Glossary
What is TDS on salary?
What TDS on salary is, how the monthly amount comes from an estimate of annual tax, and what the employer does with it.
Updated
In short
TDS on salary is income tax an employer deducts from each month's pay and deposits with the government. In SimpleERP it is a fixed deduction you set per employee; SimpleERP does not compute income tax.
TDS, tax deducted at source, on salary is income tax an employer deducts from each month's pay based on the employee's estimated tax for the year under the regime they choose. The employer deposits it with the government, files quarterly returns and issues an annual certificate, Form 16. TDS also applies to many other payments, such as rent, professional fees and contract work.
TDS on salary: a worked example
Ramesh N is the works manager at Lakshmi Steel Furnitures, on ₹1,25,000 a month, ₹15,00,000 a year, under the new tax regime. His tax for 2026-27 works out at ₹97,500, so ₹8,125 is deducted each month. The figures are for illustration, not tax advice.
| Earnings | Amount | Deductions | Amount |
|---|---|---|---|
| Basic | ₹62,500 | Provident fund, 12% of Basic | ₹7,500 |
| HRA, 40% of Basic | ₹25,000 | Professional tax | ₹180 |
| Special allowance | ₹37,500 | TDS | ₹8,125 |
| Gross pay | ₹1,25,000 | Total deductions | ₹15,805 |
How is ₹8,125 a month worked out under the new regime?
| Step | Amount |
|---|---|
| Gross salary for 2026-27 | ₹15,00,000 |
| Less standard deduction | −₹75,000 |
| Taxable salary | ₹14,25,000 |
| Tax: 5% of ₹4,00,001 to ₹8,00,000 | ₹20,000 |
| Tax: 10% of ₹8,00,001 to ₹12,00,000 | ₹40,000 |
| Tax: 15% of ₹12,00,001 to ₹14,25,000 | ₹33,750 |
| Health and education cess, 4% | ₹3,750 |
| Tax for the year, ₹8,125 a month | ₹97,500 |
FAQ
Questions, answered
How is the monthly TDS on salary worked out?
The employer estimates the employee's taxable salary for the year, applies the slabs of the regime the employee chose and any declared deductions, and spreads the tax over the remaining months. The estimate is revised when pay or declarations change. Ask your CA for the working.
Why is TDS zero on some payslips?
TDS on salary is zero when the estimated annual tax is nil. Under the new regime the section 87A rebate, as notified, removes the tax on taxable income up to ₹12,00,000, so Karthik R on ₹3,60,000 a year has no TDS. Higher earners do, so TDS is set employee by employee.
Does SimpleERP calculate TDS on salary?
SimpleERP does not calculate TDS on salary. TDS is a deduction you set per employee, and you can change it from any month with a new salary structure or adjust it on a payslip. SimpleERP posts it to Statutory Deductions Payable and totals it in the component summary report.
When must TDS deducted from salary be deposited?
Generally by the 7th of the following month, with a different date for March, and quarterly returns follow. Due dates are as notified by the Income Tax Department; check the current rules with your CA.
Related
Keep reading
Form 16
The employer's annual certificate of salary paid and TDS deducted, used for the employee's income tax return.
Read moreStatutory deductions
Deductions from salary required by law, such as PF, ESI, professional tax and TDS, held as liabilities until paid.
Read moreSalary structure in India
Basic, HRA, allowances, PF, professional tax and TDS explained as concepts, with a worked payslip and a loss-of-pay example.
Read more
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