How to Calculate TDS? - Tax Deduction Source

As numerous transactions are covered under the purview of TDS sections, the calculations can get a little tricky. Though the basic salary is fully taxable according to respective tax brackets, there are some exemptions available as allowances and perks. Let's look at the way to calculate TDS:

1. Firstly, calculate the gross monthly income as the sum of basic income, allowances, and perquisites.
2. Then, calculate the available exemptions like medical, HRA, travel, etc. that fall under the purview of Section 10 of the Income Tax Act (abbreviated as ITA).
3. Next, reduce exemptions according to step 2 from the gross monthly income calculated in step 1.
4. TDS is calculated on yearly income, hence, multiply the corresponding figure by 12 to get your annual taxable income from salary.
5. If you have any other income sources - such as freelancing, income from house rent or housing loan interests - then you would have to add/subtract this amount from the figure in step (4).
6. Calculate your investments under Chapter VI-A of ITA; deduct this amount from the gross income calculated in step (5). You must know that each individual is entitled to an investment of up to INR 1.5 lakhs in specific investment instruments.
7. Next, deduct the maximum allowable income tax exemptions from your salary.
8. Now that you have calculated your total taxable income, check which tax slab it falls under and calculate how much tax you owe. If your taxable income is below INR 2.5 lakhs, then you aren’t required to pay income tax.
   

Do note that:

• The tax bracket has changed after the Union Budget in 2019; so you should check it before calculating your taxes.
  
  
• Senior citizens have different tax slabs and receive higher exemptions than those discussed above.