How to Calculate TDS Rate on Salary

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What is TDS

TDS stands for Tax Deducted at Source. This is a mechanism for collecting direct tax at the time of payment. The income tax department introduced this mechanism for direct tax collection like Salary, Rent, Commission, Professional and Technical, Contractor, Interest, etc.

Sections of TDS

Here are some popular TDS sections that many firms or companies are using. TDS all Sections Rates and Threshold Limit.

  • 192 –TDS ON SALARY
  • 194 –TDS ON DIVIDEND
  • 194C –TDS ON CONTRACTOR
  • 194D –TDS ON INSURANCE COMMISSION
  • 194H –TDS ON COMMISSION OR BROKERAGE
  • 194I -TDS ON RENT
  • 194J -TDS ON PROFESSIONAL AND TECHNICAL SERVICES
  • 194Q –TDS ON PURCHASE OF GOODS

TYPES OF TDS

Here are some examples of Types of TDS

  • Salaries
  • Interest payments by banks
  • Commission payments
  • Rent payments
  • Consultation fees
  • Professional fees
  • Contractor fees
  • Purchase of Goods

SECTION 192 – Calculate TDS Rate ON SALARY

Example:- One-month salary slip of Mr. A (For Metro City) and calculating estimated salary for 12 months.

INCOMEAMOUNTDEDUCTIONAMOUNT
BASIC SALARY30000PF3600
HRA15000LWF25
SPECIAL ALL. 8500INCOME TAX1980
OTHER ALL. 9500
TOTAL63000TOTAL5605
NET PAY57395

DEDUCTION DECLEARED

Example- Annually estimated deduction of Mr. A

DEDUCTIONSAMOUNT
80C (PF)43200
80C (LIC)22500
HRA84000
STANDARD DEDUCTION50000
TOTAL199700

Calculate TDS Rate on Salary

We are calculating the average TDS rate on salary because the TDS rate is not fixed and we are calculating on estimated salary. It depends on annual salary and deductions.

If salary increases after few months then the TDS rate will be increased. Not all employees’ TDS rates need to be the same, It may be different because all employee’s salaries are not the same, every employee has a different salary structure or CTC.

As per the above salary slip of Mr. A, Calculate the estimated annual salary or income and deductions.

PARTICULARAMOUNT
A-TOTAL ANNUAL INCOME (63000X12)(ESTIMATED)756000
B-TOTAL ANNUAL DEDUCTIONS (ESTIMATED)199700
C-ESTIMATED TAXABLE INCOME (A-B)556300

As per Old Tax Slab:-

TAX SLAB (OLD TAX REGIME)TAX AMOUNT
2500000
250000 @5%12500
 56300 @20%11260
TOTAL (556300)TOTAL (23760)

Formula:-

Average TDS Rate = TOTAL TAX * 100 / YEARLY ESTIMATE SALAY   

Avg. TDS Rate = 23760 * 100 / 756000 

Avg. TDS Rate = 3.143%

TDS Rate is @3.143% on salary Rs.63000/month = 1980

WHO DEDUCT TDS ON SALARY

Every firm or company who pay salary to employee, they will liable to deduct a TDS on salary.

  • Proprietor Ship / Firm
  • HUF / Indivisual
  • Partner Ship
  • Company
  • Co-Operative
  • Organization
  • College / University
  • Govt Organization

Frequently Asked Questions

TDS stands for Tax Deducted at Source. This is a mechanism for collecting direct tax at the time of payment. The income tax department introduced this mechanism for direct tax collection like Salary, Rent, Commission, Professional and Technical, Contractor, Interest, etc.
We are calculating the average TDS rate on salary because the TDS rate is not fixed and we are calculating on estimated salary. It depends on annual salary and deductions.If salary increases after a few months then the TDS rate will be increased. Not all employees' TDS rates need to be the same, It may be different because all employee's salaries are not the same, every employee has a different salary structure or CTC.
Every firm or company who pay salary to the employee, they will liable to deduct a TDS on salary.

For any query or complaint mail at [email protected]

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