TDS on salary is the income tax your employer deducts from your monthly paycheck and deposits directly with the Income Tax Department on your behalf. Think of it as advance tax spread across 12 monthly installments instead of one lump-sum payment at year-end. Get TDS right throughout the year and there are no surprise tax dues, or interest charges, when you file your ITR.
This guide walks through the TDS on salary process for FY 2026-27, from how employers estimate your taxable income to how you verify deductions in Form 26AS.
What you need before you start:
- Your offer letter or salary structure (basic, HRA, LTA, special allowance)
- Investment details you plan to declare (PPF, ELSS, LIC, home loan statement, rent receipts)
- Your PAN linked to your employer's payroll
- Access to the income tax portal (incometax.gov.in) for Form 26AS
Step 1: Employer Estimates Your Annual Taxable Salary
At the start of each financial year, in April, your employer's payroll team projects your total salary income for the full year. This includes basic salary, dearness allowance, HRA received, special allowances, bonuses, and any other taxable components.
From the projected gross salary, they subtract:
- Standard deduction: Rs 50,000 flat (available under both old and new tax regimes for FY 2026-27)
- HRA exemption: If you live in rented accommodation and your employer pays HRA, the exempt portion works out to the least of: actual HRA received, 50% of basic salary (metro cities) or 40% (non-metro), or actual rent paid minus 10% of basic salary
- LTA exemption: Leave Travel Allowance for eligible travel is exempt twice in a block of four calendar years
- Professional tax: Deducted if applicable in your state
What's left is your estimated taxable salary income for the year, the number all TDS calculations are based on.
Step 2: Submit Form 12BB to Declare Investments
Form 12BB is the investment declaration form you submit to your employer. It tells your employer which deductions to factor into your TDS. Skip it, and your employer calculates TDS on a higher taxable income than necessary.
What to declare in Form 12BB:
| Declaration | Section | Annual Limit |
|---|---|---|
| PPF, ELSS, EPF employee share, LIC, NSC | 80C | Rs 1,50,000 |
| Home loan interest (self-occupied) | 24(b) | Rs 2,00,000 |
| NPS (additional contribution) | 80CCD(1B) | Rs 50,000 |
| Health insurance premium | 80D | Rs 25,000-Rs 1,00,000 |
| HRA (rent receipts) | 10(13A) | As computed |
Submit Form 12BB at the start of April. If your investment plans change during the year, say you start a home loan in August or increase your ELSS SIP, update your declaration right away so your employer can recalculate TDS going forward.
Old regime vs new regime: The new regime carries lower slab rates but disallows most deductions (80C, 80D, HRA, home loan interest). The old regime allows all deductions but comes with higher slab rates. Let your employer know which regime you're choosing, since that determines whether your Form 12BB declarations actually reduce your TDS.
Step 3: Employer Calculates Annual Tax Liability
With estimated taxable income in hand, your employer applies the applicable income tax slabs for FY 2026-27.
New regime slabs (FY 2026-27):
| Income slab | Tax rate |
|---|---|
| Up to Rs 4,00,000 | Nil |
| Rs 4,00,001 - Rs 8,00,000 | 5% |
| Rs 8,00,001 - Rs 12,00,000 | 10% |
| Rs 12,00,001 - Rs 16,00,000 | 15% |
| Rs 16,00,001 - Rs 20,00,000 | 20% |
| Rs 20,00,001 - Rs 24,00,000 | 25% |
| Above Rs 24,00,000 | 30% |
After computing the base tax, the employer adds Health and Education Cess at 4% on the tax amount. Surcharge gets added on top for income above Rs 50 lakh, where applicable.
Example: Taxable salary = Rs 12,00,000 (old regime with Rs 1,50,000 in 80C deductions reducing from Rs 13,50,000). Tax under old regime = Rs 1,17,500 + 4% cess = Rs 1,22,200 annual tax liability.
The Income Tax Calculator lets you run this yourself and cross-check your employer's calculation.
Step 4: Monthly TDS = Annual Tax ÷ 12
Once the annual tax liability is settled, your employer divides it equally across the 12 months of the financial year.
Formula:
Monthly TDS = Annual tax liability ÷ Remaining months in financial year
Join a company in July and the annual tax gets divided by 9 (July through March), not 12. Leave mid-year and your employer issues Form 16 for the period you were employed, with your new employer picking up the calculation for the remaining months.
Example from Step 3: Annual liability = Rs 1,22,200. Monthly TDS = Rs 1,22,200 ÷ 12 = Rs 10,183 per month.
This amount shows up on your salary slip as "Income Tax" or "TDS" under deductions. The TDS Calculator lets you verify the monthly figure matches what's on your payslip.
Step 5: Verify TDS in Form 26AS
Form 26AS is your consolidated tax credit statement on the income tax portal. It shows all TDS deducted from your income and deposited with the government against your PAN, whether by your employer, bank, or any other deductor.
How to access Form 26AS:
- Log in to incometax.gov.in with your PAN and password
- Go to "e-File" → "Income Tax Returns" → "View Form 26AS"
- Select the relevant Assessment Year (AY 2027-28 for FY 2026-27)
What to check:
- TDS amount matches your salary slips for each month
- Your employer's TAN (Tax Deduction Account Number) is correctly shown
- TDS has been deposited: "F" status means final, "U" means unmatched, which is a problem
Run this check in September, after Q1 and Q2 TDS filings, not just at year-end. Unmatched or missing entries in Form 26AS mean the tax credit won't show up when you file your ITR, and you could end up paying twice.
Step 6: Adjust TDS in February-March
If you made investments late in the year, say you bought ELSS in January or paid home loan principal in February, submit updated proof to your employer before their deadline, usually the first week of February.
Your employer recalculates the remaining annual tax after factoring in your newly declared investments. If TDS already deducted exceeds the revised liability, they reduce TDS in the last months. If there's a shortfall, because you didn't declare enough investments or your income went up, the balance gets deducted across February and March, which can feel heavy on those payslips.
If TDS is still short after March payroll: you'll need to pay the balance as advance tax (by 15 March) or self-assessment tax before filing your ITR to avoid interest under Sections 234B and 234C.
TDS on Other Income
TDS on salary (Section 192) runs separately from TDS on other income types:
- Fixed deposit interest: the bank deducts TDS at 10% if total interest from all FDs with that bank exceeds Rs 40,000 in a financial year (Rs 50,000 for senior citizens). Submit Form 15G (below 60) or Form 15H (60+) if your total income falls below the taxable limit.
- NRO account interest: TDS at 30% plus surcharge and cess on all interest credited to NRO accounts.
- Rent income: if rent exceeds Rs 50,000 per month, the tenant must deduct TDS at 5% under Section 194IB.
These TDS amounts also appear in Form 26AS and get credited against your total tax liability when you file your ITR.
What Happens If TDS Is Less Than Your Actual Tax?
If your total tax liability for the year exceeds the TDS deducted, whether from a bonus, freelance income, or under-declared investments, you owe the difference to the government.
Options:
- Advance tax: pay in installments by 15 June, 15 September, 15 December, and 15 March of the financial year. Pay at least 90% of total tax liability by 15 March to sidestep Section 234B interest.
- Self-assessment tax: pay the balance before filing your ITR. Interest applies from 1 April of the assessment year.
Interest under Section 234B runs 1% per month (simple interest) on the unpaid tax. On a Rs 50,000 shortfall, that's Rs 500 a month, easy to avoid with mid-year checks using the Income Tax Calculator.
Key Terms
- TDS: Tax Deducted at Source, tax collected at the point of payment by the payer on behalf of the government
- Form 16: Certificate issued by your employer showing TDS deducted and deposited for the financial year; required for ITR filing
- Form 26AS: Consolidated tax credit statement showing all TDS, advance tax, and self-assessment tax paid against your PAN
- Advance Tax: Tax paid in installments during the financial year when TDS alone doesn't cover the full liability