Tax deducted at source (TDS) on salary is the employer's obligation to withhold income tax from each employee's pay and remit it to the government. The Income-tax Act, 2025 replaced the Income-tax Act, 1961 from 1 April 2026. The salary-TDS method — estimate annual income, apply slab rates, deduct monthly — carried over, but section numbers, form names and return formats changed. Use the new references for payments made on or after 1 April 2026.
The monthly method
- Collect the regime choice. The new tax regime is the default; an employee who wants the old regime must tell the employer. Under the old regime, collect declarations and later proofs for deductions such as HRA, section 80C-type investments and home-loan interest.
- Estimate annual taxable salary, including perquisites and income from a previous employer that the employee declares.
- Compute annual tax at slab rates, apply any rebate and add cess.
- Divide over the remaining months and deduct each month. Recalculate when salary, declarations or proofs change.
- Deposit by the 7th of the following month (March deductions by 30 April).
- File quarterly TDS statements and issue the annual salary TDS certificate (formerly Form 16) to each employee.
Slabs, rebate and standard deduction
Slab rates, the standard deduction and the rebate threshold are set by each year's Finance Act and can change every Budget. Rather than quote numbers that may age, use the official tax calculator and the current year's rate tables on the Income Tax Department's site.
Mid-year joiners
Ask joiners for salary and TDS from their previous employer in the same financial year. Without it, both employers may apply the lower slabs and the employee faces a shortfall at filing time.
Records that make this easier
Correct PAN, regime choice, joining and exit dates and salary revisions all come from the employee record. A wrong PAN, or none, can force a higher deduction rate. Keep those fields owned and reviewed, as in the HR data quality checklist.
Sources and review date
Facts in this article were checked against the official sources below as of 8 October 2026. Rates, wage ceilings, due dates and forms change by notification, so confirm on the source before acting.
- Income Tax Department (incometaxindia.gov.in)
- Income Tax e-filing portal (incometax.gov.in)
- India Code (indiacode.nic.in) — official text of central Acts
This is a general explainer written by the Kyrospect editorial team, not legal, tax or payroll advice. Applicability depends on your state, headcount, establishment type and contracts — confirm with a qualified professional or the authority concerned.
Where Kyrospect fits: Kyrospect HRMS holds employee records and Tracking records shift hours on the same identity. It does not calculate or file PF, ESI, professional tax, TDS or gratuity today — payroll is planned and gated on statutory compliance work. See the roadmap for current status.