Tax Deducted at Source on Salary (TDS)
The income tax an employer deducts every month from an employee's salary and deposits with the government on their behalf, under Section 192 of the Income Tax Act.
What it is
Tax Deducted at Source (TDS) on salary is the mechanism through which an employer estimates an employee's total tax liability for the financial year and deducts it in monthly instalments from their salary, rather than the employee paying the full amount in one go at year-end. It is governed by Section 192 of the Income Tax Act.
How it's calculated, at a mechanism level
At the start of — or during — a financial year, the employer estimates the employee's total taxable salary income for the year, factors in the tax regime the employee has chosen (India currently allows employees to pick between two parallel tax regimes, "new" and "old," with different slab structures and exemption rules), applies any declared investments or exemptions the employee is eligible for and has documented (under the old regime), and calculates the resulting annual tax. That amount is then divided across the remaining pay cycles in the year and deducted monthly.
Why we don't quote exact slabs here
Income tax slab rates and thresholds are revised almost every year in the Union Budget, and the old and new regimes produce materially different outcomes. Rather than publish a slab table here that will go stale within a budget cycle, we've built a take-home salary calculator with fully editable slab and rate assumptions — plug in the current year's figures from the official Income Tax Department notification and it does the arithmetic for you.
Why it matters for payroll
Under-deducting TDS creates a liability for the employer, and a shock for the employee at filing time; over-deducting ties up the employee's cash until they claim a refund. Employers must also issue Form 16 (see that entry) each year summarising what was deducted and deposited.