TDS on salary: how your employer calculates it, why you might be overpaying, and how to fix it
Your employer deducts TDS under Section 192 based on a projection of your annual salary. If you haven't submitted investment declarations (Form 12BB), they assume no deductions — and deduct far more than you owe. This guide explains the exact formula, the job-switcher trap, and how to verify and recover excess TDS.
All figures and facts in this article are sourced directly from primary government and regulatory publications — including the Reserve Bank of India, SEBI, EPFO, the Income Tax Department, PFRDA, and IRDAI — and verified before publication. No claim is published from a single source without corroboration.
For informational purposes only. Ek Crore does not provide tax advice. TDS rules and slab rates are set by the Income Tax Department — verify current rules at incometax.gov.in before acting. Consult a practising CA for advice specific to your situation.
Every month, your employer deducts a portion of your salary before crediting the rest to your account. This is TDS — Tax Deducted at Source under Section 192 of the Income Tax Act, 1961. Most salaried employees accept this as a given and do nothing. The ones who understand how it is calculated can reduce overpayment, avoid under-payment penalties, and file a cleaner ITR.
This guide explains the exact calculation, what triggers over-deduction, how job-switchers get caught, and how to verify your employer is doing it correctly.
What Section 192 requires your employer to do
Section 192 obligates every employer paying salary to deduct income tax at source at the time of payment. The mechanism works as follows:
The key word is "estimated." TDS on salary is not a real-time calculation — it is a projection updated periodically (typically quarterly or whenever your salary changes). Errors in the projection mean either over-deduction (you get a refund when you file ITR) or under-deduction (you owe the shortfall, plus potential interest).
Source: TDS on salary, Section 192, ClearTax
How your employer calculates your monthly TDS: the actual formula
Step 1: Estimate gross salary for the year
Your employer takes your current monthly salary and projects it over the full financial year (April to March), accounting for any known increments or variable pay.
Step 2: Apply the tax regime you chose
- New regime: Standard deduction of ₹75,000. No deductions for HRA, 80C investments, or interest on home loans. New regime slab rates apply.
- Old regime: Standard deduction of ₹50,000. Eligible deductions (HRA exemption, 80C up to ₹1.5L, home loan interest under Section 24, etc.) reduce taxable income. Old regime slab rates apply.
Step 3: Calculate tax on taxable income
Apply the applicable slab rates, add 4% health and education cess, and apply any Section 87A rebate if eligible.
Step 4: Divide by months remaining
Annual tax / number of months remaining in the financial year = monthly TDS amount.
Worked example: Vikram's TDS at ₹15 lakh salary (new regime, FY 2025-26)
Vikram earns ₹15,00,000 annually (₹1,25,000/month). He has chosen the new tax regime for FY 2025-26.
Taxable income:
- Gross salary: ₹15,00,000
- Standard deduction (new regime): -₹75,000
- Taxable income: ₹14,25,000
Tax under new regime slabs (FY 2025-26):
- 0 to ₹4,00,000: Nil
- ₹4,00,001 to ₹8,00,000: 5% on ₹4,00,000 = ₹20,000
- ₹8,00,001 to ₹12,00,000: 10% on ₹4,00,000 = ₹40,000
- ₹12,00,001 to ₹14,25,000: 15% on ₹2,25,000 = ₹33,750
- Tax before cess: ₹93,750
- Health and education cess (4%): ₹3,750
- Total annual tax: ₹97,500
- Monthly TDS: ₹97,500 / 12 = ₹8,125
Vikram sees ₹8,125 deducted from his monthly salary as TDS. Over the year, ₹97,500 goes to the government on his behalf.
What if Vikram chose the old regime but forgot to submit investment declarations?
Under the old regime without any declared deductions:
- Taxable income: ₹15,00,000 - ₹50,000 (standard deduction) = ₹14,50,000
- Old regime slabs:
- ₹2,50,001 to ₹5,00,000: 5% = ₹12,500
- ₹5,00,001 to ₹10,00,000: 20% = ₹1,00,000
- ₹10,00,001 to ₹14,50,000: 30% = ₹1,35,000
- Tax before cess: ₹2,47,500
- Cess (4%): ₹9,900
- Total annual tax: ₹2,57,400
- Monthly TDS: ₹2,57,400 / 12 = ₹21,450
If Vikram has ₹1.5 lakh of 80C investments and ₹1.2 lakh of HRA exemption, his actual old-regime tax would be significantly lower. But until he submits the declaration (Form 12BB), his employer has no basis to reduce the TDS and will deduct ₹21,450/month instead of the ₹12,000–₹14,000 he would owe with deductions applied.
The result: excess TDS is refunded via ITR, but you are out of that cash for the year.
What is Form 12BB and why you must submit it
Form 12BB (Statement of Particulars) is the declaration you submit to your employer for them to consider your deductions and exemptions while computing TDS. It covers:
- HRA exemption: Your actual rent, landlord's name and PAN (if rent exceeds ₹1 lakh/year)
- Leave Travel Allowance (LTA): Details of travel expenditure
- Section 24: Home loan interest: Interest certificate from your lender
- Chapter VI-A deductions: 80C investments (ELSS, PPF, EPF, LIC premium, etc.), 80D health insurance premium, 80E education loan interest, and others
When to submit: Most employers collect Form 12BB at the start of the financial year (April) and again in December/January to account for investments made later in the year. If you miss the initial submission, your employer deducts higher TDS through the year and adjusts in the final months.
What happens if you never submit: Your employer has no evidence of your deductions and must deduct TDS as if no deductions apply. You claim all deductions yourself in the ITR and receive a refund — but you lose access to that cash for 6–18 months while waiting for the refund to be processed.
Form 12BB is only relevant under the old regime. Under the new regime, no deductions (other than the standard deduction) are available, so there is nothing to declare.
Source: Form 12BB, Income Tax India
The job-switcher over-deduction problem
Changing employers mid-year creates a common and avoidable TDS problem.
How it happens: When you join a new employer in, say, August, your new employer has no information about your salary from the previous employer (April to July). They estimate your annual tax based only on the salary you will earn with them (August to March — 8 months), and divide that projected tax by 8. They effectively assume your income for April–July was zero.
The result: If your total annual income is ₹15 lakh (₹7 lakh from previous employer + ₹8 lakh from new employer), each employer may calculate TDS as if your total income were lower. Combined TDS may fall short of what you actually owe, leaving you with a tax liability when you file — plus interest under Section 234B if the shortfall is large enough.
The fix: When you join a new employer, submit a declaration of your previous employer's salary and TDS. Your new employer is required to consider this information under Section 192(2) and calculate TDS on the combined income.
Proforma to provide: Slip showing:
- Previous employer's name and TAN
- Salary paid: April to last month of employment
- TDS already deducted
- Any other income (freelance, rental) for the year
⚠ Common mistake: Assuming the new employer will figure it out, or providing the information only when asked. The obligation to inform is yours. If you do not provide this, you may owe a lump sum when you file ITR — and if you missed advance tax instalments, interest under Sections 234B and 234C applies.
When your employer under-deducts: your liability, not theirs
Section 192 puts the primary obligation on the employer to deduct. But if the employer under-deducts due to information you did not provide (or due to a salary structure that does not account for other income), the income tax department can still hold you liable for the shortfall.
If your total tax liability for the year exceeds ₹10,000 and you have not paid through TDS or advance tax instalments, interest accrues:
- Section 234B: 1% per month on the shortfall from April 1 of the assessment year until the date of payment
- Section 234C: 1% per month on the shortfall in quarterly advance tax instalments
For salaried employees with only salary income, TDS usually covers everything and advance tax is not required. But if you have FD interest, rental income, or freelance earnings not covered by employer TDS, advance tax applies.
Source: TDS on salary, ClearTax
How to verify your employer is deducting TDS correctly
◇ Quick check — two steps:
Step 1: Estimate your expected annual tax.
Take your annual salary, apply your chosen regime, subtract eligible deductions. Compute the approximate tax. Divide by 12. This is what your monthly TDS should be. If your payslip shows materially more or less, investigate.
Step 2: Cross-check against Form 26AS and AIS.
Log into incometax.gov.in, go to e-File → Income Tax Returns → View AIS. Under "Tax Deducted at Source," you will see the amounts your employer has deposited against your PAN. This is updated quarterly. If the amount deposited does not match what your payslip shows was deducted, your employer may have deducted but not deposited — which is a compliance failure on their part, but a practical problem for you when filing.
Form 26AS shows employer TDS by quarter. After quarter 1 (April to June), you should see TDS for those months reflected by mid-August. If it is missing, ask HR or the accounts team to verify the employer's TDS return was filed.
How to claim a TDS refund if too much was deducted
Over-deducted TDS is not lost — it is credited to your account with the income tax department. The only way to get it back is to file your ITR and claim the refund.
Process:
The fastest way to get your refund: File early. Refunds are generally processed in the order returns are received. Filing in May or June instead of July results in faster processing.
Source: TDS refund guide, ClearTax
Bottom line
- Section 192 requires your employer to deduct TDS monthly, based on projected annual salary divided by remaining months
- Under the new regime, only the ₹75,000 standard deduction is considered; no declarations needed
- Under the old regime, submit Form 12BB with investment and deduction evidence — or your employer will deduct TDS assuming no deductions, resulting in over-deduction
- If you changed jobs this year, submit your previous employer's salary and TDS details to your new employer under Section 192(2) to prevent over- or under-deduction
- Verify TDS is being deposited (not just deducted) by checking Form 26AS quarterly on the income tax portal
- Excess TDS is refunded via ITR — file early for faster processing; the refund is not automatic
Frequently asked questions
Q: My employer is deducting very high TDS this month compared to last month. Why?
A: This typically happens when your employer recalculates TDS mid-year — often after a salary increment, a bonus payout, or because you did not submit investment declarations early. If earlier months had lower TDS than required, the shortfall is recovered by increasing deductions in later months (often December to March). Check your payslip's TDS workings, or ask your payroll team for the revised calculation.
Q: I submitted my 80C investments in January. Will TDS reduce from February?
A: Yes. Once you submit Form 12BB with proof of investment, your employer recalculates the remaining TDS for the year, distributes the reduced tax across the remaining months (February and March), and your monthly deduction drops. Any excess already deducted is credited in the final months.
Q: My employer shows TDS deducted on my payslip, but it is not appearing in Form 26AS. What should I do?
A: The deduction and the deposit are two separate steps. Your employer deducts from your salary, then must deposit the amount with the government and file a quarterly TDS return. If it is not in Form 26AS, the employer may not have deposited or filed on time. This is a TDS default by the employer. Raise this with your HR and accounts team immediately. You cannot claim credit for TDS that was not deposited — it may require the employer to file a correction.
Q: I have rental income and FD interest in addition to salary. Does my employer handle TDS on those?
A: No. Employer TDS covers only salary income. TDS on FD interest is deducted by your bank (typically at 10% under Section 194A if interest exceeds ₹40,000 per year). Rental income (above ₹50,000/month from an individual tenant) requires the tenant to deduct TDS under Section 194IB. For your employer's TDS calculation, you can voluntarily disclose your other income to the employer under Section 192(2B), and they can factor it into the TDS calculation to help you avoid shortfall.
Q: Can I ask my employer not to deduct TDS?
A: No, unless you have a nil tax liability and submit Form 13 (a certificate of no-deduction from the income tax department, obtained by applying online at TRACES). Form 13 is practical for individuals whose estimated income is below the taxable threshold or who have very large deductions. For most salaried employees, this is not applicable.
Q: The new tax regime is the default. What happens if I don't tell my employer which regime I want?
A: From FY 2024-25 onward, the new tax regime is the default. If you do not inform your employer of a preference, they will compute TDS under the new regime. If you later want to opt for the old regime when filing your ITR, you can do so — the ITR filing lets you choose the regime regardless of what the employer used for TDS. The difference in tax (higher or lower) will be reflected as a refund or a liability when you file.
Sources: TDS on salary, Section 192, ClearTax · Form 12BB, Income Tax India · TDS refund, ClearTax · TDS compliance, Income Tax Department
Last verified: May 2026. TDS rules and slab rates are set annually and subject to change. Verify at incometax.gov.in before acting.
Content on Ek Crore is for educational purposes only. Nothing here is financial advice. Always consult a SEBI-registered advisor, CA, or qualified professional before making investment or tax decisions.