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One of the main components of salary taxation is TDS on salary or Tax Deducted at Source on salary. The salary you get each month is generally lower than the CTC mentioned at the time of your hiring. This is because taxes are deducted from your gross salary before you receive it. 

The applicable rate of Tax Deducted on Source on salary determines the amount you get as monthly compensation. However, the tax authorities adjust TDS against your total tax liability. 

To know more about this and how to calculate TDS on your salary, read on.

TDS on Salary: An Overview 

TDS is a form of tax deducted by the payer when making the payment that is treated as income. As per the Income Tax Act of 1961, the payer must deduct a percentage of the total amount as TDS and deposit it to the IT authorities. The TDS percentage for salary depends on the income tax slab you fall under.

In the case of Tax Deducted at Source on salary, the employer needs to deduct TDS from your gross salary before making payment of the monthly dues. As per Section 192 of the Income Tax Act, TDS is compulsory and applicable to your regular salary as well as any advance or arrears. 

The annually issued Form 16 reflects Tax Deducted at Source on salary. However, the total taxable value is zero if your income is below the basic exemption limit. Here is the basic exemption limit for different age groups:

• Indian residents under 60 years of age: ₹2.5 lakhs 
• Indian resident seniors between 60 and 80 years of age: ₹3 lakhs
• Indian resident seniors above 80 years of age: ₹5 lakhs

TDS on Salary Calculation 

Your salary slips generally mention TDS. However, if you wish to calculate the value of TDS deducted from your salary manually, you can follow these steps. 

1. Step 1: Calculate your total earnings for the year of assessment. Apart from your basic salary, your earnings will also include perks, commissions, bonuses, etc.
2. Step 2: Calculate your gross monthly salary by adding your basic salary with all other allowances and perks. Multiply this by 12 to compute your annual gross income. 
3. Step 3: Compute your annual taxable income by deducting all the exemptions allowed as per Section 10 of the Income Tax Act from your annual gross income.
4. Step 4: Add the amount of income from any other source (house rent property, interest income, etc.) to the amount from the previous step.
5. Step 5: Subtract all the exemptions available under Sections 80C and 80D (i.e., up to ₹1.5 lakhs in a financial year on your investment in PPF, NPS, ELSS, etc.) from that amount.
6. Step 6: The basic salary component of your monthly income is fully taxable. However, some exemptions are available that you can avail of on perks and allowances. Subtract these exemptions from the amount obtained in the previous step to get your total taxable income.
7. Step 7: TDS applies to your salary at the applicable income slab rates based on the tax regime you choose.

Who is Liable to Deduct TDS on Salary?

The employer is responsible for deducting TDS on salary at the time of paying salary to the employee. Employers can only deduct TDS when making the actual salary payment if the employee’s salary exceeds the taxable income limit. If your salary is below or equal to ₹2.5 lakhs, employers will not deduct TDS from your salary. 

Here are the employers who are liable to make TDS deductions on salary:

• Individuals
• Partnership firms
• Public or private companies
• HUFs (Hindu Undivided Families)
• Trusts
• Co-operative societies

When is TDS Deducted Under Section 192?

Under Section 192, an employer is liable to deduct TDS from an employee’s salary while paying their salary. Therefore, they deduct TDS every month since the employees receive their salaries monthly. The employer may have to face penalties and interest charges in case they fail to deduct TDS. 

Now that you know about TDS on salary, you can plan your income and expenses along with the taxes based on this deduction. A large tax burden can sometimes strain your finances. However, you can get funds for all your financial needs with Fibe.  

Fibe’s Instant Personal Loan offers up to ₹5 lakhs and you can qualify for them with ease as a salaried employee. Download our Instant Loan App or log in to our website to enjoy convenient access to funds.

FAQs on TDS on Salary

How to calculate TDS on salary with an example?

Suppose that you are below the age of 60 years and after all deductions, your gross taxable income is ₹10 lakhs. In this case, your total tax as per the slab plus 4% cess will amount to ₹1,17,000. 

If the employer deducts TDS across the 12 months, your total monthly TDS will come to ₹9,750 as per the old regime. For ease and speed, you can use the TDS calculator on the Income Tax website.

What is the formula for calculating TDS on salary?

To calculate TDS on salary, you first need to calculate your annual gross income by adding all the perks, commissions, allowances, etc., to your basic salary. Deduct all the exemptions available under different sections of the Income Tax Act after adding income from any other source. 

This would be the total taxable income based on which your tax slab will decide the rate of TDS on your salary.  

How much TDS is deducted from salary?

As per Section 192 of the Income Tax Act of 1961, the TDS amount depends on the income tax bracket applicable to you.

Who pays TDS on salary?

The employer is liable to deduct TDS at the time of payment of salary to the employee and pay it to the Income Tax authorities.

How can I avoid TDS on my salary?

You cannot avoid TDS on your salary unless your income is under the minimum taxable threshold. However, you can reduce TDS by submitting investment proofs, insurance premium receipts and proof of other allowances and deductions to your employer at the start of the financial year. 

Can I get a TDS refund on my salary?

Yes, if you have paid tax in excess, you can file for an Income Tax Return and get a refund.

When carrying out the tax management process and compiling various forms and slips, one thought that arises in every employee’s mind is about the tax-saving options for salaried professionals. So, if you, too, are wondering how to make the most of tax benefits for salaried employees, you are not alone.

The good news is that numerous means of saving tax are specified under certain sections of the Income Tax Act. However, the exemptions and deductions that you can get depend on certain factors, which include:

• Your chosen tax regime (old or new)
• Applicable tax slab
• Total taxable income

To maximise your tax deductions, initiate the tax planning and management of your funds by keeping these factors in mind. 

Useful Tips on Tax Planning for Salaried Employees

Tax planning and management are vital for all salaried taxpayers. Here are some of the useful tax planning tips for salaried employees: 

Take Advantage of Tax-Free Components on Salary

Some components in your salary structure fall under the exemption and deduction provisions under the Income Tax Act. These include: 

• House rent allowance under Section 10(13A)
• Education Allowance under Section 10(14)
• Leave Travel Allowance

Invest in Tax Deductible Schemes

Many schemes provide tax benefits under Sections 80C, 80D and 24. These instruments include:

• Employee’s Provident Fund
• Public Provident Fund
• National Pension Scheme
• Medium Insurance Plan

File Tax on Time

File your returns well in advance to avoid last-minute issues and penalties for late filing. You can file your tax conveniently online through the Income Tax Department’s e-filing portal.   

Also Read: Tax saving investment options in India

Top Tax-Saving Options for Salaried Employees

Tax planning for salaried employees requires a little forethought. By putting in some time and effort you can choose the best tax-saving avenues as per your needs. Here are some of the most popular means by which you can save tax as a salaried employee. 

1. Employees’ Provident Fund

• The contribution to this government-backed fund is mandatory for companies employing over 20 employees or those who have volunteered for EPF registration. 
• It offers an easy way to save and build a corpus for retirement. 
• You need to make contributions of up to 12% of your basic salary and dearness allowance towards this scheme, with the employer matching the contribution amount. 
• Your EPF contributions fall under Section 80C of the IT Act, allowing you a deduction of up to ₹1.5 lakhs. 
• Any interest you earn from your EPF account over ₹2.50 lakhs is taxable and subject to TDS. 

2. Public Provident Fund

• Another important component of tax management for salaried employees is investing in the Public Provident Fund (PPF). 
• Unlike EPF, anyone can contribute to PPF as this is not linked to an employer. 
• It is a great way to earn risk-free returns and save for retirement, as the scheme’s tenure is 15 years. 
• The PPF scheme enjoys an EEE status or triple level of exemption. 
• At the first level, the contributions you make towards the scheme annually are exempt from tax of up to ₹1.5 lakhs as per Section 80C. 
• At the second level, the interest you earn annually is tax-free. 
• The amount that you withdraw upon the end of your PPF tenure is also not subject to taxes. 

3. Equity Linked Savings Scheme 

• ELSS offers higher wealth accumulation possibilities. 
• It is a type of mutual fund that comes with a lock-in period of three years. 
• The scheme is called so because 65% of the asset allocation is made towards equity or equity-linked securities, making it subject to market risk.
• Under Section 80C, ELSS allows you to enjoy tax benefits up to ₹1.5 lakhs. 
• You do not have to pay any Long-Term Capital Gains Tax (LTCG) if your returns are ₹1 lakh and below. 
• Additionally, you do not pay any tax on what you receive as a dividend. 

4. House Rent Allowance and Others  

• House Rent Allowance or HRA is a component of your salary that is available to you if you live in a rented home. 
• Under certain conditions, you can enjoy partial or full exemption on your tax liabilities towards HRA. 
• Under Section 10(13A) of the Income Tax Act, you can deduct HRA from your taxable income. 
• The HRA receivables are fully taxable if you don’t live in a rented residence. 

HRA, however, isn’t the only allowance you can enjoy. Some of the other ways to access tax benefits for salaried employees are via components such as:

• Standard deduction
• Leave travel allowance 
• Meal coupons 
• Relocation allowance 
• Education allowance for kid’s fees 
• Allowances related to reimbursement of expenses for phone, newspapers and more

5. Deductions Related to Loans and Health Premiums 

Apart from salary-based allowances and investments covered under Section 80C, 80CCC and 80CCD, certain credit facilities also offer tax-saving options for salaried and non-salaried persons. These include:

• You can get deductions on the principal repayment and interest payment up to the limit specified in the IT Act if you have a home loan. 
• If you are repaying an education loan, you can get a deduction on the interest you pay annually. 
• You can benefit from the premiums you pay for health insurance policies for yourself, your spouse and your kids, as well as your parents. 
• These benefits can go up to ₹1 lakh if you and your parents are above 60 years of age.
• What’s more, health check-ups come under this total limit (up to ₹5,000), as do premiums paid by your employer on your behalf. 

While these are some of the best tax-saving options for salaried individuals, there is a lot more you can benefit from in terms of the following: 

• Donations
• Having a savings account and receiving a gratuity, gifts and gym benefits
• Transport facilities from your employer

So, make sure to carry out tax planning for salaried employees methodically and in advance. In order to meet any of your financial goals, don’t break your investments or stop paying health insurance premiums. Instead, you can bank on Fibe’s Instant Personal Loan up to ₹5 Lakhs stress-free. Download our Personal Loan App or log in to our website to enjoy simple and easy access to funds. 

FAQs on Tax Saving Options for Salaried Employees 

How to do tax planning for salary income?

When carrying out tax management for salaried employees, keep in mind some factors that influence your tax benefits. These include: 

• Salary structure and allowances 
• Tax regime
• Taxation slab 
• Taxable income

You can choose investments and claim deductions that maximise your tax benefits based on these factors.

How can salaried employees reduce taxes?

They can reduce taxes by making the most of allowances and investing in tax-saving instruments such as: 

• ELSS
• National Pension Scheme (NPS)
• Tax-Saving FD
• Tax-Saver Fixed Deposit (FD)
• National Savings Certificates (NSC) 

How do you calculate tax for salaried employees?

Follow these simple steps:

• Arrive at your total taxable income after subtracting all deductions, allowances and exemptions from the gross income. 
• Get the taxable amount after applying the applicable tax rate as per your slab.

How to save tax on a ₹7 lakh salary?

You can avoid paying tax completely by choosing the old regime and investing in instruments such as:

• ELSS
• NPS
• PPF
• EPF, etc.