime.
Result:
Employees earning ₹12.75 lakh or less in a year may have zero TDS, provided they remain in the new regime. Those opting for the old regime will follow normal slab rates. Employers will adjust TDS accordingly based on the declaration submitted by employees.
Components of Salary Considered for TDS
Not every salary component is taxable. TDS calculation typically includes:
- Basic Salary
- Dearness Allowance (DA)
- House Rent Allowance (HRA) – partially taxable
- Bonuses and Incentives
- Perquisites (company car, accommodation, etc.)
Exemptions like HRA, LTA (Leave Travel Allowance), and deductions under Section 80C are adjusted before calculating TDS.
TDS Deduction Process
Step 1: Estimate Annual Income
The employer calculates the expected salary for the financial year, including all taxable components.
Step 2: Apply Tax Slabs
Based on whether the employee opts for the new regime (default) or old regime, the employer applies the applicable tax slabs.
Step 3: Calculate TDS
TDS = Total Tax Liability – Exemptions/Deductions
Step 4: Deduct and Deposit TDS
The employer deducts TDS from monthly salaries and deposits it with the government.
TDS Certificates and Form 16
At the end of the financial year, the employer issues Form 16, which details:
- Salary paid
- TDS deducted
- Exemptions and deductions claimed
Form 16 is essential while filing income tax returns.
Common Mistakes in TDS Deduction
- Incorrect declarations leading to higher TDS
- Ignoring exemptions like HRA or LTA
- Not updating PAN details
- Miscalculating bonuses or incentives
Employees should always check Form 26AS to ensure the employer has correctly deposited TDS.
Conclusion
Understanding how TDS is deducted helps you plan your finances better and avoid unexpected tax liabilities. With the new exemption up to ₹12.75 lakh under the default new regime from FY 2025–26, many salaried individuals will benefit from lower or zero TDS.
Stay informed, stay compliant, and ensure your declarations are accurate.
For expert assistance with salary tax planning, Form 16 review, and ITR filing — Contact Taxunplug today.
FAQs
1. Is TDS from salary mandatory for all employees?
No. TDS is deducted only if your taxable income exceeds the exemption limit (₹12.75 lakh under the new regime from FY 2025–26).
2. Can I reduce my TDS from salary?
Yes, by submitting investment proofs and claiming exemptions/deductions—mainly under the old tax regime.
3. What is Form 16?
It is the annual TDS certificate issued by the employer summarizing salary payments and tax deductions.
4. How can I check if TDS is deposited correctly?
You can check Form 26AS or the AIS/TIS on the Income Tax portal.
5. What happens if my employer does not deduct TDS?
You must pay your own income tax through advance tax or self-assessment tax to avoid penalties and interest.
The information provided in above blog is for general informational only and should not be considered as legal or tax advice. Request you to please follow latest updated in reference to above details. We advise to consult with a qualified tax professional such as “Taxunplug” for all your tax needs.