How Much TDS Is Deducted on Salary Per Month?

Understanding the intricacies of Tax Deducted at Source (TDS) on salary can be daunting for many salaried individuals. A common question that arises is, “Why is TDS deducted every month, and how is this amount calculated?” In 2026, TDS on salary remains an essential part of the Indian tax framework, ensuring that taxes are collected at the source of income. Unlike a fixed percentage, TDS deductions vary monthly depending on factors such as annual income, tax regime, exemptions, and declarations made by the employee.

This comprehensive guide simplifies the process of monthly TDS calculation for 2026, providing actionable insights, examples, and tips for effective tax planning.

TDS, or Tax Deducted at Source, is a mechanism introduced by the Indian government to ensure timely tax collection. It requires employers to deduct a portion of an employee’s salary as tax before crediting the remaining amount to their account. This deducted amount is then deposited with the government.

Key points about TDS on salary:

• Purpose of TDS: It ensures a steady flow of revenue for the government and reduces the burden of paying a lump sum tax at the end of the financial year for employees.
• Who deducts TDS? Employers are responsible for deducting TDS from employees’ salaries and depositing it with the government.
• How it helps taxpayers: TDS simplifies tax compliance by spreading the tax liability over the year and reduces the chances of defaulting on tax payments.

The legal framework for TDS on salary is governed by the Income Tax Act, 1961, specifically under Section 192.

Section 192 of the Income Tax Act explained:

• Applicability: Section 192 applies to salaried individuals whose total income exceeds the basic exemption limit under the applicable tax regime.
• Mandatory deduction: TDS deduction becomes mandatory when the estimated annual income of an employee is taxable.
• Difference from other TDS sections: Unlike other TDS provisions that have fixed rates, TDS on salary is calculated based on the employee’s applicable income tax slab.

A common misconception is whether TDS is deducted monthly or annually. While the annual tax liability is calculated for the entire financial year, TDS is deducted every month from an employee’s salary.

Key points:

• Employers estimate the total taxable income for the financial year, considering exemptions and deductions.
• This annual tax liability is divided into 12 parts, and TDS is deducted monthly.
• Monthly deductions may vary based on changes in salary components or declarations.

Example: If your annual tax liability is Rs. 1,20,000, your employer will deduct Rs. 10,000 as TDS every month, provided there are no changes in your income or exemptions.

The monthly TDS deduction process involves several steps. Here is a simplified breakdown:

Step-by-step salary TDS calculation process:

1. Estimate annual gross salary: Add all components of your salary, including basic pay, allowances, and bonuses.
2. Subtract exemptions and deductions: Reduce exemptions like HRA and deductions under Section 80C, 80D, etc.
3. Apply applicable tax slab rates: Use the income tax slabs for FY 2025–26 (AY 2026–27).
4. Add applicable cess: Include the health and education cess (4% of tax liability).
5. Divide annual tax liability into 12 monthly deductions: Spread the total tax liability evenly across the year.

The income tax slabs for FY 2025–26 (AY 2026–27) differ under the old and new tax regimes.

New tax regime slabs (indicative for 2026)

Old tax regime slabs (indicative for 2026)

Note: Tax slabs are applicable annually, not monthly.

Choosing the right tax regime significantly affects your monthly TDS. Here is a comparison:

Your salary structure plays a crucial role in determining TDS. Key components include:

• Basic salary: Forms the largest portion and is fully taxable.
• House Rent Allowance (HRA): Partially or fully exempt based on rent paid and location.
• Special allowance: Fully taxable.
• Bonus and incentives: Taxable in the year they are received.
• Employer PF contribution: Exempt up to Rs. 2,50,000 annually.

Proper tax planning can help reduce TDS deductions legally.

Salary exemptions considered by employers:

• HRA exemption
• Standard deduction (Rs. 50,000)
• Leave Travel Allowance (LTA)

Tax deductions declared by employees:

Monthly TDS deductions vary due to:

• Differences in salary levels.
• Tax regime chosen (old vs new).
• Exemptions and deductions declared.
• Employer-specific calculation methods.

Example 1 – Rs. 5 Lakh annual salary

• Annual income breakdown: Basic salary Rs. 4,50,000; HRA Rs. 50,000
• Tax payable: Rs. 12,500
• Monthly TDS: Rs. 1,042

Example 2 – Rs. 10 Lakh annual salary

• Annual income breakdown: Basic salary Rs. 8,00,000; HRA Rs. 2,00,000
• Tax payable: Rs. 62,400
• Monthly TDS: Rs. 5,200

Example 3 – Rs. 15 Lakh annual salary

• Annual income breakdown: Basic salary Rs. 12,00,000; HRA Rs. 3,00,000
• Tax payable: Rs. 1,87,200
• Monthly TDS: Rs. 15,600

Note: Calculations are indicative and may vary based on individual declarations.

• Excess TDS: Claim a refund when filing your income tax return.
• Less TDS: You may need to pay the balance tax with interest before filing your return.

• Review your monthly payslip.
• Refer to Form 16 issued by your employer.
• Check Form 26AS or the Annual Information Statement (AIS) on the Income Tax portal.

• Declare investments under Section 80C and other deductions.
• Choose the tax regime that suits your financial profile.
• Submit proofs and declarations on time.
• Explore salary restructuring options with your employer.

Understanding how TDS on salary is calculated and deducted can help you plan your finances better. By leveraging exemptions, deductions, and the right tax regime, you can optimise your monthly TDS and reduce tax liability. Proactive tax planning ensures peace of mind and compliance with tax regulations.