How TDS Is Calculated on Monthly Salary

By Varun M

Your monthly TDS isn't your monthly salary run through a slab rate. It's a slice of your employer's best guess at your ENTIRE year's tax bill — which is exactly why it jumps around after a raise, a bonus, or a late investment declaration.

Take-Home Salary Calculator

Auto-estimates your monthly income tax using this same method — fully editable if your real TDS differs.

The short answer

Under Section 192, your employer estimates your full-year salary income, works out the tax you'd owe on it, and deducts that amount in roughly equal instalments across the remaining months of the financial year. Every time your salary, declarations, or other disclosed income change, the estimate is redone — and your monthly TDS changes with it.

The mechanism: estimate first, divide second

At the start of the year (or when you join), your employer projects your full financial-year salary — your current monthly pay, annualised.
They subtract the standard deduction and any exemptions/deductions you've declared (HRA, Section 80C investments — renumbered Section 123 from Tax Year 2026-27 under the Income-tax Act, 2025 — home loan interest, etc. — under the old regime; the new regime skips most of these).
Tax is computed on that estimated taxable income using the applicable slab rates, rebate, and cess.
The resulting annual tax figure is divided by the number of months remaining in the financial year, and that amount is deducted each month going forward.

This is why TDS is not "this month's salary × your tax bracket" — it's "your whole year's estimated tax, spread evenly across what's left of the year." Every recalculation re-splits the remaining liability across the remaining months, not the whole year again.

Worked example — a mid-year raise re-triggers the estimate

New regime, standard deduction only, no other declarations. Monthly salary ₹90,000 from April, no raise expected.

Initial annual estimate: ₹90,000 × 12 − ₹75,000 standard deduction = ₹10,05,000 taxable — under the ₹12,00,000 rebate threshold, so estimated tax = ₹0. Monthly TDS from April: ₹0.
In October, a raise takes effect: ₹1,25,000/month from October to March. The employer re-estimates: (6 × ₹90,000) + (6 × ₹1,25,000) − ₹75,000 = ₹12,15,000 taxable.
This crosses the ₹12L rebate threshold, so tax is no longer zero — but marginal relief keeps it modest just above the line: annual tax = ₹15,600 (tax ₹15,000 + cess ₹600).
That ₹15,600 is spread across the 6 months remaining (October–March): ₹2,600/month, starting the month of the recalculation.

Nothing went wrong here — TDS simply went from ₹0/month to ₹2,600/month in one step, the moment the annual estimate crossed the rebate threshold. This is the same rebate cliff the Old vs New Tax Regime Calculator models for a full-year comparison — here it's showing up mid-year, inside a single employee's TDS recalculation.

Why TDS often jumps in January–March

Many employees submit investment proofs (80C, HRA rent receipts, home loan interest certificates) late in the financial year, close to the January deadline most employers set. Until proofs are submitted, some employers estimate conservatively (assuming fewer deductions) and deduct more TDS earlier in the year; once proofs land, the estimate drops and remaining-month TDS falls too — or, less favourably, if a declared deduction turns out to be less than what was assumed, the shortfall gets caught up in the final months. Submitting proofs early avoids both a temporary over-deduction and a late scramble.

Changing jobs mid-year

A new employer doesn't automatically know what your previous employer already paid you or deducted this financial year — unless you provide that via Form 12B. Without it, each employer estimates tax based only on the salary THEY pay you, which can under-estimate your true combined annual income and under-deduct TDS across the year. This typically surfaces as a larger-than-expected tax payable when you file your return — not a TDS error, just two independent, incomplete estimates.

What this means for your take-home planning

Because TDS is a projection, not a fixed monthly cost, don't assume your income tax deduction stays flat all year — especially around a raise, a job change, or the investment-declaration deadline. The Take-Home Salary Calculator auto-estimates a steady-state monthly figure using this same annualised method, but it's fully editable — replace it with your actual payslip TDS for the most accurate current figure.

FAQ

Under Section 192 (a 1961-Act citation, still correct for AY 2026-27 — renumbered Section 392 under the Income-tax Act, 2025 from Tax Year 2026-27 onward, confirmed across 4 independent sources), your employer estimates your full financial-year salary income, works out the tax you'd owe on that estimate (after standard deduction and any declared exemptions), and deducts that annual figure in roughly equal instalments across the months remaining in the year — not as a flat percentage of each month's pay.

A salary change triggers a fresh annual estimate. If your new projected annual income pushes you into a higher tax bracket or past the ₹12L new-regime rebate threshold, the recalculated annual tax is spread across the remaining months — which can mean a noticeable jump in a single month's TDS, even though nothing was miscalculated.

Often because investment proofs (80C, HRA, home loan interest) are submitted late, close to the employer's declaration deadline. If deductions assumed earlier in the year turn out to be less than actual, or if declarations arrive late, the employer catches up the difference in the remaining months — submitting proofs early avoids this.

Yes — your new employer won't know what your previous employer already paid and deducted unless you provide it via Form 12B. Without it, each employer estimates tax based only on their own salary to you, which can under-deduct TDS across the year and surface as extra tax payable when you file your return.

Yes — any excess TDS deducted across the year is refunded when you file your income tax return, reconciled against your actual final tax liability using your Form 16.

Last verified: 14 Aug 2026

Sources: Section 192, Income Tax Act, 1961 (TDS on salary — average-rate / estimated-income method); Form 12B (previous-employer salary disclosure).

Section 192 is a 1961-Act citation, still correct for AY 2026-27. The Income-tax Act, 2025 renumbers it Section 392 from Tax Year 2026-27 onward — confirmed across 4 independent sources. (An earlier version of this note said sources disagreed between 392 and 393; they didn't — 392 covers salary TDS specifically, and 393 covers TDS on everything else, which is what the sources mentioning 393 were actually describing.) See the full section concordance for more confirmed mappings.

This is indicative information. Your employer's exact recalculation timing and assumptions can vary — confirm your actual monthly TDS on your payslip, and consult a qualified tax professional for anything beyond a general estimate.