How TDS is Calculated on Salary & TDS Interest Calculation Formula?

A women with a calculator calculating tds

The aim of Tax Deduction at Source (TDS) is to collect tax from the actual source of income. According to this concept, employers shall deduct tax at source u/s192 from their employees’ salary (if the same exceeds the exemption limit) and remit the same to the central government’s account.

Likewise, the employee or taxpayer is entitled to get a credit of the deducted amount based on Form 26AS or the TDS certificate issued by the employer.

Before proceeding with the technicalities of the calculation of interest on TDS, you first need to know what TDS is calculated on.

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What is TDS on Salary & Who Can Deduct?
TDS Rate Chart
TDS Calculation Formula for Salary
TDS Exemptions
Calculation of Interest on TDS
How to Save TDS?
Frequently Asked Questions

What is TDS on Salary?

Tax Deduction at Source or TDS on Salary, as per Section 192 of the Income Tax Act, mandates employers to deduct tax at source from the salary payments made to their employees. TDS amount is deducted based on the applicable income tax slab rates for the financial year. So, the amount of TDS deducted is different for every employee depending on their salary.

Who Can Deduct TDS Under Section 192?

Employers, including companies, firms, individuals, and HUFs (Hindu Undivided Families) who are responsible for paying salaries, are liable to deduct TDS under Section 192 every month. This ensures that the tax is collected at the source and deposited with the government within the specified due date.

Also, as per Section 192 of the Income Tax Act, there must be an employer-employee relationship between the deductor and deductee for TDS deduction on salary.

When is TDS Deducted & TDS Rate Chart for FY 2025-26 (AY 2026-27)

TDS is deducted at the time of actual payment of salary, under Section 192. It means tax will be deducted when your employer pays your salary, whether in advance or on time, or in arrears (late payment).

Tax Deduction at Source calculation depends on the various natures of payments. Therefore, individuals wondering how to calculate TDS on salary, bill amount, or fixed deposits first need to know the different TDS rates.

In the table given below, you will find the new TDS rate chart, as revised by Budget 2025.

Nature of Payment	TDS Section	TDS Rate
Salaries	Section 192	Normal slab-rate
Premature PF withdrawal	Section 192A	10% (20% if no PAN card)
Interest received on securities	Section 193	10%
Dividends received on the company's shares and on mutual funds	Section 194 and 194K	10%
Interest other than interest on securities (fixed deposit interest)	Section 194A	10%
Winnings from crosswords, lotteries, or any game	Section 194B	30%
Winnings from horse races	Section 194BB	30%
Payment of contractors and subcontractors	Section 194C	1% for individuals and HUF 2% for other taxpayers
Insurance commission received by domestic companies	Section 194D	10%
Insurance commission received by others	Section 194D	2% (effective from 1st April 2025)
Life insurance policies are not exempted under Section 10(10D)	Section 194DA	2% (effective from 1st April 2025)
Payment in respect of deposits under the National Savings Scheme	194EE	10%
Payments on account of the repurchase of units by mutual funds or UTI	194F	Proposed to be removed effective from 1st October 2024
Commission, prize, etc., on the sale of lottery tickets	Section 194G	2% (effective from 1st October 2024)
Brokerage or Commission	Section 194H	2% (effective from 1st October 2024)
Payment is done while transferring immovable property, except for agricultural land	Section 194IA	1%
Rent payment by HUF or individual exceeding ₹50,000 per month	Section 194IB	2% (effective from 1st October 2024)
Rent on machinery and plant	194- I	2%
Rent for immovable property	194-I	10%
Payment of professional fees, etc.	194J	2% (technical services, royalties, FTS, call centre) & 10% (others)
Payment made by HUF/individuals to a professional or commission, or brokerage of more than ₹50 lakh and above	194M	2% (effective from 1st October 2024)
Cash withdrawal exceeding a specific amount	194N	2%
TDS on e-commerce participants (w.e.f. 1.10.2020)	Section 194-O	0.1% (effective from 1st October 2024)

TDS Calculation Formula with Example (as per New Tax Regime)

Typically, the employer deducts TDS from his employee’s salary at the ‘average rate’ applicable to his estimated total income.

The TDS formula is:

Average Income Tax Rate = Income Tax Payable (computed through slab rates) / Estimated income for the financial year.

Let’s say you receive a monthly salary of ₹1,00,000 during FY 2025-26.

Total income	₹12,00,000
Estimated deduction (under Chapter VI A)	₹1,00,000
Income chargeable to tax	₹11,00,000

Under Section 192, TDS on your salary according to the current slab rate will be ₹50,000.

After adding 4% education and higher education cess (i.e. ₹2000), your net payable tax becomes ₹52,000.

So, the average rate of TDS on your salary will be equal to ₹52,000/12,00,000*100 = 4.33%.

Under Section 192, TDS on your salary deducted every month will be 4.33% of ₹1,00,000, i.e., ₹4330

TDS Calculation in Case of Salary from More than One Employer

If you receive a salary from more than one employer, you need to inform each employer about your other employment to ensure correct TDS deduction. To do so, it is mandatory to submit Form 12B to your current employer, providing details about your previous salary and TDS.

This will help consolidate your total income from all employers for accurate TDS calculation. So, when filing your income tax return, include all income sources and TDS to avoid any tax discrepancies and claim refunds if necessary.

However, if you do not provide details of income from the other employer, each employer will deduct TDS only from the salary paid by them respectively.

Different Scenarios of TDS Exemptions

As per the Income Tax Act, here are the scenarios where you are exempted from TDS:

If you do not need to file IT returns under Section 139.
In case you give a clear declaration at the beginning of that financial year under Section 15G/15H, and your employer verifies it as per the relevant rules.
If you are particularly exempted under subsection 3 of Section 194A.
In case you acquire a certificate under Section 197. This certificate instructs the employer not to deduct or to deduct tax at a lower rate as per its validity and conditions.

TDS Deductions Under Section 89

Section 89 of the Income Tax Act helps you get tax relief if you receive a large amount of salary arrears by providing marginal relief. This means you won't have to pay extra tax just because you received a lump sum payment. It is applicable for employees of the government, companies, co-operative societies, local authorities, universities, and other similar bodies.

To claim this relief, you need to file Form 10E on the official income tax portal.

Time Limit to Deposit the Tax Under Section 192

Under Section 192 of the Income Tax Act, employers must deposit the TDS deducted from employees' salaries within specific time limits to avoid penalties.

For employers other than the government employers, the due date for TDS deducted in March is 30th April of the same year. For TDS deducted in any other month, the due date is the 7th of the following month.

However, for government employees, the TDS deducted has to be deposited on the same day.

How to Calculate Interest on TDS for Late Payment?

Under Section 201(1A), you will have to pay interest in case of late TDS payment. The interest on late payment of TDS is calculated at a rate of 1.5% per month from the due date.

Let’s say your payable TDS amount is ₹5,000, the due date is 13 January, and you pay it on 17 May. Then, as per the TDS late payment interest calculator, the interest you have to pay is ₹5,000 x 1.5% p.m. x 5 months = ₹375.

Keeping the above points in mind will aid in accurate TDS calculation. For absolute accuracy, individuals can use an online TDS calculator.

How Can You Save TDS?

Apart from the conditions mentioned above, TDS will be levied as per Section 194A of the Income Tax Act in all other cases. However, you can do a few things to minimize your tax liability arising from TDS.

1. Leave Travel Allowance

Every taxpayer should incur travel allowance expenses before claiming an exemption. So, if you don’t have travel allowances in your salary break-up, you can request your employer to include Leave Travel Allowance (LTA).

2. Mediclaim Premium

You can provide a Section 80D tax certificate from insurance firms supporting the deduction of your paid premium. You may also have to provide copies of the bank statement, passbook, and routine health check-up receipts as proof.

3. House Rent Allowance

In case your aggregate rent paid in that financial year exceeds ₹1,00,000, you can provide the name, address and PAN of your landlord to claim this allowance. If you don’t have the PAN of your landlord, you need to obtain a declaration in Form 60.

4. Residential Loan Interest

To claim this exemption, you need to provide the lender's name, address, and PAN and the bank certificate having the details like date of availing loan, instalment amount, and chargeable interest.

5. Food Coupons

As per the Income Tax Act, a sum of ₹50 per meal can be exempted from meal vouchers. So, for a month with 25 working days, you can get a tax exemption of ₹2,500.

6. Tuition Fees

For this, you need to provide copies of your tuition fee receipts signed or stamped by the educational institution.

7. Donations

If you have provided certain funds to charitable institutions or authorised trusts, you can submit the receipt of your donation, including all the relevant credentials.

8. National Pension System (NPS)

For NPS you need to submit a copy of the deposit receipt for that financial year along with a copy of the relevant bank statement.

9. Section 80C Benefits

You need to invest in Section 80C and utilise the entire amount to save TDS on your salary. In this regard, investing in a Public Provident Fund (PPF) is a good option since it offers an annual tax rebate of around ₹1,50,000.

FAQs about TDS Calculation

All

How to calculate TDS interest?

To calculate TDS on salary, you need to consider the average income tax rate, which is calculated by dividing income tax payable in a financial year by the average income in a financial year.

What is a TDS interest calculator?

TDS tax calculator is a free online tool that helps you to do salaries TDS calculation for different payments according to the Income Tax Act, as the TDS rate and threshold are different for different types of payments.

Why should I use an online TDS calculator?

Here are the advantages of a TDS tax calculator:

Simple and convenient to use
Less time-consuming
High accuracy with less possibility of errors than the manual calculation of interest on TDS

Is it important to do TDS deduction on salary?

Yes, it is mandatory to deduct TDS on salary under Section 192 of the Income Tax Act. Every employer needs to deduct TDS on salary of the employees, if the income amount is over the basic exemption limit.

What details are required to calculate TDS on salary?

For Tax Deduction at Source calculation, you have to provide details about what kind of firm you are working at or if you are an individual, and the type of income.

How to know the quantum of tax deducted from your income?

To know the quantum of the tax deducted at source from your income, you can ask your employer to issue you Form 16 or a TDS certificate for the tax deducted by them.

What to do if the TDS credit is not reflected in Form 26AS?

In case of non-reflection of TDS credit in Form 26AS, the employee has to contact the employer to know the valid reasons. However, one can check the discrepancies by reconciling all the Form 16 received with Form 26AS.

What is the TDS calculation formula?