How to Calculate TDS on Salary - TDS Last Updated : 21 Sep 2019

Tax Deducted at Source or TDS is the amount which is deducted from the income of an individual by an authorised deductor and deposited to the IT department. The TDS can be calculated by following a few simple steps.

Learn all about Income Tax, Income Tax Return, Efiling Income Tax, Income Tax Refund and How to file ITR in our other pages.

How do I calculate TDS on my salary?

While the basic salary is fully taxable according to respective tax bracket, some exemptions are available for payments made as allowances and perks. You can calculate TDS on your income by following the below steps.

  • Calculate gross monthly income as a sum of basic income, allowances and perquisites.
  • Calculate available exemptions under Section 10 of the Income Tax Act (ITA). Exemptions are applicable on allowances such as medical, HRA, travel.
  • Reduce exemptions according to step (2) for the gross monthly income calculated in step (1).
  • As TDS is calculated on yearly income, multiply the corresponding figure from above calculation by 12. This is your yearly taxable income from salary.
  • If you have any other income source such as income from house rent or have incurred losses from paying housing loan interests, add/subtract this amount from the figure in step (4).
  • Next, calculate your investments for the year which fall under Chapter VI-A of ITA, and deduct this amount from the gross income calculated in step (5). An example of this would be exemption of up to Rs.1.5 lakh under Section 80C, which includes investment avenues such as PPF, life insurance premiums, mutual funds, home loan repayment, ELSS, NSC, Sukanya Samriddhi account and so on.
  • Now, reduce the maximum allowable income tax exemptions on a salary. Currently, income up to Rs.2.5 lakhs is fully exempt from paying taxes, while income from Rs.2.5 lakhs to Rs.5 lakhs is taxed at 10%, and Rs.5 lakhs to Rs.10 lakhs income bracket is taxed at 20%. All income above this amount is taxed at 30%.
  • Do note that senior citizen have different tax slabs and receive higher exemptions than those discussed above.
Example

As per the steps outlined above, let’s consider a numeric example for better understanding.

  • Steps (1) & (2)
  • Suppose your monthly gross income is Rs.80,000. This figure may contain divisions as - basic pay Rs.50,000, HRA of Rs.20,000, travel allowance of Rs.800, medical allowance of Rs.1,250, child education allowance (CEA) of Rs.200 and other allowances totalling 12,750.
  • Steps (3) & (4)
  • Assuming that you stay at your own property, your monthly exemption from allowances equals Rs.2,250 (medical + travel + CEA). Therefore, your yearly taxable amount comes to (Rs.80,000 - Rs.2,250)*12, which comes to Rs.9,33,000.
  • Step (5)
  • Let's say you just experienced a loss of Rs.1.5 lakhs on house loan interest repayments over the year. Reducing this exempted amount from the taxable income, your taxable income becomes Rs.7,83,000.
  • Step (6)
  • Suppose you have invested Rs.1.2 lakhs in various categories that fall under Section 80C exemptions, and made another Rs.30,000 investment in categories falling under Section 80D. So, the resulting Rs.1.5 lakhs is exempted from taxes according to Chapter VI-A. Deducting this amount from the gross taxable income calculated above, your taxable income becomes Rs.6,33,000.
  • Step (7)
  • Finding out your tax slab
  • Your final tax breakup according to income slabs listed by the IT department is as follows:
  • Therefore, the final TDS to be deducted on your yearly income is Rs.25,000 + Rs.26,600, which comes to Rs.51,600 for current year's income, or Rs.4,300 per month for the current fiscal.
Income Tax Slabs TDS Deductions Tax Payable
Up to Rs.2.5 lakhs Nil Nil
Rs.2.5 lakhs to Rs.5 lakhs 10% of(Rs.5,00,00-Rs.2,50,00 Rs.25,000
Rs.5 lakhs to Rs.6.33 lakhs 20% of(Rs.6,33,00-Rs.5,00,00) Rs.26,600

What is TDS on Salary?

TDS on salary basically means that tax has been deducted by the employer at the time of depositing the salary into the employee’s account. The amount deducted from the employee’s account is deposited with the government by the employer. Before an employer deducts tax at source from an employee’s salary, he/she must obtain TAN registration. The Tax Deduction and Collection Account Number or TAN number is essentially a 10-digit alphanumeric number that is used to track TDS deduction as well as remittance by the Income Tax Department.

Calculate TDS From Salary
How to Calculate TDS on Salary

What is TDS Calculated on?

The CTC quoted to you at the time of joining includes components such as basic salary, travel allowance, house rent allowance, medical allowance, dearness allowance, special allowances and other allowances. The CTC is divided into two major categories : salary and perquisites. Perquisites, or perks as they are popularly called, include facilities and benefits provided by the employer towards expenses such as traveling, canteen and fuel subside, hotel expenses and so on.

How is TDS calculated?

Calculate TDS From Salary
Calculate TDS from Salary

The government allows tax exemption under Section 80C and 80D. This allows an individual to seek for exemption on tax based on various types of investment he/she is making for that particular financial year. The TDS on salary can be calculated by reducing the exemption from total annual earning as specified by the Income Tax department. The employer is required to obtain a declaration and proof from individuals to approve tax exemption. The following categories are considered for exemption:

  • House Rent Allowance - If an employee is paying towards accommodation as rent and entitled for HRA from the employer, the employee can declare this amount for tax exemption.
  • Conveyance or Travel Allowance - If an employee is provided with conveyance allowance, the employee can declare them for tax exemption.
  • Medical Allowance - If an employee is entitled to a medical allowance, he/she can declare and produce medical bills for tax exemption.

There are limits to the maximum amount that can be considered for exemption.

TDS Deductions

The following process is involved in the deduction of TDS:

  • Calculating total earning - The employer is required to calculate the total earning of the employee.
  • Calculating total amount eligible for the exemption - The employer is accountable for calculating the total amount that is considered for tax exemption. The employee needs to declare the type of amount that is eligible for exemption.
  • Obtaining declaration and investment proof - The employer is required to collect investment and proofs from employees
  • Depositing TDS deductions - The employer will require depositing the collected TDS to the central government.

Section 80C

An employee can declare for a maximum of Rs.1,50,000 for tax exemption. The following investments schemes are considering for exemption under 80C:

  • Investment in mutual funds and equity shares, such as ULIP, Linked Saving Scheme of a Mutual Fund/UTI
  • Life insurance Premium paid
  • Contribution to statutory PF, 15 years P.P.F., and superannuation funds
  • Payments towards subscription for National Saving Certificates and Home Loan Account Scheme
  • Interest earned through few of the National Savings Certificates are eligible for a certain amount of tax
  • Fixed deposit scheme for a period of minimum 5 years

Section 80CCG

An employee is eligible for a maximum of Rs.25,000 annual exemption if the employee has made an investment under certain equity saving schemes. The investment should be made for at least 3 years from the date of scheme acquisition.

Section 80D

The section 80D offer exemption for the premiums paid for a Medical Insurance. The exemption is also extended to the individual's dependents.

There are various other Sections that regulates many other types of exemptions.

Frequently Asked Questions

  1. What is the TDS rate for FY 2017-18?
  2. For individuals under 60 years of age, the tax rate for income up to Rs.2.5 lakh is nil. The tax for income between Rs.2.5 lakh and Rs.5 lakh is 5%. The rate for income between Rs.5 lakh and Rs.10 lakh is 20%. The rate for income in excess of Rs.10 lakh is 30%.

    For individuals between 60 and 80 years of age, the rate for income up to Rs.3 lakh is nil. The rate for income between Rs.3 lakh and Rs.5 lakh is 5%. The tax rate for income between Rs.5 lakh and Rs.10 lakh is 20%, and the rate for income in excess of Rs.10 lakh is 30%.

    For individuals above 80 years of age, income up to Rs.5 lakh is exempt from tax, while income between Rs.5 lakh and Rs.10 lakh is 20%, and income above Rs.10 lakh is charged at 30%.

    Surcharge will be applicable for individuals who earn income in excess of Rs.50 lakh, and a 3% cess is also applicable on tax plus surcharge.

  3. Can HRA be claimed as a deduction when calculating TDS?
  4. Employees will have to declare the amount paid as rent and it can be claimed as an exemption.

  5. How much deduction can I claim under Section 80C when calculating TDS?
  6. The maximum amount that can be claimed under Section 80C of the Income Tax Act is Rs.1.5 lakh.

  7. What items are allowed for TDS exemption?
  8. The following items are eligible for exemption:

    • PPF (Public Provident Fund)
    • ELSS (Equity Linked Savings Scheme)
    • Contribution to EPF (Employees Provident Fund)
    • Bank FDs
    • NSC (National Savings Certificate)
    • Premiums paid towards life insurance policies
    • Repayment of home loan principal amount
    • Transport allowance
    • House Rent Allowance
    • Savings under Section 80C of the Income Tax Act, 1961
  9. What are the items on which deductions can be claimed under Section 80C?
  10. Here is a list of items on which deductions can be claimed under Section 80C:

    • Investment in Public Provident Fund
    • National Savings Certificate
    • Employee’s share of Provident Fund contribution
    • Premium payment towards life insurance policies
    • Tuition fees of children
    • Home loan principal repayment amount
    • Unit linked insurance plans
    • Equity linked savings schemes
    • Investment in Sukanya Samriddhi Account
    • Amount paid to buy deferred annuity
    • Senior Citizens savings scheme
    • 5-year deposit scheme
    • Subscription to notified deposits scheme / notified securities
    • Subscription to National Housing Bank’s Home Loan Account Scheme
    • Contribution to LIC’s notified annuity plan
    • Subscription to deposit scheme of companies involved in offering housing finance or public sector companies
    • Contribution to notified Pension Fund set up by UTI or Mutual Fund
    • Subscription to NABARD’s notified bonds
    • Subscription to debentures / equity shares of approved eligible issues

News About How to Calculate TDS from Salary

  • Salaried Class Content with Tax Reduction After Having High Hopes

    The salaried class expressed its joy at the reduction of the tax rate from 10% to 5%, but maintained that the government could have lowered it further. One of the teachers from a private-aided school, Rajesh Pandya, revealed that many including himself were waiting for the government to take such a step, and that they are happy now that it has finally been taken. Mr Pandya added that although the government has reduced tax, it continues to tax individuals in the forms of various cesses. He said that such forms of taxes could be removed, adding that Maharashtra is among the few states that also charges a ‘professional tax’ to add to other taxes. Many salaried individuals were of the same opinion and were relatively happy with the reduction in taxes, but expected more from the budget meeting.

    7 February, 2017

  • TDS not valid for MACT compensation

    The Madras High Court in Chennai has ruled that TDS is not applicable on compensation awarded under the Motor Accident Claim Tribunal or on the interest accrued by this compensation amount.

    The debate centered around the question whether compensation received under MACT by any accident victim should be considered as taxable income or not. The Chennai High Court however, was quite clear on its stand and has denied classifying this compensation as taxable income. Justice MV Muralidharan was the judge who passed this judgement. The court said that the Motor Vehicles Act has been enacted to offer financial compensation to victims and their family whereas the Income Tax Act is primarily intended for tax collection. Hence, the two cannot be mixed and any compensation amount under MACT and any interest accrued on the same is not to be considered as taxable income.

    8 June, 2016

  • Draft Guidelines on Foreign Tax Credit revealed by Government

    Overseas income has always been a source of confusion in the country, with both corporates and individuals with such income finding it hard to get clarity on taxes in such cases. The government, in a bid to ease this confusion has released a set of new draft proposals, termed Foreign Tax Credit (FTC) rules. These new rules will allow an assessee credit on the tax paid by him/her in a foreign country ensuring that double taxation is avoided.

    Entities can utilise this credit against Minimum Alternate Tax, surcharge and cess in India, with the exemptions being any penalty, fee or interest on tax paid in a foreign country. Assessees can claim this credit by submitting a certificate issued by the tax agency of the country in which they paid the tax, indicating the amount paid and the source of income for said tax.

    For Tax Deducted at Source (TDS) on Salary requires to revise to allow taking the foreign tax credit to deduct tax from salaries of foreign working employees in India.

    19 April, 2016

  • IT Department Issues Notices to Companies for Failure to File Returns on TDS

    Over 1,000 firms received notices calling for reasons why tax returns pertaining to TDS were not filed. Promoters of start-ups also received these notices. Recipients are required to provide information supporting TDS payments made from 2012 - 2015 along with satisfactory explanations for not filing returns as required. A number of government companies are also under the IT department scanner for non-filing of TDS returns.

    Non-filing or delay in filing of TDS returns beyond one year of the filing date attracts penalties ranging from Rs.10,000 to Rs.1 lakh. An estimated Rs.1,000 crore is due from defaulters. IT officials are not just looking at collecting penalties but also prosecuting defaulters.

    3 September, 2015

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