TDS on Salary Calculation — Section 192 Step-by-Step Guide

Updated: 3 June 2026 | Income-tax Act, 2025 / 1961 — Section 192 | CBDT Circular 04/2023 | Tax Year 2026-27

Under Section 192, every employer is required to deduct TDS on salary income at the applicable slab rates. The employer estimates the employee's annual taxable income, applies the slab rates to arrive at annual tax, adds 4% health & education cess, and divides by 12 to get the monthly TDS deduction. From FY 2023-24, the new tax regime is the default — the employee must opt out in writing to use the old regime.

÷ 12

Annual tax liability divided by 12 = Monthly TDS on salary
Adjusted in Q3/Q4 if actual investments differ from declared in Form 12BB

⚠

New regime is default from FY 2023-24. Employers deduct TDS under the new tax regime unless the employee submits a written declaration opting for the old regime. Submit your preference to HR at the start of the financial year.

Step-by-Step: How Employers Calculate TDS on Salary

The following example uses a ₹12 lakh CTC employee under the old tax regime for Tax Year 2026-27. Figures are illustrative.

Step	Description	Amount (₹ p.a.)
STEP 1	Gross Salary (CTC components paid) Basic + HRA + Special Allowance + Bonus (estimated). CTC minus employer PF/gratuity.	12,00,000
STEP 2	Less: Exempt Allowances (Old Regime only) HRA exemption (Section 10(13A)) — lower of: actual HRA received, 50%/40% of basic, rent paid minus 10% of basic. Also: LTA exemption, transport allowance (up to limit).	− 1,80,000
STEP 3	Less: Standard Deduction ₹75,000 under new regime (Budget 2024); ₹50,000 under old regime for Tax Year 2026-27.	− 50,000
STEP 4	Less: Chapter VI-A Deductions (Old Regime) Section 80C investments declared in Form 12BB (PPF, ELSS, EPF, LIC etc.) — max ₹1.5L. Plus 80D (health insurance), 80CCD(1B) NPS, 80E education loan interest etc.	− 1,50,000
STEP 5	Net Taxable Income Gross salary minus all exemptions and deductions above.	8,20,000
STEP 6	Apply Old Regime Slab Rates → Annual Tax ₹0–2.5L: Nil; ₹2.5L–5L: 5% = ₹12,500; ₹5L–10L: 20% = ₹64,000; Total base tax = ₹76,500. Add 4% cess = ₹3,060. Total = ₹79,560.	79,560
STEP 7	Monthly TDS = Annual Tax ÷ 12 ₹79,560 ÷ 12 = ₹6,630 per month. This amount is deducted each month from salary.	6,630 / month

New Regime vs Old Regime TDS — Same ₹12L Salary

Parameter	New Regime (Default 2026-27)	Old Regime (Opt-out required)
Gross CTC	12,00,000	12,00,000
Standard Deduction	− 75,000	− 50,000
HRA Exemption	Not available	− 1,80,000
Section 80C	Not available	− 1,50,000
Net Taxable Income	11,25,000	8,20,000
Income Tax (before cess)	~1,12,500	~76,500
Tax + 4% Cess	~1,17,000	~79,560
Monthly TDS	~9,750	~6,630
Better for	Employees with few deductions / investments	Employees with high HRA, 80C, 80D investments

Form 12BB — Employee Investment Declaration

Form 12BB is the investment declaration form submitted by an employee to the employer at the start of each financial year. Based on this declaration, the employer computes TDS for the year. It covers:

HRA

HRA Exemption Details

Name and address of landlord, monthly rent paid. PAN of landlord required if annual rent exceeds ₹1 lakh. HRA exemption is calculated by the employer based on this data.

80C / 80D

Chapter VI-A Investments

PPF, ELSS, LIC premium, home loan principal, school fees, 80D health insurance premium, 80CCD NPS, 80E education loan — amounts declared upfront. Proof required at year end (October–November typically).

HOME LOAN

Interest on Home Loan (Section 24b)

Deduction up to ₹2 lakh for interest on self-occupied property loan — only under old regime. Submit lender's provisional interest certificate. Reduces taxable income directly (not via 80C).

Q4 TDS Adjustment — How Employers Reconcile

In January–March (Q4), employers ask employees to submit actual investment proof. The employer recalculates the annual tax based on actual investments and compares it with TDS already deducted (April–December). The difference is spread over the remaining salary months:

Scenario	What Happens in Q4
Actual investments = Declared investments	No change; TDS continues at same monthly rate
Actual investments < Declared (over-declared)	Higher TDS deducted in remaining months to recover shortfall
Actual investments > Declared (under-declared)	Lower TDS in remaining months; possible refund if over-deducted
New investment proof submitted late	Employer may accept until 31 March; TDS adjusted in final salary

Income-tax Act, 2025 note: Section 192 under the Income Tax Act, 1961 corresponds to the TDS on salary provision in the Income-tax Act, 2025 (effective from Tax Year 2026-27 i.e. Assessment Year 2027-28). The mechanism — employer estimating income, applying slabs, deducting monthly — remains identical. Section numbers have been renumbered in the 2025 Act; continue using "Section 192" in Form 16 and TDS returns for Tax Year 2025-26 and earlier.

Frequently Asked Questions

Can I switch from new regime to old regime mid-year for TDS purposes?

Salaried employees can switch tax regime once during the financial year by informing their employer in writing. However, the employer is only required to process one switch per year. If you want to switch from new to old regime (or vice versa), submit a revised declaration to your HR/payroll team before they finalise the TDS computation. Note: the final switch can still be made when filing your ITR, even if the employer deducted under a different regime.

What if my employer refuses to accept my old regime declaration?

From FY 2023-24, the new tax regime is the default. The employer deducts TDS under the new regime unless the employee specifically opts out by submitting a written declaration. If your employer refuses your old regime opt-out, escalate to HR/payroll with reference to CBDT Circular No. 04/2023. If still unresolved, you can pay the difference yourself as Advance Tax or Self-Assessment Tax and claim the excess TDS as refund when filing your ITR.

What should I do if I did not receive Form 16 from my employer?

Form 16 (TDS certificate for salary) must be issued by the employer by 15 June of the following financial year. If not received: (1) Request in writing to HR/payroll; (2) Check Form 26AS and AIS on the Income Tax portal — TDS deducted by employer will reflect there; (3) You can still file your ITR using salary slips, Form 12BB, and 26AS data; (4) If TDS is not deposited by employer (reflects in 26AS as uncredited), file your return claiming the deduction and report the employer to the TDS assessing officer.

What happens if excess TDS is deducted from my salary?

Excess TDS deducted from salary is fully recoverable. When you file your ITR, the total TDS deducted (per Form 26AS) is credited against your tax liability. If TDS exceeds your actual tax payable, the difference becomes a refund, which is automatically processed by the Income Tax Department and credited to your bank account. Ensure your pre-validated bank account is linked on the IT portal and your ITR is verified to receive the refund.

Does the employer recalculate TDS in the last quarter if my declared investments are different from actual?

Yes. Employers typically reconcile TDS in the third and fourth quarters. If your actual investments (submitted via Form 12BB with proof) differ from what you declared at the start of the year, the employer adjusts the TDS for the remaining months. If you over-declared investments early in the year, you may face a higher TDS deduction in Q4. If you under-declared, TDS in Q4 is reduced. The goal is to match total annual TDS with actual annual tax liability.

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