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TDS on Salary in India: Rates, Exemptions, and How to Reduce Tax Deducted at Source (2026)
If your employer pays you ₹7,00,000 a year, the Income Tax department requires them to deduct TDS at up to 30% on the portion above ₹3,00,000. The exact rate depends on your slab, your declared investments, and whether you submit proof before the employer runs payroll. Most salaried employees can reduce TDS significantly by submitting the right declarations at the start of the financial year.
How TDS on salary works
Tax Deducted at Source (TDS) on salary is the amount your employer withholds from your pay every month and deposits with the government on your behalf. It is not an extra tax — it is an advance payment that gets credited against your total tax liability when you file your Income Tax Return (ITR).
Under the Income Tax Act 2025 (Sections 192–192A), your employer must deduct TDS before paying you the net salary. The rate is determined by estimating your annual income after accounting for the standard deduction, declared exemptions, and investment proofs you submit.
The standard deduction under Section 115WD is ₹75,000 for all salaried employees under the new regime. This amount is deducted before calculating TDS, reducing the taxable salary.
TDS rates on salary for FY 2026-27
The TDS rate on salary is not a flat percentage — it follows the income tax slab rates applicable to you. Your employer uses the slab rates from the Income Tax Act 2025 new regime to compute the estimated annual tax and then divides it by 12 to arrive at the monthly TDS instalment.
For a resident individual below 60 years, the new regime slabs for FY 2026-27 are:
| Income range | TDS rate |
|---|---|
| Up to ₹4,00,000 | Nil (rebate under Section 87A) |
| ₹4,00,001 – ₹8,00,000 | 5% on income above ₹4,00,000 |
| ₹8,00,001 – ₹12,00,000 | ₹20,000 + 10% on income above ₹8,00,000 |
| ₹12,00,001 – ₹16,00,000 | ₹60,000 + 15% on income above ₹12,00,000 |
| ₹16,00,001 – ₹20,00,000 | ₹1,20,000 + 20% on income above ₹16,00,000 |
| ₹20,00,001 – ₹24,00,000 | ₹2,00,000 + 25% on income above ₹20,00,000 |
| Above ₹24,00,000 | ₹3,00,000 + 30% on income above ₹24,00,000 |
The rebate under Section 87A still applies: if your total taxable income is up to ₹4,00,000 (under new regime), your tax is zero and so is TDS. Your employer applies this rebate based on your projected annual income.
For senior citizens (60–80 years), the exemption limit for Section 87A is ₹5,00,000. For super senior citizens (above 80 years), it is ₹7,00,000.
What reduces your monthly TDS
Your employer does not deduct TDS on your full gross salary. Three things reduce the amount on which TDS is calculated:
1. Standard deduction: Section 115WD gives every salaried employee a standard deduction of ₹75,000. This reduces your gross salary before applying slab rates.
2. Exemptions you declare: Under Chapter VIII of the Income Tax Rules 2026 (Rules 2A–2C), you can claim exemption for:
- House Rent Allowance (HRA) — if you receive HRA and pay rent, claim the minimum of: (a) HRA received, (b) 50% of salary (metro) or 40% (non-metro), (c) rent paid minus 10% of salary.
- Leave Travel Assistance (LTA) — exemption for two journeys in a block of four years.
- Section 80C investments (up to ₹1,50,000) — ELSS, PPF, EPF, life insurance premium, home loan principal.
- Section 80CCD(1B) NPS contribution (up to ₹50,000).
- Section 80D health insurance premium (up to ₹25,000 for self/spouse, ₹50,000 for senior parents).
- Section 80G donations to approved charities.
- Section 80E interest on education loan (no cap).
- Home loan interest (Section 24B) up to ₹2,00,000 for self-occupied property.
3. Form 12B or declarations: To claim these exemptions, you must submit declarations to your employer at the start of the financial year. Without a declaration, your employer deducts TDS on your full gross salary with no exemptions.
How to submit investment proofs to reduce TDS
Submit these documents to your HR or payroll team before the due date (usually 30 April for continuing employees, earlier for new joiners):
- Form 12B — Required if you have income from house property, other sources, or want to claim NPS 80CCD(1B). This form details your expected salary, exemptions, and deductions.
- HRA declaration — Rent receipts, landlord PAN (if rent exceeds ₹3,33,333 per year), and your rent agreement.
- Section 80C investment proofs — Polices, receipts, or certificates for ELSS, PPF, insurance, or home loan principal.
- Section 80D health insurance — Premium receipt or payment proof for yourself, spouse, and parents.
- NPS 80CCD(1B) certificate — From your NPS account showing the contribution amount.
- Form 10-IE — If you want to opt out of TDS on interest income from deposits (to avoid double deduction).
Keep copies of everything you submit. If your employer deducts excess TDS because you submitted late, you can claim a refund when you file your ITR — the excess will be returned.
When your employer deducts too much TDS
Sometimes TDS is deducted higher than your actual tax liability. Common reasons:
- You did not submit declarations before the payroll run.
- Your employer used old slab rates or applied the old regime by default.
- You had multiple employers in the same financial year and each deducted TDS independently.
- Income from other sources (freelance, interest, rent) was not declared.
If excess TDS was deducted, file your ITR before the due date. The Income Tax department will credit the excess TDS as a refund, which is usually processed within 1–6 weeks of processing the ITR.
TDS vs advance tax
If you have income beyond salary — such as freelance fees, interest, rental income, or capital gains — your employer only deducts TDS on your salary portion. The remaining tax liability must be paid as advance tax in quarterly instalments.
The advance tax due dates for FY 2026-27 are:
| Instalment | Due date | Amount payable |
|---|---|---|
| First | 15 June 2026 | 15% of total tax |
| Second | 15 September 2026 | 45% of total tax |
| Third | 15 December 2026 | 75% of total tax |
| Fourth | 15 March 2027 | 100% of total tax |
If your only income is salary and TDS has been deducted correctly throughout the year, you may not need to pay advance tax. However, if the TDS deducted is less than 90% of your total tax liability, you may be charged interest under Section 234B.
Frequently asked questions
Can I claim HRA if I live in my own house? No. HRA exemption requires that you pay rent for accommodation. If you own the property you live in, you cannot claim HRA, but you can claim home loan interest exemption under Section 24B.
What happens if I change jobs mid-year? Your new employer deducts TDS based only on your salary from them. Your previous employer’s TDS is credited when you file your ITR. If your combined income across both jobs pushes you into a higher slab, you may need to pay additional tax. Submit Form 12B to the new employer with details of income from the previous employer.
How do I claim refund of excess TDS on salary? File your ITR before the due date (31 July 2026 for individuals not requiring tax audit). The TDS deducted by your employer is already pre-filled in your ITR from Form 16. Verify the amounts match your Form 16 before submitting. The refund is processed by the Income Tax department after processing your return.
Does TDS apply to allowances like transport allowance or uniform allowance? Transport allowance up to ₹3,200 per month is exempt. Uniform allowance used for purchasing/renting work uniforms is exempt. Other allowances such as telephone allowance or food coupons have specific exemption rules — check with your employer.
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Sources
- Income Tax Act 2025, Section 192 (TDS on salary) (verified 2026-10-08)
- Income Tax Rules 2026, Chapter VIII (Rules 2A–2C — salary exemptions) (verified 2026-10-08)
- Income Tax Act 2025, Section 115WD (standard deduction) (verified 2026-10-08)
- Income Tax Act 2025, Section 87A (rebate for new regime) (verified 2026-10-08)
- CBDT Form 12B format (verified 2026-10-08)