Table of Contents
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.
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.
As per the steps outlined above, let’s consider a numeric example for better understanding.
- Steps (1) & (2)
- Steps (3) & (4)
- Step (5)
- Step (6)
- Step (7)
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.
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.
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.
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.
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|
New Income Tax Regime for Individuals
As per the latest announcements made by Finance Minister Nirmala Sitharaman for the Budget of Financial Year 2020-21, a new tax regime has been introduced. Based on the new tax regime, the rates of charging the income tax have been reduced. However, the catch is that under the new regime, taxpayers will not be able to avail the benefits of the usual deductions and allowances such as HRA, standard deductions, etc.
The tax rates as per the new regime are listed below:
|Income Tax Slab||New Tax Rate|
|Up to Rs.2.5 lakh||Nil|
|From Rs.2,50,001 to Rs.5 lakh||5% of the total income that is more than Rs.2.5 lakh + 4% cess|
|From Rs.5,00,001 to Rs.7.5 lakh||10% of the total income that is more than Rs.5 lakh + 4% cess|
|From Rs.7,50,001 to Rs.10 lakh||15% of the total income that is more than Rs.7.5 lakh + 4% cess|
|From Rs.10,00,001 to Rs.12.50 lakh||20% of the total income that is more than Rs.10 lakh + 4% cess|
|From Rs.12,50,001 to Rs.15 lakh||25% of the total income that is more than Rs.12.5 lakh + 4% cess|
|Income above Rs.15,00,001||30% of the total income that is more than Rs.15 lakh + 4% cess|
What is TDS on Salary?
TDS on salary 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 a remittance by the Income Tax Department.
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?
The government allows tax exemption under Section 80C and 80D. This allows an individual to seek 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.
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.
The deduction on TDS under different Section follows below:
- Section 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 PPF, 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
- 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
- Section 80CCG
- Section 80D
An employee can declare for a maximum of Rs.1,50,000 for tax exemption. The following investments schemes are considering for exemption under Section 80C:
Here is a list of items on which deductions can be claimed under Section 80C:
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.
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.
FAQs on Calculate TDS on Salary
- Can HRA be claimed as a deduction when calculating TDS on salary?
- How much deduction can I claim under Section 80C when calculating TDS on salary?
- What are few items are allowed for TDS exemption?
- When is TDS on salary deducted under section 192?
Employees will have to declare the amount paid as rent and it can be claimed as an exemption.
The maximum amount that can be claimed under Section 80C of the Income Tax Act is Rs.1.5 lakh.
PPF, ELSS, EPF, Bank FDs, NSC, Transport allowance, House Rent Allowance and Savings under Section 80C are eligible for exemption
TDS is required to be deducted by the employer, when taxable income of an employee exceeds basic exemption limit