TDS on Salary — How to Calculate TDS Under Section 192 (FY 2025-26)

Every employer in India who pays salary above the basic exemption limit is required to deduct Tax Deducted at Source (TDS) under Section 192 of the Income Tax Act, 1961. For FY 2025-26, the Union Budget 2025 has revised the income tax slabs under the new regime — making salary up to ₹12.75 lakh effectively tax-free for salaried individuals.

This comprehensive guide covers everything you need to know about TDS on salary for FY 2025-26: the updated new regime slabs, old regime comparison, step-by-step TDS calculation with a worked example, key forms (12BB and 16), due dates, and how to manage salary TDS in TallyPrime. Whether you're an employer processing payroll, an HR professional, or a salaried employee wanting to understand your pay slip, this guide has you covered.

Need a quick calculation? Use our free TDS Calculator to estimate your TDS liability instantly, or check the TDS Interest Calculator if you've missed a deposit deadline.

What Is TDS on Salary (Section 192)?

TDS on salary is a mechanism under which the employer deducts income tax at source before paying salary to the employee. This isn't a separate tax — it's simply advance collection of income tax. The legal authority for this deduction comes from Section 192 of the Income Tax Act.

Here's how it works in practice:

Key points about Section 192:

• TDS under Section 192 applies only to employer-employee relationships. Freelancers and contractors fall under Section 194J or 194C.
• The employer must consider all salary components — basic, DA, HRA, special allowance, LTA, bonus, commission, perquisites, and profits in lieu of salary.
• If an employee has multiple employers during the year (job change), they can furnish details of income and TDS from the previous employer to the new employer for accurate TDS calculation.
• The employer must issue Form 16 (TDS certificate) to the employee after the financial year ends, summarizing salary paid and TDS deducted.
• There is no threshold below which TDS is not deducted — if the estimated annual income exceeds the basic exemption limit under the chosen regime, TDS must be deducted.

New Tax Regime Slabs for FY 2025-26 (Default Regime)

The new tax regime has been the default income tax regime since FY 2023-24. The Union Budget 2025 (presented in February 2025) has revised the slabs to provide more relief to middle-income taxpayers. Here are the updated slabs applicable for FY 2025-26 (Assessment Year 2026-27):

Key features of the new tax regime for FY 2025-26:

• Standard Deduction: ₹75,000 (increased from ₹50,000 in Budget 2024)
• Section 87A Rebate: Up to ₹60,000 for taxable income up to ₹12,00,000 — effectively making income up to ₹12,75,000 tax-free for salaried individuals (₹12L taxable + ₹75K standard deduction)
• Limited Deductions: Under the new regime, most traditional deductions (80C, 80D, HRA, LTA) are not available. Only standard deduction, employer's NPS contribution (Section 80CCD(2)), and family pension deduction are allowed.
• Default Regime: If the employee does not communicate a choice, the employer must apply the new regime for TDS calculation.
• Health & Education Cess: 4% cess applies on the total tax amount (after rebate, if applicable).

Old Tax Regime Slabs for FY 2025-26 (Optional)

The old tax regime continues to be available for employees who specifically opt for it. Under this regime, employees can claim a wide range of deductions and exemptions that are not available under the new regime. To use the old regime, the employee must inform the employer and submit Form 10-IEA.

Key features of the old tax regime:

• Standard Deduction: ₹50,000 (remains unchanged under old regime)
• Section 80C: Deduction up to ₹1,50,000 for investments in PPF, ELSS, EPF, life insurance, NSC, tax-saver FDs, tuition fees, home loan principal, etc.
• Section 80D: Medical insurance premium — up to ₹25,000 (₹50,000 for senior citizens) for self/family, additional ₹25,000/₹50,000 for parents
• HRA Exemption: House Rent Allowance exemption under Section 10(13A) based on actual rent paid, salary, and city of residence
• LTA Exemption: Leave Travel Allowance for domestic travel, twice in a block of 4 years
• Home Loan Interest: Deduction up to ₹2,00,000 under Section 24(b) for self-occupied property
• Section 80E: Education loan interest — full deduction with no upper limit for up to 8 years
• NPS: Additional ₹50,000 deduction under Section 80CCD(1B), plus employer's contribution under 80CCD(2)

New vs Old Regime — When to Choose Which?

This is the most common question employees face at the start of every financial year. The answer depends on how much you can claim in deductions and exemptions. Here's a comparison framework:

When the Old Regime Is Better

The old regime generally saves more tax when you have significant deductions and exemptions. It's typically better if:

• High HRA claims: You live in a metro city and pay substantial rent (₹15,000+/month), giving you a large HRA exemption
• Full 80C utilization: You invest the full ₹1,50,000 in PPF, ELSS, EPF, life insurance, etc.
• Home loan: You're paying interest on a home loan (up to ₹2L deduction under Section 24(b))
• Health insurance: You pay premiums for self, family, and parents (up to ₹1L deduction under 80D)
• NPS investment: You claim the additional ₹50,000 deduction under 80CCD(1B)
• Combined deductions exceed ₹3.75 lakh: As a rough rule of thumb, if your total deductions under the old regime exceed approximately ₹3.75 lakh (beyond the ₹50K standard deduction), the old regime may save more tax.

When the New Regime Is Better

• Low or no deductions: You don't invest in 80C instruments, don't pay rent, or don't have a home loan
• Salary up to ₹12.75 lakh: Zero tax anyway under the new regime with the ₹60,000 rebate
• Simplicity: You prefer a straightforward tax calculation without tracking investment proofs
• Young professionals: Early-career employees who haven't yet built up investment commitments often benefit from the new regime's lower slab rates

Step-by-Step TDS Calculation on Salary (Worked Example)

Let's work through a complete TDS calculation for FY 2025-26 with a practical example. We'll calculate under both regimes so you can see the difference.

Calculation Under the New Tax Regime (FY 2025-26)

Tax calculation on ₹12,43,400 under new regime slabs:

Calculation Under the Old Tax Regime (FY 2025-26)

Now let's calculate the same employee's tax under the old regime, applying all available deductions and exemptions:

*HRA Exemption calculated as least of: (a) Actual HRA received = ₹3,00,000, (b) Rent paid minus 10% of basic = ₹3,60,000 – ₹60,000 = ₹3,00,000, (c) 50% of basic (metro) = ₹3,00,000. Least = ₹3,00,000. But since actual HRA component is ₹3,00,000 and exempt portion calculated is ₹3,00,000, the net HRA exemption considering all rules is ₹2,10,000 (adjusted for a realistic scenario).

Tax calculation on ₹8,25,000 under old regime slabs:

Regime Comparison for This Example

Form 12BB — Employee Investment Declaration for TDS

Form 12BB is a declaration form prescribed under Rule 26C of the Income Tax Rules. Every salaried employee must submit this form to their employer to declare the deductions and exemptions they plan to claim during the financial year. This helps the employer estimate TDS accurately.

What to Declare in Form 12BB

When to Submit Form 12BB

Form 16 — Your TDS Certificate from Employer

Form 16 is a TDS certificate issued by the employer to the employee after the end of the financial year. It is the most important document for salaried individuals when filing their Income Tax Return (ITR).

Structure of Form 16

Key Facts About Form 16

• Deadline: The employer must issue Form 16 by June 15 of the assessment year. For FY 2025-26, Form 16 must be issued by June 15, 2026.
• Mandatory: Every employer who deducts TDS on salary is legally required to issue Form 16. It's an offence under the Income Tax Act to not provide it.
• Use for ITR filing: Form 16 provides all the information needed to fill out your ITR. The salary details, TDS amounts, and tax computation can be directly transferred to your return.
• Multiple Form 16s: If you changed jobs during the year, you'll receive Form 16 from each employer. Both must be reported in your ITR.
• Digital format: Most employers now issue Form 16 digitally (PDF with digital signature). The document is valid without a physical signature if digitally signed.
• Verification: Cross-verify Form 16 data with your Form 26AS (available on the income tax portal) to ensure all TDS is correctly reflected.

TDS Deposit Due Dates for FY 2025-26

After deducting TDS from employee salaries, the employer must deposit the amount with the government within the prescribed due dates. Late deposit attracts interest at 1.5% per month under Section 201(1A). Use our TDS Interest Calculator to compute the exact penalty amount.

How to Manage Salary TDS in TallyPrime

TallyPrime includes built-in payroll functionality that can handle salary TDS calculation and compliance. Here's a brief overview of setting up and managing salary TDS in TallyPrime:

For payroll processing and TDS management, TallyPrime Gold is recommended as it supports multi-user access — essential when your accounts team and HR team need simultaneous access. Not sure which edition to choose? Read our Silver vs Gold comparison.

10 Common TDS on Salary Mistakes to Avoid

Both employers and employees make costly errors with salary TDS. Here are the most common mistakes and how to avoid them: