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TDS on Salary: Easy Calculation, Procedure, Tax Deduction with Example

TDS on Salary

TDS means Tax Deducted at Source is a procedure of collecting income tax in India, under the Indian Income Tax Act of 1961. When it comes to TDS on Salary the employer is the Tax Deductor and the employee is the Tax Deductee. Here is an Easy Calculation Procedure of Tax Deduction with Example.

Tax Deducted at Source or TDS on Salary is a mandatory procedure to be followed by those employers in India who are paying salaries to employees on which income tax is applicable. In TDS the employer deducts the portion of Income tax on Employee’s Salary and submit it to the government.

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TDS Calculation Procedure:

It is not a complicated task to understand and calculates the TDS ON salary. Still if you find it difficult then this Easy Calculation procedure along with example will let you know more about TDS on Salary.

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How to calculate TDS on Salary?

  • First of all calculate gross monthly income as a sum of basic income, allowances and perquisites.
  • Calculate available exemptions under Section 10 of the Income Tax Act (ITA). Exemptions are applicable on allowances such as medical, HRA, travel.
  • Trim down exemptions according to step (2) for the gross monthly income calculated in step (1).
  • As TDS on Salary is calculated on annual income, multiply the resultant figure from above calculation by 12. This is your yearly taxable income from salary.
  • If you have any other income source such as income from house rent or have incurred losses from paying housing loan interests, add/subtract this amount from the figure in step (4).
  • Next, calculate your investments for the year which fall under Chapter VI-A of ITA, and deduct this amount from the gross income calculated in step (5). An example of this would be exemption of up to Rs.1.5 lakh under Section 80C, which includes investment avenues such as PPF, life insurance premiums, mutual funds, home loan repayment, ELSS, NSC, Sukanya Samriddhi account and so on.
  • Now, reduce the maximum allowable income tax exemptions on a salary. Currently, income up to Rs.2.5 lakhs is fully exempt from paying taxes, while income from Rs.2.5 lakhs to Rs.5 lakhs is taxed at 10%, and Rs.5 lakhs to Rs.10 lakhs income bracket is taxed at 20%. All income above this amount is taxed at 30%.
  • Do note that senior citizen have different tax slabs and receive higher exemptions than those discussed above.

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Example of Calculating TDS on Salary:

Go through these steps and you will understand how to calculate TDS ON Salary:.

  • Steps (1) & (2) Take gross monthly income = Rs.80,000. The income will include – basic pay Rs.50,000, HRA of Rs.20,000, travel allowance of Rs.800, medical allowance of Rs.1,250, child education allowance (CEA) of Rs.200 and other allowances totaling 12,750.
  • Steps (3) & (4) Suppose you have your own house you are staying at, your monthly exemption from allowances equals Rs.2,250 (medical + travel + CEA). Therefore, your yearly taxable amount comes to (Rs.80,000 – Rs.2,250)*12, which comes to Rs.9,33,000.
  • Step (5) suppose you have recently bared a loss of Rs.1.5 lakhs on house loan interest repayments over the year. Reducing this exempted amount from the taxable income, your taxable income becomes Rs.7,83,000.
  • Step (6) Suppose you have invested Rs.1.2 lakhs in various categories that fall under Section 80C exemptions, and made another Rs.30,000 investment in categories falling under Section 80D. So, the resulting Rs.1.5 lakhs is exempted from taxes according to Chapter VI-A. Deducting this amount from the gross taxable income calculated above, your taxable income becomes Rs.6,33,000.
  • Step (7) Find out your Tax Slab from the Slabs prescribed by the GOI

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Your final tax breakup according to income slabs listed by the IT department is as follows:

Income Tax SlabTDS on Salary DeductionsTax Payable
Up to Rs.2.5 lakhsNILNIL
Rs.2.5 lakhs to Rs.5 lakhs10% of (Rs.5,00,000-Rs.2,50,000)Rs.25,000
Rs.5 lakhs to Rs. 6.33 lakhs20% of (Rs.6,33,000-Rs.5,00,000)Rs.26,600

Therefore, the final TDS on Salary to be deducted on your yearly income is Rs.25,000 + Rs.26,600, which comes to Rs.51,600 for current year’s income, or Rs.4,300 per month for the current fiscal.

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TDS on Salary Rate Chart:

Rates for Tax Deduction at Source for FY 2017-18

Particulars of TDS on SalaryTDS on Salary Rates (in %)
Section 192: Payment of salaryAccording to Income Slab as specified above
Section 192A: Payment of accumulated balance of provident fund which is taxable in the hands of an employee (with effect from 01.06.2015).10
Section 193: Interest on securities
a) any debentures or securities for money issued by or on behalf of any local authority or a corporation established by a Central, State or Provincial Act;10
b) any debentures issued by a company where such debentures are listed on a recognized stock exchange in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and any rules made there under;10
c) any security of the Central or State Government;10
d) interest on any other security10
Section 194: Dividend other than the dividend as referred to in Section 115-O10
Section 194A: Income by way of interest other than “Interest on securities”10
Section 194B: Income by way of winnings from lotteries, crossword puzzles, card games and other games of any sort30
Section 194BB: Income by way of winnings from horse races30
Section 194C: Payment to contractor/sub-contractor
a) HUF/Individuals1
b) Others2
Section 194D: Insurance commission5 (10% till Assessment year 2016-17)
Section 194DA: Payment in respect of life insurance policy1 (2% till 31-5-2016)
Section 194EE: Payment in respect of deposit under National Savings scheme10 (20% till 31-5-2016)
Section 194F: Payment on account of repurchase of unit by Mutual Fund or Unit Trust of India20
Section 194G: Commission, etc., on sale of lottery tickets5 (10% till 31-5-2016)
Section 194H: Commission or brokerage5 (10% till 31-5-2016)
Section 194-I: Rent
a) Plant & Machinery2
b) Land or building or furniture or fitting10
Section 194-IA: Payment on transfer of certain immovable property other than agricultural land1
Section 194J: Any sum paid by way of a) Fee for professional services, b) Fee for technical services c) Royalty, d) Remuneration/fee/commission to a director or e) For not carrying out any activity in relation to any business f) For not sharing any know-how, patent, copyright etc.10
Section 194LA: Payment of compensation on acquisition of certain immovable property10
Section 194LBA(1): Business trust shall deduct tax while distributing, any interest received or receivable by it from an SPV or any income received from renting or leasing or letting out any real estate asset owned directly by it, to its unit holders.10
Section 194LBB: Investment fund paying an income to a unit holder [other than income which is exempt under Section 10(23FBB)]10
Section 194LBC: Income in respect of investment made in a securitization trust (specified in Explanation of Section 115TCA)25% in case of Individual or HUF 30% in case of other person
Any Other Income10

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Deduction Rate of TDS on Salary for Financial Year 2017 – 2018

Tax applicable for individuals below 60 years

Annual IncomeTax RatesEducation CessSecondary and Higher Education Cess
Up to Rs.2,50,000NilNilNil
Rs.2,50,001-Rs.5,00,0005%2% of income tax1% of income tax
Rs.5,00,001-Rs.10,00,000Rs.12,500 + 20%2% of income tax1% of income tax
Above Rs.10,00,000Rs.1,12,500 + 30%2% of income tax1% of income tax

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Tax applicable for individuals over 60 years and under 80 years

Annual IncomeTax RatesEducation CessSecondary and Higher Education Cess
Up to Rs.3,00,000NilNilNil
Rs.3,00,001-Rs.5,00,0005%2% of income tax1% of income tax
Rs.5,00,001-Rs.10,00,000Rs.10,00 + 20%2% of income tax1% of income tax
Above Rs.10,00,000Rs.1,10,000 + 30%2% of income tax1% of income tax

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Tax applicable for individuals over 80 years and above

Annual IncomeTax RatesEducation CessSecondary and Higher Education Cess
Up to Rs.5,00,000NilNilNil
Rs.5,00,001-Rs.10,00,00020%2% of income tax1% of income tax
Above Rs.10,00,000 Rs.1,12,500Rs.1,00,000 + 30%2% of income tax1% of income tax

TDS on Salary should be deducted at applicable rates as above along with surcharge and Education Cess.

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What items are allowed for exemption in TDS on Salary.?

  • PPF (Public Provident Fund)
  • ELSS (Equity Linked Savings Scheme)
  • Contribution to EPF (Employees Provident Fund)
  • Bank FDs
  • NSC (National Savings Certificate)
  • Premiums paid towards life insurance policies
  • Repayment of home loan principal amount
  • Transport allowance
  • House Rent Allowance
  • Savings under Section 80C of the Income Tax Act, 1961

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What are the items on which deductions can be claimed under Section 80C for TDS on Salary.?

  • Investment in Public Provident Fund
  • National Savings Certificate
  • Employee’s share of Provident Fund contribution
  • Premium payment towards life insurance policies
  • Tuition fees of children
  • Home loan principal repayment amount
  • Unit linked insurance plans
  • Equity linked savings schemes
  • Investment in Sukanya Samriddhi Account
  • Amount paid to buy deferred annuity
  • Senior Citizens savings scheme
  • 5-year deposit scheme
  • Subscription to notified deposits scheme / notified securities
  • Subscription to National Housing Bank’s Home Loan Account Scheme
  • Contribution to LIC’s notified annuity plan
  • Subscription to deposit scheme of companies involved in offering housing finance or public sector companies
  • Contribution to notified Pension Fund set up by UTI or Mutual Fund
  • Subscription to NABARD’s notified bonds
  • Subscription to debentures / equity shares of approved eligible issues

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With the assistance of this page it will become easier for you all to understand the concept of TDS on Salary. Still if you have any query in your mind regarding the details given then mention your comments in below stated comment box.

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