TDS on salary is income tax your business deducts from employees' pay each month and deposits with the government on their behalf. In short: estimate the employee's annual tax, divide it across the year, deduct it monthly, deposit it by the 7th of the next month, and issue Form 16 at year-end. Here's how it works in practice.
What is TDS on salary?
Under the Income Tax Act, employers must deduct tax at source (TDS) from taxable salaries and pay it to the government. The employee gets credit for this tax when they file their return. It applies whenever an employee's estimated annual income is taxable under their chosen tax regime.
How TDS on salary is calculated
- Estimate annual salary — total of all salary components for the year.
- Apply exemptions & deductions — HRA, standard deduction, and any investments the employee declares (under the applicable regime).
- Compute annual tax using the income-tax slab rates.
- Divide by 12 — deduct roughly that much each month, adjusting as declarations or pay change.
Because it's based on an estimate, employers re-check it during the year — especially after investment declarations and any salary revisions.
Deposit and filing dates
- Deposit TDS — by the 7th of the following month (for March, usually by 30 April)
- File Form 24Q — the quarterly salary-TDS return
- Issue Form 16 — the annual TDS certificate, to every employee
Employer responsibilities
As an employer you must collect each employee's PAN and tax declarations, deduct the right amount, deposit it on time, file Form 24Q quarterly, and issue Form 16. Getting any step wrong — late deposit, wrong PAN, missed return — creates interest, penalties and Form 26AS mismatches for your staff. This is exactly the kind of recurring task that belongs in a payroll compliance calendar.
Slab rates, regimes and limits change with each Budget — confirm current rules before you run payroll, or let a payroll partner apply them for you.
Frequently asked questions
How is TDS on salary calculated?
The employer estimates annual taxable salary, applies the slab rates after exemptions and declared deductions, arrives at the yearly tax, and deducts about one-twelfth each month — revising the estimate as declarations and pay change.
When does an employer have to deduct TDS on salary?
At the time of paying salary, whenever the employee's estimated annual income is above the basic exemption limit and tax is payable under their chosen regime. If no tax is payable, no TDS is deducted.
What is the due date to deposit TDS on salary?
Generally by the 7th of the following month. For TDS deducted in March, the due date is usually 30 April. Late deposit attracts interest, so a fixed payroll calendar matters.
What is Form 16 and Form 24Q?
Form 24Q is the quarterly TDS return an employer files for salary TDS. Form 16 is the annual certificate issued to each employee, summarising salary paid and tax deducted — used to file their income-tax return.
What if an employer deducts TDS but doesn't deposit it?
That's a serious default — it attracts interest, penalties and possible prosecution, and employees may face Form 26AS mismatches. Deducted TDS must be deposited and filed on time, every time.