Tax Deducted at Source(TDS)
Tax Deducted at Source is India's mechanism for collecting income tax at the point of payment. Employers deduct estimated income tax from employee salaries each month and remit it to the government, reconciling against the employee's annual tax liability.
TDS on salary works differently from TDS on other payment types such as rent, professional fees, or interest, which use fixed statutory percentages. For salary, the employer projects the employee's total taxable income for the financial year, factoring in declared investments, exemptions, and the employee's chosen tax regime, computes the resulting tax liability, and withholds an even monthly share of it, deducted at the point of actual payment rather than accrual.
Under the Union Budget 2025-26 changes to the default new tax regime, the government announced no income tax payable on total income up to 12 lakh rupees per year (excluding special-rate income such as capital gains), rising to an effective 12.75 lakh rupees for salaried employees once the 75,000 rupee standard deduction is applied.
Employers deposit deducted TDS with the government by the 7th of the following month (30 April for March deductions), and file consolidated salary-TDS returns quarterly on Form 24Q, issuing each employee a Form 16 at year-end as proof of deduction. From 1 April 2026, these obligations continue under Section 392 of the new Income Tax Act, 2025, which consolidates and replaces Section 192 of the 1961 Act without changing the underlying mechanics.
References
- Tax Deduction at Source (TDS) — Income Tax Department, Government of India
- No Income Tax on Annual Income Upto Rs. 12 Lakh Under New Tax Regime — Press Information Bureau, Government of India