TDS on Salary in India: A Complete Guide

Tax Deducted at Source (TDS) on salary is the income tax an employer deducts from an employee's salary and deposits with the government. The calculation depends on the tax regime, gross salary, exemptions, standard deduction and rebates. This guide explains the rules for FY 2025-26.

What is the standard deduction for salaried employees?

The standard deduction is a flat reduction from gross salary before tax is calculated.

| Regime | Standard deduction (FY 2025-26) | |---|---| | New regime | ₹75,000 | | Old regime | ₹50,000 |

This is available to all salaried employees and pensioners. It replaces the earlier transport and medical allowances.

What are the new tax regime slabs for FY 2025-26?

The new regime has lower tax rates but fewer exemptions. The slabs for FY 2025-26 are:

| Taxable income | Rate | |---|---| | Up to ₹4,00,000 | Nil | | ₹4,00,001 – ₹8,00,000 | 5% | | ₹8,00,001 – ₹12,00,000 | 10% | | ₹12,00,001 – ₹16,00,000 | 15% | | ₹16,00,001 – ₹20,00,000 | 20% | | ₹20,00,001 – ₹24,00,000 | 25% | | Above ₹24,00,000 | 30% |

What is the Section 87A rebate and marginal relief?

Section 87A gives a tax rebate for resident individuals.

| Regime | Rebate limit | Maximum rebate | |---|---|---| | New regime | Taxable income up to ₹12 lakh | Full tax amount | | Old regime | Taxable income up to ₹5 lakh | ₹12,500 |

The new regime also has marginal relief: if taxable income is just above ₹12 lakh, the tax cannot exceed the income above ₹12 lakh. This avoids a sharp jump in tax.

How much surcharge applies?

Surcharge is an additional tax on high incomes.

| Total income | Surcharge rate | |---|---| | ₹50 lakh to ₹1 crore | 10% | | ₹1 crore to ₹2 crore | 15% | | ₹2 crore to ₹5 crore | 25% | | Above ₹5 crore | 25% (capped) |

A 25% surcharge cap was introduced so the total rate does not exceed a reasonable limit. Health and education cess at 4% is added after surcharge.

What exemptions can be claimed in the old regime?

The old regime allows several deductions under Chapter VI-A of the Income Tax Act:

| Section | Purpose | Common limit | |---|---|---| | 80C | Investments and expenses | ₹1,50,000 | | 80D | Health insurance premium | ₹25,000 (₹50,000 for senior citizens) | | 80E | Education loan interest | Actual interest | | 24(b) | Home loan interest | ₹2,00,000 for self-occupied property | | 10(13A) | HRA exemption | Least of three values |

HRA exemption is the least of: actual HRA received, 40% or 50% of basic salary, or rent paid minus 10% of basic.

What is the difference between Form 16 Part A and Part B?

| Part | Contains | Issuer | |---|---|---| | Form 16 Part A | TDS deducted and deposited quarterly, PAN, employer TAN | Generated from TRACES | | Form 16 Part B | Salary breakdown, exemptions, deductions, tax computation | Employer |

Form 16 must be issued to employees by 15 June of the next financial year.

What is Form 24Q?

Form 24Q is the quarterly TDS return employers file for salary payments. It contains details of salary, deductions, TDS and challans. After FY 2025-26, the government has moved to Form 138 for annual salary reporting in some contexts.

When is TDS deposited and when is the return filed?

| Obligation | Due date | |---|---| | TDS deposit | 7th of next month (for salaries paid in a month) | | Form 24Q Q1 | 31 July | | Form 24Q Q2 | 31 October | | Form 24Q Q3 | 31 January | | Form 24Q Q4 | 31 May | | Form 16 to employee | 15 June |

Worked example

An employee has an annual gross salary of ₹12,00,000. They opt for the new regime and have no other exemptions.

• Standard deduction: ₹75,000
• Taxable income: ₹12,00,000 − ₹75,000 = ₹11,25,000
• Tax calculation:
  • ₹0 to ₹4,00,000: nil
  • ₹4,00,001 to ₹8,00,000: 5% of ₹4,00,000 = ₹20,000
  • ₹8,00,001 to ₹11,25,000: 10% of ₹3,25,000 = ₹32,500
  • Total tax before rebate: ₹52,500
• Section 87A rebate: ₹52,500 (taxable income below ₹12 lakh)
• Net tax payable: ₹0