What Exemptions or Deductions are Allowed for TDS Calculations?

TDS is a tax deducted before the payment of an amount. In this article, Deductions for TDS Calculation are mentioned to help employers and employees.

Tax deduction at source is a tax relief scheme for companies in India. It applies to all salaried employees who have been paid their salaries by cheque or cash and are required to pay income tax. The employer deducts the amount of taxes as per his own discretion and TDS Calculation, but he must deduct only those taxes which have been deducted from the employee’s salary.

Under this scheme, if you have paid your taxes as per the provisions of the Income Tax Act or any other law applicable to you then you can claim a deduction under Section 80C which is a part of Income Tax Act of 1961.

It is important to know how Deductions for TDS Calculation are done and calculated. 

What is TDS?

Tax deduction at source or TDS is a tax that is paid by an earning person. This is a type of income tax. TDS is always deducted from the payment amount in advance. This tax is deducted at the source and this way it helps the government to reduce the evasion of tax. 

This amount is usually deducted by the employer and submitted or deposited to the Income Tax Department. It is deducted from a certain type of payment which can be rent or fees or Salary etc. This tax is already deducted from the paid amount and the person who receives the amount has to include the paid tax in the total amount received to take the credit for the paid tax.

Some income sources from which TDS is deducted are contractor payments, bank interest rent payments, winning of lottery, salary Commission, etc.

TDS Calculation 

The person who deducts that TDS in advance and then pays the amount is known as a deductor whereas the person who receives the amount after the TDS has already been deducted from it is known as the deducted.

 If you are an employee then your employer is the deductor and you are the deductee. For tax reduction under TDS, a pan card is compulsory. In case you don’t have a pan card or TDS deduction be as high as 20%.

If you want to calculate the TDS that is being deducted from your salary here are some steps.

  • First of all, you have to calculate the monthly income and then multiply by 2 to get your annual CTC. 
  • After that, you have to calculate all the exemptions that you received. These will be medical allowance, HRA, Dearness allowances, etc. 
  • In case you have income from any other sources, calculate that as well and add it to your yearly income. 
  • Try to calculate all the investments we have made to get a tax exemption. 
  • Calculate any sort of loans or losses that you face every year.
  •  Now subtract the exemptions and the allowances that you receive from the total yearly income and the losses.
  •  The amount you receive is the amount from which TDS will be deducted.

Deductions on TDS

TDS is deducted at different amounts based on different situations. Deduction for TDS calculation is done based on the salary of an individual.

For example, 

  • If a person is less than 60 years and their salary is less than 2.5 lakh TDS is not deducted from the salary. 
  • Whereas if the same person has a salary which is above 2.5 lakh but not more than 5 lakhs then the TDS is 5%.
  •  In case of a salary of more than 5 lacs but less than 10 lakhs that TDS is 20%.
  • When a person earns more than 10 lakh per annum the TDS rate is 30%.

In case a person fails to submit the income tax returns they have to pay a penalty. ₹ 100 is supposed to be paid as a penalty for each day on which the income tax remains unsubmitted. If a person makes a mistake in filing the TDS statement they have to pay a penalty of ₹10000 to ₹1 lakh depending upon their case. In case of submitting incorrect details, a penalty of ₹10000 to ₹1 lakh is charged. 

That wrong information can be related to PAN card TDS amount challan etc. If the TDS is not paid within the due date interest is charged at the rate of 1.5% every month. This interest starts from the date on which the TDS was due.

When payment is made to or received from banks or insurance societies TDS is not deducted. In case of payment is deposited to the state or Central financial corporation, no TDS is deducted. When an individual receives a refund from the income tax department no TDS is deducted from it. There are certain institutions that are notified under no- TDS and any payment made to them or received from them does not have any TDS reduction.

Advantages of TDS

TDS is deducted based on the salary. Whenever payments are being made via cash check or card a certain amount of tax is deducted in advance which goes to the central government agencies.

 Some advantages of TDS are mentioned below.

  • Reduction of TDS in advance prevents the evasion of taxes.
  • TDS proves as a study source of income for the central government. 
  • The TDS is deducted automatically which makes the process convenient and easy.

In case you want to know more about TDS and want to calculate the TDS that is being deducted from your salary you can use the tool provided by Vakilsearch. You have to enter some basic information on the website and they will inform you about the TDS reduction.


TDS is the tax deducted at source. As the name suggests this tax is deducted before paying the amount to the deductive. This is an easy way for the government to maintain a constant flow of revenue and prevent tax evasion. 

TDS is applicable for almost all transactions however there are some transactions that are exempted from TDS such as Bank transactions or income tax returns or some agencies or companies that have been certified as non-TDS.

There are several deductions for TDS calculation. If you want to calculate your TDS deduction from your salary you can use the TDS calculator provided by Vakilsearch. You can use the TDS calculator and enter the basic details required and calculate the TDS deduction on your salary.

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