TDS on salary under Section 192 (now under the Income Tax Act 2025, effective 1st April 2026) requires employers to estimate each employee’s total annual taxable income, apply the tax regime they’ve chosen (new regime is the default for FY 2026-27), account for declared deductions, and withhold the resulting tax in equal monthly installments across the year. TDS must be deposited by the 7th of the following month (30th April for March), and quarterly TDS returns are filed via Form 24Q, with Form 16 issued to employees by 15th June.
In This Guide:
- 1. The Basic Logic — Why TDS on Salary Isn’t a Flat Percentage
- 2. Step-by-Step Calculation Process
- 3. Old vs New Tax Regime — Why the Employee’s Choice Matters
- 4. Deposit Deadlines and Form 24Q Filing
- 5. Form 16 — What It Is and Why the Deadline Matters
- 6. What Happens When TDS Is Deducted Incorrectly
- 7. Frequently Asked Questions
1. The Basic Logic — Why TDS on Salary Isn’t a Flat Percentage
Unlike TDS on many other payments, which apply a fixed percentage, TDS on salary under Section 192 is calculated on each employee’s projected annual income — meaning the employer effectively estimates the employee’s full-year tax liability upfront, then spreads it across the remaining monthly paychecks. This is why a new employee joining mid-year, or an employee getting a raise partway through the year, sees their TDS deduction change — the projection gets recalculated.
2. Step-by-Step Calculation Process
Step 1: Estimate Annual Gross Salary
Project the employee’s total salary for the financial year based on their current CTC structure.
Step 2: Apply the Employee’s Declared Tax Regime
Employees choose between the old regime (with deductions/exemptions) and the new regime (lower rates, fewer deductions) — the new regime is the default if no declaration is made.
Step 3: Subtract Applicable Deductions and Exemptions
Under the old regime, this includes declared investments (Section 80C), HRA exemption, and other eligible deductions submitted by the employee with proof.
Step 4: Calculate Annual Tax Liability
Apply the relevant tax slab rates to the net taxable income after deductions.
Step 5: Divide Into Monthly TDS Deduction
The annual tax liability is spread across the remaining months of the financial year, adjusted each time income or declarations change.
3. Old vs New Tax Regime — Why the Employee’s Choice Matters
| Aspect | Old Regime | New Regime (Default FY 2026-27) |
|---|---|---|
| Deductions/Exemptions | Available — 80C, HRA, LTA, etc., with proof required | Largely not available |
| Tax Rates | Higher slab rates | Lower slab rates |
| Declaration Required | Employee must actively opt in | Default — no action needed |
| Best For | Employees with significant eligible investments/HRA | Employees with fewer deductions to claim |
Employers must collect the employee’s regime choice (and, for the old regime, proof of declared investments) before finalizing their monthly TDS calculation — this is usually done through a declaration form at the start of the financial year, with a final proof-submission window before year-end.
4. Deposit Deadlines and Form 24Q Filing
| Requirement | Deadline |
|---|---|
| Monthly TDS deposit | 7th of following month (30th April for March) |
| Form 24Q — Q1 (Apr-Jun) | 31st July |
| Form 24Q — Q2 (Jul-Sep) | 31st October |
| Form 24Q — Q3 (Oct-Dec) | 31st January |
| Form 24Q — Q4 (Jan-Mar) | 31st May |
5. Form 16 — What It Is and Why the Deadline Matters
Form 16 is the annual TDS certificate employers issue to employees, summarizing salary paid and tax deducted — employees need it to file their own income tax returns. It must be issued by 15th June following the financial year. Missing this deadline attracts a penalty of ₹100 per day, per certificate, under Section 272A(2)(g) — a detail many employers underestimate until it applies to dozens of employees at once.
6. What Happens When TDS Is Deducted Incorrectly
Short-deducting TDS exposes the employer to interest under Section 201(1A) and potential penalties, while employees may face a larger-than-expected tax bill or difficulty claiming refunds if their Form 16 doesn’t match their actual PAN records. This is exactly why accurate regime selection, timely proof collection, and correct monthly recalculation matter more than they might seem to on a month-to-month basis.
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7. Frequently Asked Questions
A: The employer projects the employee’s annual income, applies their chosen tax regime and eligible deductions, calculates the annual tax liability, and divides it into monthly deductions across the remaining months of the financial year.
A: Section 192 (now under the Income Tax Act 2025) is the provision requiring employers to deduct income tax at source from employee salaries and deposit it with the government on the employee’s behalf.
A: At the time of salary payment each month, with the amount deposited to the government by the 7th of the following month (30th April for the month of March).
A: The employer faces interest under Section 201(1A) and potential penalties for short deduction, while employees may face a tax shortfall or difficulty claiming refunds due to Form 16 mismatches.
A: The new tax regime is the default. Employees must actively declare if they want to opt for the old regime, along with supporting proof of any deductions claimed.
A: Form 16 is the annual TDS certificate summarizing salary and tax deducted, which employees need to file their tax returns. It must be issued by 15th June, with a ₹100/day penalty per certificate for late issuance.
A: The core calculation logic and tax slabs remain the same — what changed, effective 1st April 2026, is terminology (Tax Year replacing Assessment Year), section numbering, and return formats like Form 24Q.
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