TDS on Salary Under Section 192 of Income Tax Act

Tax Deducted at Source (TDS) on salary is a system where the employer deducts a portion of tax from an employee’s taxable income every month and deposits it with the government on their behalf. Governed by Section 192 of the Income Tax Act, the TDS amount depends on the employee’s total income, chosen tax regime, and eligible deductions and exemptions.

Key Highlights

• TDS is deducted when salary exceeds basic exemption limit (Old: Rs. 2.5 lakh, New: Rs.3–4 lakh).
• Total TDS deducted can be checked on AIS, TIS, or Form-16.
• Excess TDS can be claimed as a refund while filing ITR before the due date.

What is TDS on Salary?

Section 192 of the Income Tax Act deals with TDS on salary income. It requires employers to estimate the total income of an employee for the financial year and deduct tax if the estimated salary exceeds the basic exemption limit. The TDS is computed according to the applicable income tax slab rates under the chosen tax regime, which means the deduction amount will vary from employee to employee depending on their income and eligible deductions. 

The tax deducted by the employer must be deposited with the government, and a quarterly TDS return is filed in Form 24Q. After this, the employee receives a TDS certificate in Form 16, which shows the details of salary paid and tax deducted during the year.

Employees can claim an excess TDS deducted as a refund while filing the Income Tax Return on or before the due date.

Who Can Deduct TDS Under Section 192?

The employers are required to deduct TDS under section 192 every month and deposit it with the government within a specific time-period. The employers can be:

• Companies (Private or Public)
• Individuals
• HUF
• Trusts
• Partnership firms
• Co-operative societies

The employer’s status such as HUF, firm or company is irrelevant for the deduction of tax at source under this section. Only employer-employee relationship matters. According to section 192 of the Income Tax Act, there must be an employer-employee relationship between the deductor and deductee for TDS. Moreover, the number of employees employed by the employer also does not matter for deducting TDS. 

When is TDS Deducted & Rate Of Deduction Under Section 192?

TDS on salary is deducted at the time of actual payment of salary and not at the time of accrual. This means that tax will be deducted when the employer pays the salary, regardless of whether it is paid in advance, on time, or in arrears (i.e., delayed payment). If the estimated salary of an employee does not exceed the basic exemption limit of Rs. 2.5 lakh under the old tax regime and Rs. 3 lakh under the new tax regime, then no tax is payable, and hence no TDS will be deducted. 

For employees whose income exceeds the basic exemption limit, TDS will be deducted based on the applicable income tax slab rates. The table below illustrates the basic exemption limit and slab rates under the old tax regime.

*Senior Citizen means assessees aged above 60 years but not more than 80 years.

**Super Senior Citizen means assessees aged above 80 years.

For incomes earned in FY 2024-25 the following tax slab rates will be applicable under the New Tax Regime (Default Tax Regime):

However, for employees opting for the New Tax Regime (Default Tax Regime) the following rate will be applicable for FY 2025-26:

It is important to understand that the basic exemption of Rs. 4 lakhs and the relevant slab rates will only be applicable for income earned in FY 2025-26. 

How to Calculate TDS on Salary Under Section 192

Calculation of Taxable Income of an Employee

Step 1: Estimate Salary

The employer first estimates the employee’s salary for the relevant financial year. This includes:

• Basic pay and dearness allowance
• Perquisites provided by the employer
• Allowances such as HRA, LTA, meal coupons, etc.
• Employer’s EPF contributions
• Bonus, commission, gratuity
• Salary received from a previous employer (if any)

Step 2: Calculate Exemptions (Section 10)

The employer calculates exemptions available under Section 10 of the Income Tax Act, such as:

• HRA, travel allowance, uniform allowance, children’s education allowance, etc.
• Professional tax paid
• Entertainment allowance
• Standard deduction: Rs.75,000 (New Regime, w.e.f. AY 2025-26) or Rs.50,000 (Old Regime)

Step 3: Derive Taxable Salary

The exemptions are deducted from the gross salary. The balance amount is treated as taxable income from salary.

Step 4: Add Other Incomes

If the employee has disclosed additional income, such as:

• Rental income from house property
• Interest from bank deposits, etc.

These are added to taxable salary.

• If a housing loan interest is paid, it is reduced from the house property income.
• If the deduction exceeds the income, the figure will be a negative income under “Income from House Property.”

The result is the employee’s Gross Total Income (GTI).

Step 5: Apply Deductions (Chapter VI-A)

The employer then reduces the eligible deductions declared by the employee, such as:

• Investments: PPF, EPF, ELSS, NSC, Sukanya Samriddhi, etc.
• Expenditures: Home loan repayment, life insurance premium, tuition fees, etc.
• Other deductions include Section 80D (medical insurance) and 80G (donations), among others.

Step 6: Choose Tax Regime & Compute Tax Liability

The employer calculates tax liability under both regimes:

• Old Tax Regime (with exemptions & deductions)
• New Tax Regime (lower rates but limited deductions/exemptions)

The most beneficial regime will be considered. TDS is deducted monthly accordingly.

Important Notes:

• The New Tax Regime is the default. Suppose an employee wants to opt for the Old Regime. In that case, they must inform their employer at the time of investment declaration.
• Employees can choose their preferred regime every financial year.
• Under the New Tax Regime, most exemptions and deductions (available in the Old Regime) are not permitted.

Illustrations

Case 1

A resident employee Nikhil (aged 40), who works for ClearTax, is fixed as Rs 1,00,000 per month as salary during the FY 2024-25. Nikhil has invested Rs 50,000 in ELSS funds, Rs 60,000 in PPF, Rs 40,000 in NSC. What will be the monthly TDS deducted u/s 192?

• His total income would be estimated as Rs 12,00,000.
• Standard deduction of Rs 50,000 is allowed on salary income.
• Deduction (as declared by employee) under Chapter VI A would be Rs 1,50,000.

Calculation of TDS from monthly salary as per the old tax regime

If there are 12 months remaining for TDS deduction in the financial year the employer will deduct TDS u/s 192 = Rs 1,17,000 / 12 = Rs 9,750.

In the above case, if the employee choose to pay taxes as per the new tax regime, the employer shall deduct tax at source as below:

In the new tax regime deduction for investment in ELSS, PPF, NSC will not be allowed as a deduction. And tax will be calculated as per the new slab rate, i.e. Rs 68,750.

Education and higher education cess of 4% on the income tax = Rs 2,750.  
Therefore, the net tax payable = Rs 71,500. 

Accordingly, TDS u/s 192 is to be deducted per month = Rs 71,500 / 12 = Rs 5,960.

Case 2

Mr Soni receives a pension of Rs 30,000 per month and income from interest on pension account (savings account) is Rs 12,000 during the FY 2024-25. What will be the monthly TDS amount deducted from the pension?

As per Section 192, TDS is required to be deducted on all the monetary amounts paid by the employer under the head ‘Salary’. Since, ‘Salary’ also includes pension, TDS on the same needs to be deducted as per Section 192.

Computation of TDS

Hence, since the income tax payable is zero, no TDS will be deducted by the employer from the monthly pension.

Note: The above calculation is done as per the old tax regime.

Salary from More than One Employer

If you are engaged with two or more employers simultaneously, you can provide details about your salary and TDS in Form 12B to any one of the employers. Once the employer receives all kinds of information from you, he/she will be responsible for computing your gross salary to deduct TDS.

Subsequently, if you resign and join a different employer, you can provide details of your previous employment in Form 12B to your new employer. This employer will consider your previous salary and TDS will be deducted for the remaining months of the financial year.

If you choose not to provide details of income of other employment, each employer will deduct TDS only from the salary paid by him respectively.

Deductions Under Section 89

There are several deductions you can claim from your total income to bring down the taxable income and thereby reduce the tax outgo. 

Section 89, the tax deducted in respect of salary paid to employees of the government, companies, co-operative societies, local authorities, universities, association or bodies, etc. should be adjusted for marginal relief as per Section 89 of the Income Tax Act, if applicable. Marginal relief is provided in respect of salary or arrears of salary being subject to a higher rate of tax due to change in the slab rates. 

To get this relief, you must file Form 10E on the official income tax portal. In the absence of this form, you will not receive relief under Section 89. 

TDS Statements

The employer is required to provide Form 16 to you containing the details of salary such as the amount paid and tax deducted. This can also be accompanied by Form 12BA, to show particulars of perquisites, and profits in lieu of salary. 

Time Limit to Deposit the Tax Under Section 192

If the TDS is deducted by any government employer – It has to be deposited on the same day.

If the TDS is deducted by any employer that is other than the government office: 
a. TDS is deducted in March – On or before 30 April  
b. TDS is deducted in any month other than March– Within seven days of next month

TDS Return Filed by Employer

The employer has to file a salary TDS return in Form 24Q. The said form is to be submitted every quarter.  Details of salary paid to the employees and TDS deducted on such payment is to be reported in 24Q.

Employers can easily file TDS returns through ClearTax software, i.e. Clear Finance Cloud

Form 24Q consists of 2 annexures – Annexure I and Annexure II

While Annexure I has to be submitted for all four quarters of a FY, Annexure II is not required to be submitted for the first three quarters. Annexure-II has to be submitted in the last quarter, i.e. Jan – Mar quarter only.

Besides, if the employer doesn’t deduct TDS or deducts TDS at a lower rate, he’ll have to provide the reasons for such non-deduction or lower deduction.

Due Dates for Form 24Q

To know more about Form 24Q, refer here.

TDS Certificate

The employer is responsible for providing a TDS certificate to the employee for tax deducted from the salary.

After filing the TDS return, the TDS certificate (Form 16) is generated in a specified format and it can be downloaded from the TRACES utility. Form 16 contains Part-A & Part-B.

Part A of Form 16 mainly contains the details of quarterly TDS deducted and deposited and details of PAN and TAN of the employer, and other information.

Part B of Form 16 is an Annexure to Part A. Part B is to be prepared by the employer for their employees. It contains salary breakup, exemptions, deductions approved under Chapter VI-A and the income tax amount.

To know more about Form 16, click here.

Consequences of Non-Compliance under Section 192?

1. Levy of Interest: If the employer does not deduct the TDS on salary or deduct the TDS but does not deposit it to the government, then interest is required to be paid on such amount.
2. Disallowance of expenses: Also, the employer is only eligible to claim the deduction of salary expense from PGBP income if TDS is deducted on time. 
   The amount of disallowed salary expenses shall be
   1. 30% of the salary payment goes to the resident.
   2. 100% of Salary payment to Non-Resident.

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