TDS calculation on Salary is the one that causes that creates most anxiety every HR deal with. Not because the concept is complicated. But because there are so many variables — tax regime, investment declarations, mid-year increments, previous employer salary, bonus payments — that getting it exactly right every month feels like a moving target. And the consequences of getting it wrong fall on both the employer and the employee.
I’ve seen companies deduct too little TDS all year and then scramble to recover it in February and March — causing employees to lose half their take-home in the last two months. I’ve seen companies deduct too much, creating unnecessary hardship for employees who then have to wait months for a refund. Both are avoidable if the process is set up correctly from April.
So let me walk through exactly how TDS on salary works in FY 2026-27 — with the new tax regime as default, the new section numbers, and a clear step-by-step calculation.
Changes From April 1, 2026
Two things changed that every payroll team needs to know.
First — the Income Tax Act 2025 came into effect from April 1, 2026. TDS on salary, which was previously governed by Section 192, is now under Section 392. The substance is identical — but every payroll system, TDS return, and form reference needs to reflect the new section number. If your software is still generating returns with Section 192, those returns will be rejected by the e-filing portal.
Second — form numbers changed completely. Form 16 is now Form 130. Form 24Q is now Form 143. Form 12BB (employee investment declaration) is now Form 124. Using old form numbers after April 2026 produces non-compliant documents.
The TDS rates and slabs haven’t changed. But the section references and form numbers have — and that’s where a lot of payroll software and HR teams are still behind.
New Tax Regime Slabs — FY 2026-27
We’ve covered the complete tax slab comparison — new regime vs old regime — with real examples in a separate guide. Before you start calculating TDS, read this first:
👉 New Tax Regime vs Old Tax Regime India 2026 — Complete Guide
Quick reference:
- Standard deduction: ₹75,000 (new regime) | ₹50,000 (old regime)
- Section 87A rebate: ₹60,000 — zero tax up to ₹12.75 lakh gross under new regime
- 4% Health and Education Cess applies on final tax amount
TDS Calculation
Step 1 — Estimate Annual Gross Salary
Project the employee’s full-year earnings — basic, HRA, all allowances, expected bonus, any variable pay. For new joiners mid-year, include their salary from the date of joining to March 31.
Step 2 — Subtract Standard Deduction
₹75,000 under new regime. ₹50,000 under old regime.
Step 3 — Apply Exemptions (Old Regime Only)
For employees who opted for old regime — subtract HRA exemption (actual HRA received, rent paid minus 10% of basic, or 40%/50% of basic — whichever is lowest), LTA (actual amount for eligible trips), and any other Section 10 exemptions declared in Form 124.
Step 4 — Subtract Chapter VI-A Deductions (Old Regime Only)
80C investments up to ₹1.5 lakh, 80D health insurance, NPS under 80CCD(1B) up to ₹50,000, home loan interest under Section 24 up to ₹2 lakh, and any other declared deductions.
Step 5 — Calculate Annual Tax on Taxable Income
Apply the applicable slab rates. Add 4% cess. Apply Section 87A rebate if applicable.
Step 6 — Divide by Remaining Months
Divide the annual tax by the number of months remaining in the financial year. This gives you the monthly TDS to deduct.
Also check with: Income Tax India
TDS Calculation: Example
Priya, IT Executive, Mumbai Annual Gross: ₹14,40,000 (₹1,20,000/month) Tax Regime: New (default — no Form 124 submitted)
Annual gross: ₹14,40,000 Less standard deduction: ₹75,000 Taxable income: ₹13,65,000
Tax calculation:
- Up to ₹4,00,000: Nil
- ₹4,00,001 to ₹8,00,000: 5% × ₹4,00,000 = ₹20,000
- ₹8,00,001 to ₹12,00,000: 10% × ₹4,00,000 = ₹40,000
- ₹12,00,001 to ₹13,65,000: 15% × ₹1,65,000 = ₹24,750
Total tax before cess: ₹84,750 4% cess: ₹3,390 Annual TDS: ₹88,140 Monthly TDS: ₹88,140 ÷ 12 = ₹7,345
TDS Deposit Deadline and Filing
TDS must be deposited with the government by the 7th of the following month for all months except March — March TDS must be deposited by April 30.
Quarterly returns — now called Form 143 (previously Form 24Q) — must be filed:
- Q1 (April-June): by July 31
- Q2 (July-September): by October 31
- Q3 (October-December): by January 31
- Q4 (January-March): by May 31
Form 130 (previously Form 16) must be issued to all employees by June 15 after the financial year ends.
Late deposit attracts interest at 1.5% per month under Section 201(1A). Late filing of quarterly returns attracts ₹200 per day under Section 234E. And if TDS is deducted but not deposited — Section 276B makes it a criminal offence with up to 7 years imprisonment.
How Runtime HRMS Handles TDS Calculation
TDS is one of those calculations where a single missed variable cascades into problems across the year. Wrong regime, missed declaration, untracked increment — any of these creates a year-end mess.
At Runtime HRMS, TDS is calculated automatically based on each employee’s declared regime, investment declarations submitted through the self-service portal, and salary changes as they happen. No manual recalculations. No year-end scrambles. No wrong form numbers.
Quick Summary
- TDS on salary is now under Section 392 (not 192) from April 1, 2026
- Form 16 → Form 130 | Form 24Q → Form 143 | Form 12BB → Form 124
- New tax regime is the default — employees must submit Form 124 to choose old regime
- Standard deduction: ₹75,000 (new regime), ₹50,000 (old regime)
- Section 87A rebate: ₹60,000 — zero tax up to ₹12.75 lakh gross (new regime)
- TDS deposit deadline: 7th of following month (April 30 for March)
- Recalculate TDS after every increment, declaration update, and bonus payment
- Collect Form 122 from all mid-year joiners
Read more about complience: