Section 192 - What is TDS on Salary and how is TDS computed?

Introduction

When you receive a salary, your employer is often required to deduct tax at source — known as TDS (Tax Deducted at Source)  under India’s Income Tax Act. Section 192 governs TDS on salary payments. It mandates that the employer estimate the employee’s taxable income for the year, apply the applicable tax slab, and allocate monthly deductions accordingly. Whether you are earning a regular salary, receiving a bonus, arrears, or allowances, Section 192 affects how much tax gets deducted during the year. For employees who may end up with lower taxable income (after deductions/exemptions) and for employers who must ensure correct deductions and timely deposit, understanding Section 192 is critical.

What is TDS on Salary under Section 192?

Under Section 192 of the Income‑tax Act, 1961, any person responsible for paying salary to an employee must deduct tax at source on that salary payment, at the time of payment or credit of salary, if the employee’s estimated total income (including salary & other income) is likely to exceed the basic exemption limit.

This ensures tax collection is spread through the year and not left entirely to the employee at year‑end.

Who must deduct TDS under Section 192?

Any employer or person who pays a salary (company, firm, trust, HUF, individual) to employees is liable.
Key condition: there must be an employer‑employee relationship and salary income being paid.

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When is TDS deducted?

TDS becomes deductible when salary is paid or credited to the employee (whichever is earlier). This includes monthly salary, bonus, arrears, advance salary, etc. If the estimated taxable income is below the exemption limit, no TDS may be necessary.

How is TDS on Salary Computed?

The computation of TDS under Section 192 follows these broad steps:

Step 1: Estimate Gross Salary for the Year

Employer estimates total salary income for the year. This includes:

• Basic salary + Dearness Allowance (DA) + Commission (where applicable)
• Other allowances (Dearness, HRA, LTA, special allowances)
• Perquisites (rent‑free accommodation, car, etc.)
• Bonus or commission paid or payable
• Past employer's salary for that year if you changed jobs

Step 2: Deduct Exemptions under Section 10 & Standard Deduction

From the gross salary, various exemptions and allowances are subtracted, for example:

• Standard deduction for salaried employees (₹ 50,000 under the old regime)
• HRA, LTA, etc, under Section 10

Step 3: Add Other Income & Deduct Chapter VI‑A Deductions

Employer may consider other income declared by employee (such as interest, house property) and deductions under Chapter VI‑A (80C, 80D, etc) to arrive at Estimated Total Income.

Step 4: Apply Applicable Tax Slab / Regime

Depending on whether the employee opts for the old tax regime or the new tax regime (Section 115BAC), the employer uses the relevant tax slab and computes the estimated tax liability for the year. Under Section 192, there is no fixed TDS rate; instead, deduction is based on the average rate of tax applicable to the estimated income.

2025‑26 Tax Slabs (New Regime)

Taxable Income

Tax Rate

Up to ₹4 lakh

NIL

₹4 lakh – ₹8 lakh

5%

₹8 lakh – ₹12 lakh

10%

₹12 lakh – ₹16 lakh

15%

₹16 lakh – ₹20 lakh

20%

₹20 lakh – ₹24 lakh

25%

Above ₹24 lakh

30%

Step 5: Divide by Number of Remaining Months

Once the annual estimated tax liability is computed, the employer divides it by the number of months remaining in the financial year (or employment period), to determine the monthly TDS deduction. Example: Estimated tax ₹1,17,000, divided by 12 months → ₹9,750 per month.

Step 6: Adjust for Change of Jobs or Multiple Employers

If an employee switches jobs during the year or has multiple employers, they should submit Form 12B (or details) to the new employer. The new employer will consider past salary and TDS for the remaining months. Failure to declare may lead to a higher deduction.

Key Rules, Timelines & Compliance

• Employer must deposit the TDS amount with the government within the prescribed time: generally within 7 days of the next month if deducted in a month other than March; if deducted in March, deposit by 30 April. For government employers: deposit on the same day.

• Employer must file a quarterly TDS return in Form 24Q (Annexures I & II).

• Employer must issue Form 16 (Parts A & B) to employees after year‑end, showing salary paid and tax deducted.

• If the employer fails to deduct or deposit TDS, interest/penalties apply:

  • Under Section 234E, a late fee of ₹200/day for delayed return filing.
  • Interest for non‑deduction or late deposit.

Example of TDS Computation

Let’s assume Mr. X (age 35) has an estimated gross salary of ₹12,00,000 for FY 2025‑26, claims Chapter VI‑A deductions of ₹1,50,000, and a standard deduction of ₹50,000.

• Gross salary: ₹12,00,000
• Less standard deduction: ₹50,000 → ₹11,50,000
• Less deductions: ₹1,50,000 → taxable income ₹10,00,000
• Tax as per new regime (assuming), say taxable income ₹10 lakh → apply slab → say ~₹1,00,000 tax + cess 4% = ₹1,04,000 estimated liability
• Monthly TDS deduction = ₹1,04,000 ÷ 12 = approx ₹8,667 per month

This is simplified; the actual employer may adjust for allowances & perquisites.

Conclusion

Section 192 ensures that salary income is taxed promptly through monthly TDS instead of a large tax demand at the year’s end. For employers, this means correctly estimating employees’ incomes, obtaining investment declarations, deducting appropriate TDS monthly, depositing it on time, and filing required returns.