Every salaried employee has tax deducted before they even see their salary — but most people never learn exactly how their employer arrives at that monthly number, or what the certificate they get each June (Form 16, now officially Form 130) actually represents. Here's how salary TDS is calculated and what to check on your certificate.
Quick Summary
- Method: employer estimates your full-year tax, divides by remaining months
- Default regime: new regime unless you declare otherwise (via Form 122)
- No-TDS threshold: ₹4,00,000 (new regime) / varies by age (old regime)
- Form 16 is now Form 130 — due to you by 15 June following the financial year
- New Act section: 392 (old Section 192)
How Employers Calculate Your Monthly TDS
Employers use the "average rate" method: at the start of the financial year (or whenever your salary structure or tax-saving declarations change), they estimate your total taxable income and tax liability for the entire year, then divide the remaining tax by the number of months left. This is why your take-home can shift mid-year — a bonus, a salary revision, or updated investment proof all cause the employer to re-estimate and adjust the remaining months' deduction.
New Regime Is Now the Default — You Have to Opt Out
From FY 2026-27, your employer computes TDS under the new tax regime by default. If you want the old regime instead — to claim HRA, 80C investments, home loan interest, and similar deductions — you must actively declare this to your employer via Form 122, which now combines what used to be two separate forms (12B and 12BAA). Skipping this means your eligible deductions simply won't be factored into your monthly TDS, even if you're entitled to claim them.
No-TDS Threshold by Regime
| Regime | Basic Exemption |
|---|---|
| New regime (default, FY 2026-27) | ₹4,00,000 |
| Old regime — below 60 | ₹2,50,000 |
| Old regime — 60 to 79 (senior citizen) | ₹3,00,000 |
| Old regime — 80+ (super senior citizen) | ₹5,00,000 |
Form 16 Is Now Form 130
Under the Income-tax Act, 2025 and Income-tax Rules, 2026 renumbering, Form 16 is officially Form 130 (most people will keep calling it "Form 16" informally for a while). Your employer must issue it by 15 June following the end of the financial year, covering the TDS deducted and deposited on your salary for that year. Late issuance can attract a penalty of ₹100 per day per certificate on the employer — so a persistently delayed Form 16/130 is worth formally following up on.
If You Changed Jobs Mid-Year
Report your previous employer's salary and TDS to your current employer (captured in the same Form 122 declaration) so TDS gets computed on your combined income across both employers, not just what your current one paid you. Without this, both employers separately apply the full basic exemption and slab benefits to "their" portion of your income — which understates your true tax liability and often leaves you with a larger-than-expected amount due when you file your return.
Salary TDS Review & ITR Filing Support
Rajput Lalit & Associates helps salaried individuals verify their Form 16/Form 130 against Form 26AS/AIS and file accurate returns. Book a free consultation or see our Income Tax Return Filing service.
Frequently Asked Questions
How does my employer decide how much TDS to deduct from my salary each month?
Using the 'average rate' method: at the start of the year (and re-estimated whenever your pay or declarations change), your employer estimates your total tax liability for the full year based on your salary structure, declared investments/deductions, and chosen tax regime, then divides that by the number of months remaining to arrive at a monthly deduction. It's an estimate that gets trued up as the year progresses and you submit actual proof of investments.
Which tax regime does my employer use by default?
The new tax regime is the default from FY 2026-27 onward. If you want your employer to compute TDS under the old regime instead (to claim deductions like 80C, HRA, home loan interest), you need to formally declare that — via Form 122, which now consolidates what used to be separate Form 12B and Form 12BAA declarations.
What is Form 16 now called, and when should I receive it?
Form 16 is now Form 130 under the Income-tax Act, 2025 / Income-tax Rules, 2026 renumbering, though most people will keep calling it 'Form 16' informally for a while. Employers must issue it by 15 June following the end of the financial year. Late issuance can attract a penalty of ₹100 per day per certificate on the employer.
What if I have income from a previous employer in the same financial year?
You should report your previous employer's salary and TDS details to your current employer (this is part of what the consolidated Form 122 declaration now captures), so your current employer computes TDS on your combined annual income rather than just what they've paid you. Skipping this often causes significant tax due at return-filing time because each employer separately applied the basic exemption and slab benefit to only the income they paid.
Is there a minimum salary below which no TDS is deducted?
TDS only kicks in once your estimated annual taxable income crosses the basic exemption limit for your chosen regime — ₹4,00,000 under the new regime (FY 2026-27), or ₹2,50,000/₹3,00,000/₹5,00,000 under the old regime depending on age (below 60 / 60-79 / 80+). Below that, no TDS is deducted from your salary at all.
My Form 16/Form 130 shows different numbers than my payslips — what should I do?
Cross-check the TDS shown against your Form 26AS/AIS before filing your return — small mismatches sometimes happen due to correction returns filed by the employer after issuing your certificate, or timing differences between when salary was paid and when TDS was deposited. If genuinely different, ask your employer's payroll/finance team to clarify or issue a corrected certificate before you file.
Disclaimer: This article is for general information based on the Income-tax Act, 2025 (Section 392, corresponding to the old Section 192) and the Income-tax Rules, 2026 as applicable to FY 2026-27, current as of September 2026. Please verify the latest position or consult a professional for your specific situation before relying on it.