How TDS on salary actually works
Salary TDS is not a lookup; it is a projection that updates all year. This guide explains the Section 192 mechanism: annual projection, regime choice, monthly spreading, and the true-ups that make March interesting.
Rates and thresholds re-verified 27 July 2026. Statutory figures change by notification, so always confirm against the current official source before acting.
The mechanism in one paragraph
Under Section 192 of the income-tax law, the employer estimates each employee's taxable salary for the full financial year, computes the tax on that projection under the employee's chosen regime, and deducts one-twelfth (adjusted as the year progresses) from each month's pay. Every input change, a raise, a bonus, a new declaration, a job change with prior-employer income — reprojects the year and adjusts the remaining months. TDS is thus a moving estimate that must land, by March, on the year's actual liability; the employer deposits the deductions monthly and reports them quarterly in Form 24Q, from which Form 16 is generated after year-end.
Why this guide prints no slab table
Tax slabs and rebates are Finance-Act-driven and regime-dependent, and a stale slab table is worse than none; it computes confident, wrong numbers. The old regime allows the familiar deductions (HRA exemption, Chapter VI-A) at higher rates; the new regime is the default with lower rates and few deductions. Check the current slabs for both regimes at incometaxindia.gov.in, or read them off your payroll system, which must track them by law. This page's value is the mechanism, which does not change with the Finance Act: projection, regime, spreading, true-up.
The employer's duties around the deduction
Deducting is only step one. The employer must deposit TDS by the 7th of the following month (April's by April 30 in the government pattern for March), file quarterly Form 24Q returns with employee-wise detail, issue Form 16 by the annual deadline, and collect declarations and proofs with reasonable care: the employer is accountable for allowing claims without evidence. Payroll software accumulates 24Q data run by run and generates the return files; deposit and filing remain the establishment's acts, in keeping with every other statutory boundary on this site.
The Section 192 cycle, step by step
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1
Project the year's taxable salary
Annualise the current structure, add known variable pay, subtract exempt components per the chosen regime (HRA exemption and the like under the old regime), and apply standard deduction as currently notified.
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2
Apply the regime's slabs
Compute tax on the projection under the employee's declared regime using current-year slabs and rebates, plus cess. The slabs come from the current Finance Act, never from memory or an old guide.
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3
Spread over remaining months
Divide the projected liability, less TDS already deducted this year, by the months remaining; that is this month's deduction, shown as the TDS line on the payslip.
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4
Reproject on every change
Raises, bonuses, declaration changes, prior-employer income, proof verification, each event recomputes steps 1-3 for the remaining months, keeping the year on course rather than saving surprises for March.
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5
Deposit, file, issue
Deposit each month's TDS by the 7th of the next month, accumulate employee-wise detail into quarterly Form 24Q, and issue Form 16 from the final annexure after year-end. The trail (projection, deduction, deposit, return) is what an assessment walks.
A worked example
An employee on ₹80,000 a month under the new regime has a projected liability that spreads to roughly equal monthly TDS from April. In October she receives a ₹1,50,000 bonus: the projection adds it, and the recomputed liability spreads the additional tax across October-to-March — six months, so the monthly step-up is modest. Had the bonus landed in February, the same additional tax would compress into two months. Meanwhile a colleague who joined in September without declaring prior-employment income sees a January correction when his Form 12B finally arrives: three months of catch-up deduction that timely declaration would have spread across seven. The mechanism, not the slabs, produced every one of these outcomes.
Figures are illustrative, for mechanism only. Verify current rates and your own structure before relying on any number.
What the payslip's TDS line should let you verify
A well-formed payslip ties its TDS to the projection behind it: annual taxable estimate, regime, tax already deducted, months remaining. With those four numbers an employee can recompute their own deduction, and payroll teams that expose them answer a fraction of the March questions. If your system shows only the deducted amount, the projection lives somewhere private, and every variance becomes a ticket. The transparency is also the employer's protection: 'reasonable care' in allowing declarations is demonstrable when the projection trail is visible.
Year-end: where the projection meets reality
January to March is true-up season. Proof verification tightens claimed deductions to evidenced ones; shortfalls concentrate into the last months' deductions — uncomfortable but correct, and far better than the employee facing self-assessment interest at filing. After March, the fourth-quarter 24Q carries the annual salary annexure, Form 16 issues from it, and the employee's return either confirms the payroll regime choice or revisits it. An employer whose monthly data was clean does no year-end reconstruction: the year simply totals.
How payroll software applies this
PeopleDeck maintains each employee's projection continuously: regime elections and declarations feed it, every payroll event reprojects it, the monthly deduction spreads correctly, and quarterly 24Q data accumulates from approved runs with Form 16 data assembled at year-end. Slabs and rebates are maintained as effect-dated configuration against the current Finance Act — deposits and filings, as always, stay with the establishment.
Go deeper: The payroll engine · Form 16 explained · Take-home calculator
Primary sources: Income Tax Department · TRACES
Maintained by Databus Technology Solutions against the source notifications; the verification date above is refreshed whenever a figure changes. This guide explains rules and mechanics; it is not legal or tax advice. PeopleDeck applies statutory rates and generates upload-ready files; it never files returns on your behalf, and positions on contested questions belong with your consultant.
Frequently asked questions
Which regime does the employer use for TDS?
The one the employee opts for through the declaration process; absent a choice, the new regime is the default. The employee's final regime choice is made at return-filing: the payroll election governs deduction, not the eventual assessment, which is why mismatches settle at filing time.
What happens when an employee joins mid-year?
They declare prior-employment income and TDS via Form 12B; the new employer projects the combined year and deducts accordingly. Skipping this is the commonest cause of shortfall-and-interest surprises at filing.
How are bonuses and one-time payments taxed?
They enter the annual projection in the month they are paid, and the recomputed liability spreads over the remaining months, so a March bonus hits hardest, having no months left to spread across. Good systems reproject rather than flat-taxing the bonus.
What if declarations change mid-year?
The projection recomputes from the change: new rent declaration, an investment proof shortfall in January, a dropped insurance premium, each adjusts the remaining months' deduction. January-to-March is when proof verification tightens deductions.
What is Form 24Q and how does it relate to Form 16?
24Q is the employer's quarterly TDS return with employee-wise salary and deduction detail; the fourth quarter's return carries the annual salary annexure from which Form 16 Part A/B is generated and issued to employees. If payroll data is clean monthly, both artifacts are exports rather than projects.
Is there TDS below the taxable threshold?
No deduction is required where the projected liability is nil, but the projection itself must be done and documented. Declaring 'no TDS needed' is a computed conclusion, not an assumption.
Projections that land, Form 16 that reconciles.
Applied on every payslip, files generated for upload — per employee, per month.
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