How TDS Works for Salaried Employees
Tax Deducted at Source guide: TDS rates, calculation, Form 16, ITR filing, rebates, and how to claim refunds.
TL;DR - Key Points
What Is TDS?
Tax Deducted at Source (TDS) is advance tax collected by employers from your salary every month before crediting your bank account. It is a method of tax collection used by the Indian government to ensure regular flow of tax revenue and reduce tax evasion.
For salaried employees, TDS is calculated based on your estimated annual income and applicable tax slabs. The amount deducted each month is recorded in Form 16, which you receive at year-end.
The key concept: TDS is advance tax, not your final tax. Your actual tax liability is calculated when you file your Income Tax Return (ITR). If TDS exceeds actual tax, you get a refund. If actual tax exceeds TDS, you may need to pay additional tax.
TDS Calculation Example
| Period | Salary | TDS Deducted | Net Salary | Notes |
|---|---|---|---|---|
| Monthly | Rs. 1,00,000 | Rs. 10,000 (10%) | Rs. 90,000 | Estimated TDS deducted |
| Annual total | Rs. 12,00,000 | Rs. 1,20,000 (10%) | Rs. 10,80,000 | Full year TDS @ 10% |
| After ITR filing | Rs. 12,00,000 | Rs. 1,00,000 (actual) | Rs. 11,00,000 | Rebate adjustment, refund of Rs. 20,000 |
Understanding Form 16
Form 16 Contains:
- ✓ Gross Salary: Total salary including basic, allowances, bonuses
- ✓ Deductions: Section 80C, HRA, professional tax, etc.
- ✓ Taxable Salary: Salary after deductions
- ✓ TDS Deducted: Month-wise TDS breakdown
- ✓ Total TDS: Cumulative TDS for the financial year
- ✓ Employer Details: Company name, TAN (Tax Account Number)
Section 87A Rebate - Who Is Eligible?
If total income is below Rs. 5 lakh:
Full rebate under Section 87A means zero tax liability. Any TDS deducted is refunded in full.
Example:
- • Total income: Rs. 4.5 lakh
- • Tax without rebate: Rs. 90,000
- • Rebate under 87A: Full Rs. 90,000
- • Final tax payable: Zero
- • If TDS paid: Rs. 1 lakh → Refund of Rs. 1 lakh
ITR Filing and TDS Reconciliation
Collect Form 16
Obtain from your employer by July 31st after financial year-end.
Calculate Actual Tax
Use online ITR calculator or take help from CA to determine actual tax liability.
File ITR
File on income tax portal (incometaxindiaefile.gov.in) with Form 16 details and other income sources.
Claim Refund
If TDS exceeds actual tax, refund is processed automatically. Check status on income tax portal.
Frequently Asked Questions
Is TDS deducted on basic salary or gross salary?
TDS is calculated on gross salary minus allowed deductions like standard deduction, 80C contributions, health insurance premium, etc. Your employer calculates TDS based on your ITR Form and salary structure.
What is Form 16?
Form 16 is a certificate issued by your employer showing: (1) Gross salary, (2) Deductions under Section 80C and others, (3) TDS deducted monthly, (4) Net taxable income. It is essential for ITR filing.
Can I get TDS refund?
Yes. If TDS paid exceeds your actual tax liability, the difference is refunded when you file ITR. For example, if TDS is Rs. 1.2 lakh but actual tax is Rs. 1 lakh, you get Rs. 20,000 refund.
What is Section 87A rebate?
If your total income is below Rs. 5 lakh, you can claim full rebate under Section 87A, meaning no tax is payable. TDS deducted is refunded in full when you file ITR.
Do I need to file ITR if TDS is deducted?
Yes. You must file ITR to reconcile TDS paid and claim refunds. Even if no tax is due, filing ITR ensures you get any refund owed.
Related Concepts
Related Tools
Income Tax Calculator
Calculate net tax liability considering TDS and rebates.
Salary Calculator
Break down your salary into components and see TDS impact.