TDS on Salary: How It Works, How Employers Calculate It, and What Employees Must Do

TDS on salary is the most common form of tax withholding in India. Your employer deducts tax each month from your salary, deposits it with the government, and issues Form 16 at year-end. Understanding how this works helps you ensure the right amount is deducted — not too much (you lose cash flow) and not too little (you face penalties).

How Employers Calculate TDS on Salary

1. Estimate annual salary income (projected for the full year)
2. Add: Any other income disclosed by employee (rental, FD interest, etc.)
3. Subtract: Exemptions under Section 10 (HRA, LTA, children education)
4. Apply standard deduction of ₹75,000
5. Subtract: Professional tax paid
6. Subtract: Chapter VI-A deductions declared via Form 12BB (80C, 80D, NPS, etc.)
7. Compute tax on net taxable income at applicable slab rates
8. Divide annual tax by 12 — deduct this amount monthly from salary

Form 12BB: Declaration for TDS Purposes

Form 12BB is the declaration form you submit to your employer for TDS optimization. Submit it at the start of the financial year (April) and update if your investments change. It includes: HRA claimed (with landlord details if rent > ₹1 lakh/year), LTA claimed, home loan interest (Section 24b), all Chapter VI-A investments (80C, 80D, 80E, 80G, NPS under 80CCD(1B)). Without Form 12BB, employer deducts TDS without considering your deductions — leading to excess TDS.

New Regime vs Old Regime TDS

From FY 2024-25, the new regime is the default for TDS calculation. If you want old regime (with deductions), you must explicitly opt for it by submitting a declaration to your employer. If you don't declare, employer calculates TDS under new regime — you can still claim old regime when filing ITR, but your Form 16 will show new regime computation.

Common TDS Errors and How to Fix Them