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What is TDS and how it is calculated?

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0 2021-09-16T17:27:49+00:00
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In this answer, I will explain what is TDS and how it is calculated. Well, TDS or Tax Deducted at Source is the amount that an authorized deductor deducts from an individual’s income and deposit it to the IT department.

Let me explain what is TDS how it is calculated with the help of an example:

TDS on salary is calculated after deducting the amount of exemption from the total annual salaried income. The allowances given below are considered for tax exemption:

  1. House Rent Allowance

  2. Leave Travel Allowance

  3. Children Education Allowance

  4. Standard Deduction

 The TDS on salary will be deducted at the employee’s average income tax rate,

Average Rate of Income Tax = {Income tax payable (calculated via slab rates)}/( Estimated income of the employee for the financial year)

 

Example:

If Rahul (57 years old) gets a salary of Rs. 1 lakh monthly during the Financial year 2019-2020. Then the TDS on salary will be – 

Total income = Rs. 12 lakh

Estimated deduction = Rs. 1 lakh

Income chargeable to tax = Rs. 11 lakh

His TDS on salary according to the current slab rate = Rs. 142500.

 Next, we’ll add 4% education & higher education cess = Rs. 5700

Now, the net tax payable = Rs. 148200.

 

Average rate of TDS on salary = Rs. (148200/1200000)x100.

Rahul’s rate of TDS on salary = 12.35 %

 

TDS on salary that will be deducted monthly = Rs. 1 lakh x 12.35 % = Rs. 12350.

 

If you find this calculation difficult, then worry not. There is a simple way to calculate the TDS on salary. You can use this TDS calculator of Indian Tax Department:

TDS Calculator

Read more:

How to deposit TDS online?

How to deduct TDS on GST bill?

How long does it take to get TDS refund?

How to calculate TDS on professional fees?

I hope now you know what is TDS and how is it calculated.

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