TDS on Salary — How It's Calculated, Deducted & How to Reduce It (FY 2025-26)

TDS on salary under Section 192 is the most common tax interaction for salaried employees. Your employer estimates your annual tax liability and deducts it proportionally each month. For FY 2025-26, both new and old tax regimes continue — and your employer deducts TDS based on whichever regime you have declared. Understanding this helps you plan investments correctly and claim rightful refunds.

1. What is TDS on Salary?

Under Section 192, every employer paying salary must deduct TDS at the time of payment. There is no fixed TDS rate — the employer estimates total annual income, calculates applicable tax (under the regime you have opted for), and deducts it in equal monthly instalments. Your TDS rate equals your effective income tax rate.

2. How Employers Calculate TDS for FY 2025-26

1. Estimate annual gross salary — basic, HRA, allowances, bonus, perquisites
2. Ask employee to declare tax regime choice (new or old) — new is default
3. Under old regime: subtract HRA, standard deduction (₹50,000), and declared 80C/80D deductions
4. Under new regime: only subtract standard deduction (₹75,000) and NPS employer contribution
5. Calculate tax on net taxable income at applicable slab rates
6. Divide by 12 and deduct monthly

3. Investment Declaration — How to Reduce TDS

At the start of FY 2025-26 (April 2025), employers ask for your investment declaration. Submit maximum realistic deductions — 80C investments, health insurance, HRA, home loan interest. At year end, submit actual proofs.

4. Form 16 and Form 26AS for FY 2025-26

Form 16 — issued by employer by 15th June 2026. Part A shows TDS; Part B shows salary breakup and deductions.

Form 26AS — government record of all TDS across all sources. Always cross-check with Form 16 before filing ITR.

AIS (Annual Information Statement) — more detailed; shows salary, dividends, share sales, property transactions, GST turnover. Download from income tax portal before filing.

5. TDS Mismatch and Notices

• Employer TDS deducted but not deposited — visible in 26AS
• Wrong PAN in Form 16 — TDS credited to wrong person
• Bank FD TDS shown in 26AS but not in ITR
• Two Form 16s from job change not combined properly

6. Getting Your TDS Refund

File your ITR to claim refund when actual tax is less than TDS deducted. Refunds are typically processed within 20–45 days after filing and e-verification. Ensure your bank account is pre-validated on the income tax portal.

7. TDS with Multiple Employers

If you changed jobs during FY 2025-26, inform the new employer about previous salary and TDS by providing Form 12B. Otherwise both employers deduct TDS independently leading to excess deduction — claim the refund while filing ITR by combining both Form 16s.