Here is the short version, because it is the question that lands in every salaried person’s inbox in January: your employer does not deduct a random slice of your pay as TDS. Under Section 192 of the Income-tax Act, the employer estimates your full-year tax and spreads it evenly across the twelve salary payments. So the monthly TDS you see is simply “estimated annual tax ÷ number of remaining months” — nothing more mysterious than that.
The reason it lurches mid-year — usually in January or February — is that the estimate the employer started with in April was built on promises you made (planned investments, a chosen tax regime, expected rent). When the actual proofs arrive and fall short of those promises, the estimate is revised upward, and the shortfall has to be recovered from the last two or three salaries. That is why one payslip suddenly deducts three or four times the usual TDS. This article walks through exactly how the calculation is built, where it goes wrong, and how to keep the year-end shock small.
The basic mechanics of Section 192
TDS on salary is unusual among TDS provisions. Most other TDS is a flat percentage of a payment — 10% on interest, 1% on a property sale. Salary TDS instead uses the actual slab-rate tax on your estimated annual income. In practice the employer follows four steps every year:
Step 1 — Estimate annual salary income
The payroll team projects your gross salary for the whole financial year: basic, dearness allowance, HRA, special allowance, bonus (if known), and any perquisites. From this they subtract the exemptions and deductions you are entitled to under the regime you have chosen.
Step 2 — Apply your chosen tax regime
From FY 2023-24 onward the new tax regime is the default. If you say nothing to your employer, TDS is computed under the new regime automatically. To be taxed under the old regime you must positively tell the employer at the start of the year and, when you file, submit Form 10-IEA. Under the new regime for FY 2025-26 the slabs are: nil up to Rs. 4,00,000; 5% on Rs. 4–8 lakh; 10% on Rs. 8–12 lakh; 15% on Rs. 12–16 lakh; 20% on Rs. 16–20 lakh; 25% on Rs. 20–24 lakh; and 30% above Rs. 24 lakh. The salaried standard deduction is Rs. 75,000 in the new regime and Rs. 50,000 in the old. You can sanity-check the annual figure against our Income Tax Calculator before you accept a payslip’s TDS.
Step 3 — Compute annual tax and add cess
The employer applies the slab rates to your net taxable salary, allows the Section 87A rebate if you qualify (in the new regime, taxable income up to Rs. 12 lakh attracts a rebate that wipes the tax to zero), and adds 4% Health & Education Cess on top.
Step 4 — Divide by the remaining months
The annual tax is divided by the number of months left in the year, and that quotient is the monthly TDS. If nothing changes, you see the same deduction on every payslip from April to March.
A clean worked example
Take Anand, whose gross annual salary is Rs. 15,00,000 and who stays on the default new regime with no other declarations.
| Gross salary | Rs. 15,00,000 |
| Less: standard deduction (new regime) | Rs. 75,000 |
| Net taxable salary | Rs. 14,25,000 |
| Tax: nil on first Rs. 4,00,000 | Rs. 0 |
| 5% on Rs. 4,00,000 (Rs. 4–8 lakh) | Rs. 20,000 |
| 10% on Rs. 4,00,000 (Rs. 8–12 lakh) | Rs. 40,000 |
| 15% on Rs. 2,25,000 (Rs. 12–14.25 lakh) | Rs. 33,750 |
| Tax before cess | Rs. 93,750 |
| Add: 4% cess | Rs. 3,750 |
| Annual tax (TDS for the year) | Rs. 97,500 |
| Monthly TDS (÷ 12) | Rs. 8,125 |
Because Anand made no promises the employer has to true-up later, his TDS is a steady Rs. 8,125 every month and his year-end Form 16 matches his payslips exactly.
Why it changes in the middle of the year
The steady picture above is the exception. For most people the monthly figure moves at least once. These are the usual triggers.
1. The investment-proof shortfall (the big one)
In April the employer asks you to declare your intended deductions on Form 12BB — how much 80C you plan to invest, your expected rent for HRA, home-loan interest, 80D premium and so on — without documents. It then computes low TDS on the assumption that all of it will materialise. Around December to February it asks for actual proofs. Whatever you declared but did not actually invest is stripped out, the annual tax is recomputed higher, and the entire extra amount is recovered from the two or three salaries that remain. That is why a January payslip can deduct several times the usual TDS.
2. A salary revision, bonus or arrears
An appraisal, a performance bonus or arrears push your estimated annual income into a higher slab. The employer re-estimates the year’s tax and re-spreads the balance over the remaining months, so TDS steps up from the month the increase is known.
3. You switched regime part-way (or the default kicked in)
If you meant to be in the old regime but never formally opted, the employer applies the default new regime; a later correction changes the tax base and hence the TDS. Employees are allowed to intimate a regime to the employer for TDS purposes, but the final choice is exercised in the return.
4. You declared other income under Section 192(2B)
You may ask the employer to also deduct tax on non-salary income — bank interest, rent received, or freelance receipts — by reporting it under Section 192(2B). Doing so raises your monthly TDS but spares you advance-tax worries and Section 234B/234C interest later. You cannot, however, use this route to reduce salary TDS below nil except for house-property loss.
5. A new joiner who did not hand over the previous Form 16
When you change jobs, the new employer only knows the salary it pays. If you do not report your previous employer’s salary and TDS under Section 192(2), each employer gives you the standard deduction and the lower slabs afresh, under-deducts, and you face a demand at filing. Reporting the earlier salary makes the new employer deduct correctly — TDS rises, but the demand disappears.
The true-up, shown with numbers
Consider Priya, gross salary Rs. 14,00,000, who chose the old regime and in April declared: standard deduction Rs. 50,000, 80C Rs. 1,50,000, 80D Rs. 25,000 and home-loan interest under Section 24(b) Rs. 2,00,000 — total deductions Rs. 4,25,000. When proofs are due in January she has actually invested only Rs. 60,000 under 80C, kept the Rs. 25,000 health premium, and never took the home loan.
| April declaration | January reality | |
| Deductions allowed | Rs. 4,25,000 | Rs. 1,35,000 |
| Net taxable income | Rs. 9,75,000 | Rs. 12,65,000 |
| Annual tax + 4% cess (old regime) | Rs. 1,11,800 | Rs. 1,99,680 |
| Monthly TDS Apr–Dec (9 months) | Rs. 9,317 | — |
| Deducted Apr–Dec (9 × 9,317) | Rs. 83,850 | — |
| Balance tax to recover (Jan–Mar) | — | Rs. 1,15,830 |
| Monthly TDS Jan–Mar | — | Rs. 38,610 |
Priya’s TDS jumps from Rs. 9,317 to Rs. 38,610 — not because the employer erred, but because the April estimate assumed investments that never happened. Had she either made the promised investments or declared honestly in April, the deduction would have been smooth. You can model your own before-and-after using our Income Tax Calculator, and cross-check the rates the payroll team is applying against our TDS Rate Chart (Excel).
How to keep TDS smooth — and reduce it legally
Declare realistically in April rather than optimistically; the January shock is entirely a function of over-declaring. Submit proofs early so the true-up, if any, is spread over three months instead of one. If you are genuinely eligible for the old regime and have the investments, opt for it in time and give the proofs. Report a second employer’s salary when you change jobs. And if excess tax has still been deducted — because you invested more than declared, or the year turned out lower-income — you do not lose it: it comes back as a refund when you file. If your case is unusual, our team at Ask a CA — Income Tax & TDS can review the payroll computation before year-end.
Key takeaways
- Salary TDS under Section 192 is your estimated annual tax divided by the remaining months — not a flat percentage.
- The new tax regime is the default from FY 2023-24; you must actively opt for the old regime with your employer and file Form 10-IEA.
- For FY 2025-26 the salaried standard deduction is Rs. 75,000 (new) or Rs. 50,000 (old), and 87A makes new-regime tax nil up to Rs. 12 lakh taxable income.
- The mid-year jump is almost always the January proof true-up: declared deductions that did not actually happen are removed and the extra tax is recovered from the last salaries.
- Declare honestly in April, submit proofs early, and report previous-employer salary on a job change to avoid a year-end demand; genuinely excess TDS comes back as a refund.
Frequently Asked Questions
Why did my TDS suddenly increase in January or February?
Almost always because your actual investment proofs fell short of what you declared in April. The employer recomputes the annual tax on the real (lower) deductions and recovers the shortfall from the two or three salaries left in the year, which makes those payslips deduct much more than usual.
Can I ask my employer to deduct less TDS?
Legitimately, yes — by declaring eligible deductions and submitting proofs so the estimate is lower, or by obtaining a lower/nil-deduction certificate under Section 197 from the Assessing Officer where your total tax is genuinely small. You cannot simply ask for arbitrarily lower TDS; the employer is personally liable for short deduction.
My employer deducted TDS under the new regime but I want the old regime. What now?
For TDS the default new regime applies unless you opt otherwise in time. You can still choose the old regime when you file your return (with Form 10-IEA if you have business income); if that lowers your tax, the excess TDS is refunded. It is cleaner to intimate the correct regime to payroll at the start of the year.
I changed jobs mid-year. Why do I owe tax despite TDS on every salary?
Because each employer, unaware of the other, gave you the standard deduction and the lower slabs separately and under-deducted. Report your previous employer’s salary and TDS to the new employer under Section 192(2) so it deducts on your combined income — TDS rises but the year-end demand vanishes.
Does TDS on salary include tax on my bank interest and other income?
Only if you ask it to. Under Section 192(2B) you may report other income — interest, rent, freelance receipts — to your employer so tax is deducted on the total. If you do not, you must pay that tax yourself as advance tax to avoid Section 234B/234C interest.