How the monthly deduction is computed
At the start of the financial year the employer estimates each employee's annual salary, applies the standard deduction and any declared exemptions or deductions permitted under the regime the employee has chosen, computes the year's tax including 4% health and education cess, and divides it across the remaining months. Each month's TDS is revised when salary, declarations or the regime change.
The new regime is the default. For FY 2026-27 its slabs are nil up to ₹4 lakh, 5% for ₹4–8 lakh, 10% for ₹8–12 lakh, 15% for ₹12–16 lakh, 20% for ₹16–20 lakh, 25% for ₹20–24 lakh and 30% above ₹24 lakh, with a ₹75,000 standard deduction for salaried employees. A rebate under section 87A of up to ₹60,000 makes tax nil for taxable income up to ₹12 lakh, or ₹12.75 lakh gross for salaried employees. Employees who prefer the old regime must declare it to the employer.
- Collect regime declaration and investment declarations in April
- Estimate annual taxable salary; compute tax plus 4% cess; divide over remaining months
- Re-estimate when there is a raise, bonus, joiner mid-year or proof submission
- Verify proofs in January–February and true up in the last months
Deposit, returns and certificates
TDS deducted in a month must be deposited through a challan by the 7th of the following month; for March the deadline is 30 April. Quarterly statements in Form 24Q report employee-wise deductions, and the fourth-quarter 24Q carries the full-year salary details that populate Form 16.
Form 16 must be issued to every employee from whom tax was deducted by 15 June following the financial year. Form 16 Part A is generated from TRACES and Part B shows the salary computation.
Common failures in small companies
Not deducting at all because salaries are below the threshold, then missing a bonus or mid-year raise that tips an employee over; applying the old regime by default; ignoring previous-employer salary for mid-year joiners, which understates the estimate; and depositing late, which attracts interest. A simple annual projection sheet per employee, refreshed quarterly, prevents most of these.
Where an employee's total taxable salary stays under ₹12.75 lakh gross in the new regime, TDS is nil after the rebate, but the employer must still report the salary in 24Q and issue Form 16 if any tax was deducted at any point.
Annual gross salary is ₹14,00,000 after removing employer PF and gratuity from a ₹15 lakh CTC. Less standard deduction of ₹75,000 gives taxable income of ₹13,25,000. Tax: nil on the first ₹4 lakh, ₹20,000 on ₹4–8 lakh, ₹40,000 on ₹8–12 lakh, and 15% on ₹1,25,000 which is ₹18,750, totalling ₹78,750. The rebate does not apply above ₹12 lakh. Add 4% cess of ₹3,150 for annual tax of ₹81,900, or ₹6,825 per month deducted from April.
Attend Mitra's payroll preparation includes TDS settings so a monthly deduction can be applied and shown on payslips and the salary register. It does not compute or file 24Q or issue Form 16; those are done by the employer or their tax practitioner.