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What is TDS and how it is calculated?
TDS or Tax Deducted at Source, TDS was introduced to collect the tax from the very source from where it was generated. The Government of India uses TDS as a tool to collect tax, in order to minimise tax evasion by taxing the income (partially or wholly) at the time it is generated rather than at a later date. Generally, TDS or Tax Deducted at Source is applicable on salary, interest received, commission received etc.
TDS is not applicable for all types of payments or on every person, there are various tax slabs according to which TDS is deducted from the taxpayer’s salary. Now that you know what is TDS, let take a look at how it can be calculated.
Tax Slab for Financial Year 2019-20 for individuals and Hindu Undivided Family (HUF) less than 60 years old
| Annual Income | Tax Rates | Health and Education Cess |
| Up to Rs.2.5 lakh* | Nil | Nil |
| Rs.2,50,001-Rs.5 lakh | Nil | 4% of Income Tax |
| Rs.5,00,001-Rs.10 lakh | 20% | 4% of Income Tax |
| Above Rs.10 lakh | 30% | 4% of Income Tax |
Tax Slab for Senior Citizens who are 60 years old or higher, but less than 80 years old
| Annual Income | Tax Rates | Health and Education Cess |
| Up to Rs.3 lakh* | Nil | Nil |
| Rs.3,00,001-Rs.5 lakh | Nil | 4% of Income Tax |
| Rs.5,00,001-Rs.10 lakh | 20% | 4% of Income Tax |
| Above Rs.10 lakh | 30% | 4% of Income Tax |
Tax Slab for Senior Citizens who are 80 years old or more
| Annual Income | Tax Rates | Health and Education Cess |
| Up to Rs.5 lakh* | Nil | Nil |
| Rs.5,00,001-Rs.10 lakh | 20% | 4% of Income Tax |
| Above Rs.10 lakh | 30% | 4% of Income Tax |
How to calculate TDS?
the basic salary of the taxpayer is fully taxable according to tax brackets mentioned-above, some exemptions are available for payments made as allowances and perks. You can calculate TDS on your income by following steps mentioned below
- Calculate your gross monthly income, as a sum of your basic income, allowances and perquisites.
- Calculate the available exemptions under Section 10 of the Income Tax Act, 1961. Exemptions are applicable on allowances such as medical, HRA, travel.
- Subtract the exemptions from your gross salary.
- As TDS is calculated on yearly income, multiply the corresponding figure that you got from the above calculation by 12. This is your yearly taxable income from salary.
- If you have any other income source such as income from house rent or have incurred losses from paying housing loan interests, add/ subtract this amount from the figure that is mentioned in the above step
- After this, calculate your investments for the year which fall under Chapter VI-A of ITA, and deduct this amount from the gross income calculated in the above step. An example of this would be exemption of up to Rs. 1.5 lakh under Section 80C, which includes investment avenues such as PPF, life insurance premiums, mutual funds, home loan repayment, ELSS, NSC, Sukanya Samriddhi account and so on.
- Subtract the maximum allowable income tax exemptions on salary. Currently, income up to Rs. 5 lakhs is fully exempt from paying taxes, while Rs.5 lakhs to Rs.10 lakhs income bracket is taxed at 20%. All income above this amount is taxed at 30%.
- Do note that senior citizens have different tax slabs that we have mentioned in the above tables and receive higher exemptions than those discussed above steps.
