What is TDS in Salary?

If you’ve recently started earning a salary in India, you may have come across the term TDS. So, what is TDS in salary? TDS stands for “Tax Deducted at Source,” a system where your employer deducts tax from your salary before paying it to you and deposits it with the government on your behalf. This ensures that income tax is collected efficiently throughout the financial year rather than as a lump sum at the end.

How TDS Works on Salary

Understanding what TDS is in salary helps employees plan their finances better. Here’s how it works:

• Applicable Income: TDS is deducted only if your estimated annual income exceeds the basic exemption limit (₹2.5 lakh under the old tax regime or ₹3–4 lakh under the new regime).
• Calculation: The deduction depends on your taxable income, eligible deductions under sections like 80C, 80D, and the applicable tax slab.
• Monthly Deduction: Employers deduct TDS every month from salary, including allowances, bonuses, and arrears.
• Form 16: The deducted amount is documented in Form 16, which acts as proof of TDS and can be used while filing income tax returns.
• Refunds: If excess TDS is deducted, employees can claim a refund after filing their income tax return.

Benefits of TDS in Salary

Knowing what TDS is in salary is important because it:

• Ensures timely tax collection and avoids a large tax burden at year-end.
• Helps prevent tax evasion by deducting tax at the source of income.
• Provides employees with a record of tax payments via Form 16 for transparency.

Stay Tax-Compliant with TDS

Understanding what TDS is in salary is crucial for all salaried employees. It helps manage tax payments efficiently, ensures compliance with the law, and prevents any last-minute tax burdens. Always review your TDS deductions and submit relevant proofs of deductions to optimise your tax payments.