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How TDS is calculated?

TDS (Tax Deducted at Source) is the income tax amount that an employer deducts from the employee’s salary and deposits directly with the Income Tax Department. TDS is part of the employee’s annual tax liability and must be deducted monthly, based on the estimated income and applicable tax slabs.

How Is TDS Usually Calculated by Employers?

TDS calculation is based on the employee’s total projected taxable income for the financial year, minus applicable exemptions and deductions.

Here’s a general idea of the process:

  • Step 1: Estimate Gross Salary for the Year
    • Includes: Basic, HRA, Special Allowance, Variable Pay, Bonus, etc.
  • Step 2: Identify Exemptions and Deductions
    • Examples:
      • HRA (House Rent Allowance) — partially exempted based on rent paid and city.
      • Standard Deduction — currently ₹50,000 per year.
      • Professional Tax — fully deductible.
      • Section 80C/80D deductions — like PF, LIC, PPF, Mediclaim, etc.
  • Step 3: Apply Tax Slabs
    • Based on Old or New Tax Regime (as chosen by employee).
    • Calculate total tax liability

⚠️ Note: This is just a generic overview. The actual TDS amount must be calculated manually outside the system using reliable online tools, tax calculators, or consultation with a tax expert. DaaI Business Suite only accepts the final annual TDS amount for entry.

How to Update TDS in DaaI Business Suite

  • Go to: Users > Edit
  • Scroll to section: Tax Deducted at Source (TDS)
    • Set TDS: Yes / No (Dropdown)
    • Set Annual TDS Amount: ₹XXX
    • Set TDS Financial Year: Select from dropdown
  • Click Save

Once saved, the system uses this annual amount to calculate monthly deductions during salary generation.

The system automatically calculates monthly TDS deduction by:

  • Taking the total yearly TDS amount you entered.
  • Checking how many months’ salaries have already been generated in the financial year.
  • Summing up the TDS already deducted in those months.
  • Subtracting the already deducted TDS from the updated total amount.
  • Dividing the remaining TDS equally over the remaining months in the financial year.

Example

  • Initial Entry:
    • Financial Year: 2023–2024
    • Annual TDS: ₹9,000
  • Salaries Generated Till December 2023:
    • ₹750 deducted each month × 9 months = ₹6,750
  • In January 2024:
    • You update annual TDS to ₹15,000 (based on revised tax calculation you calculated manually)
  • System Calculation: (Daai Business Suite Auto Calculate)
    • Remaining TDS = ₹15,000 − ₹6,750 = ₹8,250
    • Months left = 3 (Jan–Mar)
    • Monthly Deduction: ₹8,250 ÷ 3 = ₹2,750 per month

From January to March, system deducts ₹2,750 TDS each month in the payslip.

✅ Tips

  • DaaI Business Suite does not calculate tax slabs/exemptions – only distributes annual TDS amount entered by admin.

  • During salary generation, if TDS is enabled but no annual amount exists, salary will not generate and system will show an error listing employees.

  • When salary is generated with TDS, system creates or updates a TDS Challan and links it to the salary record.

  • All TDS-related updates are logged in changelogs for audit.