TDS (Tax Deducted at Source) is how the Indian government collects income tax before you even see your salary. For salaried employees, it works through your employer — who is legally required under Section 192 of the Income Tax Act 1961 to deduct the estimated annual tax and remit it to the government monthly. Understanding TDS is essential not just to verify your salary slip, but to avoid notices, claim refunds correctly, and plan your investments for the year.

This guide covers how TDS on salary is calculated, what Form 16 and Form 26AS contain, TDS rates on FD interest and rent, how to submit investment proofs, and how to claim a TDS refund. Use CalcDesk’s Income Tax Calculator to estimate your annual tax and monthly TDS.

How TDS on Salary is Calculated — Step by Step

Your employer follows this process at the beginning of each financial year (April):

1. Project annual income: Estimated gross salary for the full year
2. Subtract standard deduction: ₹75,000 (New Regime) or ₹50,000 (Old Regime)
3. Subtract declared deductions (Old Regime only): HRA, 80C investments, 80D premiums, home loan interest — as declared in Form 12BB
4. Apply tax slabs: Calculate annual tax on taxable income
5. Add cess, subtract rebate: 4% health & education cess; Sec 87A rebate if applicable
6. Divide by 12: Monthly TDS = Annual tax ÷ 12 (adjusted in later months if income changes)

TDS Rate Chart — Common Sections FY 2026-27

Form 16 — Your TDS Certificate from Employer

Form 16 is a certificate issued by your employer confirming the TDS deducted on your salary and deposited with the government. It is mandatory if any TDS was deducted. Employers must issue Form 16 by 15 June 2026 for FY 2026-27.

Form 16 — Part A

• Employer name, TAN (Tax Deduction Account Number), and PAN
• Your name and PAN
• Quarter-wise TDS deducted and deposited
• Total TDS for the year

Form 16 — Part B

• Detailed salary breakup (basic, HRA, allowances)
• Exemptions claimed (HRA amount, LTA)
• Deductions under Chapter VIA (80C, 80D, 80G, etc.)
• Taxable salary and tax computation
• Relief under Sec 89 (if any)

Form 26AS — Your Complete Tax Passbook

Form 26AS (now integrated with AIS — Annual Information Statement) shows all taxes deposited against your PAN. Access it on incometax.gov.in under the e-File section.

Form 26AS shows:

• TDS deducted by employer (should match Form 16 Part A exactly)
• TDS on FD interest (from your bank)
• TDS on rent (from tenants, if applicable)
• Advance tax paid
• Self-assessment tax paid
• Refunds received in the year

Form 12BB — Investment Declaration to Employer

Form 12BB is the declaration you submit to your employer at the beginning of the financial year listing all exemptions and deductions you plan to claim. This determines your monthly TDS calculation. Include:

• HRA claim (rent amount, landlord PAN if rent > ₹1L/year)
• LTA claim
• 80C investments (PF, PPF, ELSS, LIC, principal on home loan)
• 80D health insurance premiums
• Home loan interest (Sec 24b)
• NPS personal contribution (80CCD(1B))

Submit proof documents by January/February (your company’s deadline) for correct TDS in the final months of the year.

TDS on FD Interest — What You Need to Know

Banks deduct TDS at 10% on FD interest under Section 194A if total interest across all FDs in a bank exceeds ₹40,000 (₹50,000 for senior citizens) in a year. This applies per bank — you could have multiple bank FDs without TDS if each stays below the threshold.

How to Avoid TDS on FD — Form 15G / 15H

• Form 15G: For individuals below 60 years whose total income is below the taxable limit. Submit to your bank at the start of each financial year
• Form 15H: For senior citizens (60+). No income condition — submit if tax liability is nil
• Even if you submit 15G/H, you must declare the interest income in your ITR if taxable

TDS on Rent — Tenant’s Responsibility

If you pay rent above ₹50,000/month, you must deduct TDS at 5% under Section 194-IB and deposit it with the government using Challan 281. You then issue Form 16C (TDS certificate) to your landlord. Failure to deduct makes you liable for the TDS plus 1.5% interest per month.

How to Claim a TDS Refund

If total TDS deducted exceeds your actual tax liability, the excess is refunded by the IT department. To claim:

1. File your ITR accurately, declaring all income sources
2. The ITR system auto-computes refund = TDS paid − Tax payable
3. Pre-validate your bank account on incometax.gov.in
4. After ITR processing and verification (e-verify within 30 days of filing), refund is credited to your bank account
5. Typical processing time: 2–6 months from ITR filing
6. Track refund status on incometax.gov.in under “Refund Status”

TDS Mismatch Notice — How to Respond

A Section 143(1) intimation (commonly called a “mismatch notice”) is issued when the Income Tax Department’s processing system detects a discrepancy between income reported in your ITR and income data available in AIS or Form 26AS. These are system-generated — not a human officer — and are the most common type of income tax notice received by individuals.

What triggers it: Income visible in AIS or Form 26AS (with TDS deducted) but not reported in your ITR; income reported in ITR at a different amount than TDS data suggests; deductions claimed in ITR that the system cannot match to submitted proofs.

Response process: Log in to incometax.gov.in → e-Proceedings → open the notice → “Submit Response” → for each adjustment, either accept it or disagree with a justification. You must respond within 30 days of the notice date (extension can be requested by uploading a letter with reasonable cause).

Lower TDS Certificate — Form 13

Form 13 is an application to the Assessing Officer (AO) requesting a certificate that directs your deductor to deduct TDS at a lower rate — or nil — on specific income. It is legally provided under Section 197 of the Income Tax Act and is especially valuable in high-TDS situations where standard rates result in large refund claims that block working capital for months.

Who benefits most from Form 13:

• NRIs selling property in India — standard TDS is 20%+ on the sale value (not just the gain), but actual tax liability may be far lower after indexation and exemptions
• Companies or individuals in losses who receive contract payments subject to 1–2% TDS but have no actual tax liability
• Investors with large capital gains offset by capital losses — TDS deducted by AMCs on redemptions may exceed actual tax after netting losses

How to apply: File Form 13 online on the TRACES portal (tdscpc.gov.in). State your projected income, deductions, tax liability, and reason for lower TDS. The AO reviews the application — typically responds within 30 days, may take up to 45 days for complex cases. The certificate, once issued, is valid for the current financial year only and must be renewed annually.