How TDS on Salary Works: Why Your Take-Home Is Less Than Expected

Published 30 June 2026 · GST & TDS

Rahul works at a tech company in Noida. His take-home salary is usually around ₹62,000/month. So when his February payslip showed only ₹50,000, he called HR immediately. The payslip line for TDS read ₹23,500 — nearly double the usual ₹11,200. His employer had not made an error. Rahul had submitted his investment proof in February, and the company had been deducting far too little since April. What looked like a salary cut was actually 10 months of underpaid tax being recovered in one shot.

How Your Employer Calculates Monthly TDS

In April, your employer estimates your annual income for the full financial year — salary, perquisites, and any other components. They then subtract the deductions you have declared: 80C investments, 80D insurance premiums, HRA, home loan interest, and the standard deduction of ₹75,000. This gives them a net taxable income figure. They calculate annual tax on that figure at the applicable slabs, add 4% cess, and divide by 12. That quotient becomes your monthly TDS.

The key phrase is declared deductions. In April, most employees fill an investment declaration form with placeholder amounts — "I plan to invest ₹1.5L under 80C." The employer uses those declared amounts to compute a lower TDS. Everything works fine as long as you actually make those investments and submit proof on time.

The formula adjusts every month. Actual TDS for any month = (annual tax liability − TDS already deducted) / remaining months. If you declare investments late, the employer recomputes and the remaining months absorb the entire shortfall.

Rahul's February Spike: The Exact Calculation

Rahul's annual tax liability — after all his actual deductions — works out to ₹1,34,400. If he had declared everything in April, his employer would deduct ₹11,200/month (₹1,34,400 / 12). By March, the full tax would be paid, and every month would feel the same.

Instead, Rahul declared only a small placeholder amount in April. His employer estimated minimal deductions and deducted just ₹1,500/month through January — a total of ₹15,000 over 10 months. When Rahul submitted actual investment proof in February, the employer recomputed: annual tax = ₹1,34,400, already deducted = ₹15,000, remaining = ₹1,19,400 across 2 months. That is ₹59,700 per month. Rahul's February deduction of ₹23,500 was actually a partial catch-up — his employer spread the recovery over several months rather than hitting him with the full ₹59,700.

The annual total is identical. The only difference is cash flow — and for Rahul, that difference meant a ₹12,000 shortfall in February when he had bills to pay.

What Most People Get Wrong About TDS on Salary

Many employees treat employer TDS as their complete tax obligation and forget that the deduction is based on their declared investments, not their actual investments. The employer deducts in good faith based on what you tell them. If you tell them nothing, they assume no deductions and deduct maximum TDS throughout the year — which at least avoids the February shock. If you declare large deductions and then fail to invest, you will owe the difference as self-assessment tax when filing your ITR.

The other common error: employees who receive income beyond salary — rental income, capital gains, freelance payments — do not inform their employer. The employer calculates TDS only on salary. The additional tax liability lands as self-assessment tax, plus interest under Section 234B and 234C if advance tax was not paid.

The simplest fix costs nothing. Submit your investment declaration in April with your realistic planned deductions, not just placeholders. Then submit actual proof in November or December before the employer's own deadline — not in January when everyone else does.

Form 16 and GSTR-26AS: Verify Before Filing

Form 16 is your TDS certificate from the employer. Part A shows the actual TDS deposited against your PAN, as reflected in Form 26AS. Part B shows the income computation, deductions applied, and how the tax was calculated. You need both parts to file your ITR accurately.

Before filing, cross-check Form 16 Part A against Form 26AS on the income tax portal. If TDS shown in Form 26AS is lower than what your payslips show was deducted, the employer may have deducted but not yet deposited the TDS. That shortfall is the employer's problem to resolve — but you cannot claim credit for TDS that has not been deposited to the government.

Frequently Asked Questions

How is TDS on salary calculated in India?

Employer estimates your annual income (salary + perquisites), subtracts declared deductions (80C, 80D, HRA, home loan interest), calculates tax on the net income at applicable slabs, and divides by 12 to get monthly TDS. Each month, actual TDS = (annual tax − TDS already deducted) / remaining months.

Why does my TDS increase in February and March?

If you delay submitting investment proof (rent receipts, insurance premiums, ELSS statements) until January–February, the employer deducts less TDS in April–January and then deducts the full remaining balance in the last 2–3 months, causing a spike in February and March deductions.

What happens if my employer deducts less TDS than required?

If your total tax exceeds what the employer has deducted (TDS), you must pay the balance as self-assessment tax when filing your ITR. Interest under Section 234B and 234C may also apply if advance tax was not paid. The shortfall is your responsibility, not the employer's.

Can I ask my employer to deduct more TDS to avoid paying at ITR time?

Yes — you can submit a written request to your employer to increase TDS deduction. This is useful if you have other taxable income (rent, capital gains) that your employer is not aware of. Higher employer TDS avoids the need to pay advance tax separately.

What is Form 16 and why does it matter?

Form 16 is the TDS certificate issued by your employer at the end of each financial year. Part A shows total TDS deducted (from Form 26AS). Part B shows taxable salary computation, deductions, and tax liability. You need Form 16 to file your ITR and to verify that TDS credit has been correctly reflected in Form 26AS.

Did you submit your investment declaration to HR in April at the start of the financial year — or are you waiting until January and risking a cash-flow shock in February?