TDS on Salary vs TDS on Fixed Deposit
Disclaimer: This article is for general information/education and is not investment advice. The information is shared in good faith and for general informational purposes only. Ujjivan SFB does not make any representations or warranties regarding the accuracy, completeness, or reliability of the content.
February 17, 2026
TDS on salary and TDS on fixed deposits are calculated differently. Salary TDS is based on projected annual income and slab rates. FD TDS is deducted at a flat rate once the interest threshold is crossed. When total income is combined at filing, this structural difference can influence the refund outcome.
How is TDS on Salary Calculated?
Under Section 192 of the Income Tax Act, employers deduct TDS on salary every month. The deduction is based on your estimated total income for the full financial year. Please note that no TDS will be deducted if your annual income is less than the taxable limit - ₹2.5 lakh (old tax regime) and ₹4 lakh (new tax regime).
Below is the step-by-step process.
Step 1: Estimate Gross Annual Salary
The employer first computes the employee’s projected total salary income for the financial year.
Components Typically Included
| Salary Component | Included for TDS Calculation? |
|---|---|
| Basic Salary | Yes |
| Dearness Allowance (DA) | Yes (if part of retirement benefits) |
| House Rent Allowance (HRA) | Yes |
| Bonus / Incentives | Yes |
| Commission | Yes |
| Leave encashment (taxable portion) | Yes |
| Perquisites | Yes |
| Salary from previous employer (if declared) | Yes |
This gives the Gross Estimated Income for the year.
Step 2: Apply Exemptions and Deductions (Based on Tax Regime)
The deductions available depend on whether the employee opts for the old tax regime or the new tax regime under Section 115BAC.
A. Deductions Available Under the New Tax Regime (FY 2025–26)
| Deduction / Rebate | Availability |
|---|---|
| Standard Deduction | ₹75,000 |
| Employer contribution to NPS (Section 80CCD(2)) | Allowed |
| Rebate under Section 87A | Available (subject to income limit under new regime) |
| Most other Chapter VI-A deductions (80C, 80D, etc.) | Not allowed |
B. Deductions Available Under the Old Tax Regime
| Deduction / Rebate | Availability |
|---|---|
| Standard Deduction | ₹50,000 |
| Section 80C (PF, ELSS, LIC, etc.) | Up to ₹1.5 lakh |
| Section 80D (Health insurance) | As per limits |
| Section 24(b) (Home loan interest) | As applicable |
| HRA exemption | Allowed |
| Other deductions under Sections 80C–80U | As eligible |
| Rebate under Section 87A | Available (subject to income limit under old regime) |
Step 3: Compute Net Taxable Income
Once eligible deductions and exemptions are applied:
Formula:
Net Taxable Income = Gross Annual Income – Total Eligible Deductions & Exemptions
When is No TDS Required?
TDS is not required if tax liability becomes nil after applying:
Employers must evaluate rebate eligibility under the chosen regime before deducting TDS.
Step 4: Calculate Annual Tax Liability
After arriving at the Net Taxable Income:
1. Apply slab rates based on the selected tax regime
2. Add surcharge (if applicable)
3. Add Health & Education Cess @ 4%
4. Reduce rebate under Section 87A (if eligible)
This results in the Total Annual Tax Liability.
Step 5: Monthly TDS Deduction
The final annual tax payable is divided by the number of remaining months in the financial year.
Formula:
Monthly TDS = Total Annual Tax Liability ÷ Remaining Months of Service
If salary structure or declarations change during the year, employers adjust TDS in subsequent months.
How TDS on Fixed Deposit Works?
TDS on fixed deposit interest is governed by Section 194A of the Income Tax Act. Banks deduct tax once the total interest earned in a financial year crosses the prescribed limit.
As per current rules:
| Classification | TDS Deducted if the Interest Earned in a Financial Year is Above: |
|---|---|
| Non-Senior Citizens | ₹50,000 |
| Senior Citizens | ₹1 lakh |
If interest exceeds this limit, the bank deducts TDS at:
The key difference is that the bank does not calculate your total income. It does not apply to your slab rate. It deducts tax at a flat rate once the interest crosses the threshold.
That said, if your income is below the taxable limit, you can file Form 15G or Form 15H.
Is TDS Deducted from Salary Every Month?
Yes. Under Section 192 of the Income Tax Act, TDS on salary is deducted at the time of payment. Since salaries are generally paid monthly, employers deduct TDS each month.
The deduction is based on the employee’s estimated annual taxable income for the financial year and is spread across the remaining months of service.
If an employer fails to deduct or deposit TDS as required, they may be liable to pay interest and penalties under the Income Tax Act.
Is TDS on Salary Mandatory?
Yes. TDS deduction under Section 192 is mandatory for employers if the employee’s estimated annual taxable income exceeds the applicable basic exemption limit under the chosen tax regime.
If the projected income is below the taxable threshold after considering deductions and rebate (if applicable), no TDS is required.
The obligation to deduct TDS lies with the employer, and it applies even if the employee has not provided a PAN (in such cases, higher TDS provisions may apply as per law).
How Can You Claim Credit for TDS on Salary?
There is no separate process to “claim” TDS during the year.
TDS deducted by your employer is reflected in:
When filing your Income Tax Return (ITR), the TDS amount is automatically adjusted against your total tax liability.
If the total TDS deducted exceeds your final tax payable, the excess amount becomes refundable and is processed after return verification.
Is TDS on Salary Refundable?
Yes. TDS on salary is refundable if the total tax deducted during the year is higher than the employee’s actual tax liability.
This may happen due to:
If excess tax has been deducted, the refund is issued after filing and verifying the income tax return, subject to processing by the Income Tax Department.
Final Thoughts
In the case of salary, TDS under Section 192 is based on estimated annual taxable income and applicable slab rates. Employers consider declared deductions, exemptions, and the chosen tax regime before determining monthly deductions.
In contrast, TDS on fixed deposit interest under Section 194A is deducted at a flat rate once the prescribed threshold is crossed. Banks do not compute your total taxable income or apply slab rates while deducting TDS.
Disclaimer:
The contents herein are only for informational purposes and generic in nature. The content does not amount to an offer, invitation or solicitation of any kind to buy or sell, and are not intended to create any legal rights or obligations. This information is subject to updation, completion, amendment and verification without notice. The contents herein are also subject to other product-specific terms and conditions, as well as any applicable third-party terms and conditions, for which Ujjivan Small Finance Bank assumes no responsibility or liability.
Nothing contained herein is intended to constitute financial, investment, legal, tax, or any other professional advice or opinion. Please obtain professional advice before making investment or any other decisions. Any investment decisions that may be made by the you shall be at your own sole discretion, independent analysis and evaluation of the risks involved. The use of any information set out in this document is entirely at the user’s own risk. Ujjivan Small Finance Bank Limited makes no representation or warranty, express or implied, as to the accuracy and completeness for any information herein. The Bank disclaims any and all liability for any loss or damage (direct, indirect, consequential, or otherwise) incurred by you due to use of or due to investment, product application decisions made by you on the basis of the contents herein. While the information is prepared in good faith from sources deemed reliable (including public sources), the Bank disclaims any liability with respect to accuracy of information or any error or omission or any loss or damage incurred by anyone in reliance on the contents herein, in any manner whatsoever.
To know more about Ujjivan Small Finance Bank Products Visit:"https://www.ujjivansfb.bank.in"
All intellectual property rights, including copyrights, trademarks, and other proprietary rights, pertaining to the content and materials displayed herein, belong
to Ujjivan Small Finance Bank Limited or its licensors. Unauthorised use or misuse of any intellectual property, or other content displayed herein is strictly prohibited and the same is not intended for distribution to, or use by, any person in any jurisdiction where such distribution or use would (by reason of that person’s nationality, residence or otherwise) be contrary to law or registration or would subject Ujjivan Small Finance Bank Limited or its affiliates to any licensing or registration requirements.
