Ever wondered why the salary credited to your bank account is lower than the amount stated in your offer letter? The difference could be owing to several deductions, which involve income tax. If you are salaried, being aware of such deductions can assist you in managing your month-on-month budget and avoid surprises when you file your income tax return.
TDS on salary is one of the main deductions you might notice on your payslip. Your employer computes the applicable tax depending on your estimated annual income and deducts it from your salary before paying you. In case you are even planning out to save or invest a part of your income, understanding how much tax is deducted can assist you in planning your finances well.
An investment calculator can assist you in figuring out potential returns and see how regular investments might fit into your budget.
What is TDS on salary?
TDS stands for Tax Deducted at Source. In simple words, it means tax is deducted from certain payments before the funds reaches the recipient.
For salaried, the employer deducts income tax from salary payments when required under the applicable income tax rules and deposits it with the government on the behalf of the employer.
For instance, suppose your month-on-month salary before deductions is ₹70,000. Your employer estimates your annual taxable income, calculates the applicable tax, and deducts the relevant amount from your month-on-month salary. The rest of the amount, post tax and other applicable deductions gets credited to your bank account.
The actual tax deduction must be based on factors such as your annual salary, eligible deductions and exemptions, and the tax regime you choose.
How is TDS deducted from your month-on-month salary?
Your employer usually figures out your annual salary and computes the income tax payable for the financial year. The estimated tax is then deducted from your salary over the remaining months, subject to applicable rules and adjustments.
Here is how the process works:
1. Your annual salary is estimated
Your employer considers your expected salary for the financial year. This involves applicable allowances and other taxable components. Certain exemptions or deductions might even be considered based on the tax regime and the info you provide.
2. Your taxable income is computed
Not every component of your salary is necessarily taxable in the same manner. Your employer computes your estimated taxable income post considering the applicable tax provisions.
3. The applicable income tax is computed
Your estimated taxable income is assessed under the applicable tax regime and income tax slabs. The final amount is based on the rules in force for that financial year and your individual circumstances.
4. Tax is deducted from your salary
Your employer usually deducts the estimated tax in instalments from your month-on-month salary and deposits it with the government. The amount deducted might change if your salary, declarations or estimated tax liability changes in the course of the year.
Want to understand your payslip better?
Check out the income tax deduction shown on it and compare it with your estimated annual tax liability. This can assist you in spotting discrepancies early.
How does TDS on salary impact your month-on-month budget?
Let’s say you get a salary of ₹80,000 per month before deductions. The amount credited to your bank account might be lower after income tax, provident fund contributions, and other applicable deductions.
That is why it is useful to plan out your month-on-month expenditures around your expected take-home pay rather than your gross salary.
You can divide your take-home pay into essential expenditures, savings, investments and discretionary spending. If you are considering regular investments, an investment calculator can assist you in estimating the potential value of your contributions over a selected period. Note that calculator results are estimates and not guaranteed returns.
Also, do not confuse TDS with your final tax liability. The tax deducted in the course of the year is adjusted against your actual tax payable. Based on your circumstances, you might have additional tax to pay or be eligible for a refund when you file your return.
What factors impact TDS on salary?
Your tax deduction is not necessarily the same as your colleague’s, even if you earn a similar salary. Several factors can impact the amount.
- Annual salary: A higher taxable income might lead to higher tax liability.
- Tax regime: The old and new tax regimes have different rules for tax slabs, exemptions and deductions.
- Eligible deductions and exemptions: These might impact your taxable income, based on the regime and applicable provisions.
- Other income: Income from sources such as interest or rent might affect your tax liability if applicable and properly considered.
- Changes during the year: A salary increase, bonus or revised tax declaration can change the estimated tax payable and month-on-month deductions.
It is worth reviewing such details rather than assuming your employer will deduct the same amount every month.
How can you check TDS on your salary?
You do not have to wait until the end of the financial year to understand how much tax has been deducted. A few checks can help.
- Check your payslip: Look for the income tax or TDS deduction listed alongside your other salary deductions.
- Review Form 16: Your employer usually provides Form 16 post the financial year, summarising salary income and the tax deducted.
- Check Form 26AS: Review the tax credit reflected in your Form 26AS to authenticate the TDS reported against your PAN.
- Review your income tax records: Check out the relevant tax records and return details to make sure the reported income and tax credits are consistent.
If the figures do not match, contact your employer’s payroll or finance team to understand the difference. Any discrepancy must be addressed before filing your income tax return.
What should you do if too much TDS is deducted?
In case your employer deducts more tax than your final tax liability, you might be eligible to claim a refund by filing your income tax return. This is subject to the applicable rules.
Before filing, check out your salary details, TDS records, eligible deductions and other income. If the deduction appears incorrect, ask your employer to review the computation and correct any reporting errors where possible.
Keeping your payslips, investment proofs and tax documents organised throughout the year can make this process easier.
Ending note
Being aware of how TDS on salary functions assist you in seeing where your money goes before it reaches your bank account. Assess your payslip on a regular basis, check out your tax deductions and plan out your month-on-month spending around your expected take-home pay. If you are looking to invest part of your income, an investment calculator can assist you in estimating potential returns and plan out contributions that match your financial goals. A little planning in the course of the year can make tax season easier to manage.
