Tax on Salary: How TDS is Calculated and What to Do About It

For most salaried employees, Tax Deducted at Source (TDS) is their primary interaction with the income tax system. Understanding how TDS on salary works – and how to ensure the correct amount is deducted – can save you significant money and hassle.

How Employer Calculates Your TDS

At the beginning of the financial year, your employer asks you to declare your expected investments, HRA, LTA, and other deductions. Based on this declaration, they estimate your annual tax liability and deduct it equally from each monthly salary as TDS.

The Declaration Process

Submit proof of investments to your employer’s HR/finance team before March 31st (the exact deadline varies by company). Documents include: FD certificates, LIC premium receipts, PPF passbook, ELSS statements, and home loan interest certificates.

What if Too Much TDS Was Deducted?

If your actual deductions are higher than what you declared (e.g., you made more 80C investments late in the year), you are entitled to a refund. File your ITR accurately – the IT Department will process your refund, typically within 3-4 months.

What if Insufficient TDS Was Deducted?

If you have income beyond your salary (freelance, rental, interest income) that was not accounted for in your TDS, you may have an additional tax liability. Pay it as Self-Assessment Tax before filing your ITR to avoid interest under Sections 234A, 234B, and 234C.