How to Calculate TDS on Salary Under the New Tax Regime – Tax Year 2026–27

Understanding how TDS is calculated on salary can help employees plan their finances, manage monthly cash flow and avoid an unexpected tax demand while filing their Income Tax Return.

From 1 April 2026, the Income-tax Act, 2025 applies, and the new tax regime continues as the default regime under Section 202. Tax Year 2026–27 covers the period from 1 April 2026 to 31 March 2027.

Let us understand the salary TDS calculation through a simple example.

Income Details

Particulars	Amount
Salary income	₹18,00,000
Interest income	₹60,000
Total estimated income	₹18,60,000

The employee should inform the employer about interest and other taxable income so that the correct annual tax liability can be calculated.

Step 1: Reduce Eligible Deductions

Under the new tax regime, a salaried employee can claim a standard deduction of up to ₹75,000. A deduction is also available for the employer’s eligible contribution to NPS, subject to the prescribed conditions and limit.

Particulars	Amount
Total estimated income	₹18,60,000
Less: Standard deduction	₹75,000
Less: Employer’s NPS contribution	₹1,26,000
Taxable income	₹16,59,000

The ₹75,000 standard deduction is permitted under Section 19 of the Income-tax Act, 2025. The qualifying employer NPS contribution is deductible under Section 124 and can be allowed up to 14% of the specified salary where income is taxable under the new regime.

Step 2: Apply the New Tax Regime Slabs

The applicable slab-wise calculation is:

Income slab	Tax rate	Tax
Up to ₹4,00,000	Nil	₹0
₹4,00,001–₹8,00,000	5%	₹20,000
₹8,00,001–₹12,00,000	10%	₹40,000
₹12,00,001–₹16,00,000	15%	₹60,000
₹16,00,001–₹16,59,000	20%	₹11,800
Income tax		₹1,31,800

Since the taxable income exceeds ₹12 lakh, the new-regime rebate available to eligible resident individuals does not apply in this example.

Step 3: Add Health and Education Cess

Health and Education Cess is charged at 4%:

₹1,31,800 × 4% = ₹5,272

Therefore:

Particulars	Amount
Income tax	₹1,31,800
Health and Education Cess	₹5,272
Tax liability before rounding	₹1,37,072
Rounded tax liability	₹1,37,070

Under Section 516, the final amount payable is rounded to the nearest multiple of ₹10.

Step 4: Adjust TDS Already Deducted

Suppose the bank or another deductor has already deducted ₹6,000 as TDS on the interest income.

Particulars	Amount
Rounded annual tax liability	₹1,37,070
Less: TDS on interest income	₹6,000
Balance tax to be covered through salary TDS	₹1,31,070

The employee should furnish details of the interest income and related TDS to the employer in the prescribed manner. For Tax Year 2026–27, Form 122 contains the relevant particulars of other income, TDS and TCS that may be reported for salary-TDS computation.

Step 5: Calculate Monthly TDS

If the balance tax is spread equally across all 12 months:

₹1,31,070 ÷ 12 = ₹10,922.50

Therefore, the approximate monthly salary TDS will be:

₹10,923 per month

The actual amount may differ slightly because of payroll rounding, the month in which the declaration is submitted and any TDS already deducted from salary.

When Should Salary TDS Be Recalculated?

The employer should revise the calculation whenever there is a change in:

• Salary or annual increment

• Bonus or performance incentive

• Arrears or advance salary

• Interest or other additional income

• Employer’s NPS contribution

• TDS or TCS credits

• Employment during only part of the year

• Relief available on salary arrears

If the calculation changes during the year, the remaining tax should be adjusted over the remaining salary months.

Important Assumption

This illustration assumes that the ₹18,00,000 salary income already includes the employer NPS contribution wherever it is required to be treated as salary and that the entire ₹1,26,000 contribution qualifies for deduction.

If the ₹18,00,000 salary figure excludes the employer’s NPS contribution, or if the contribution exceeds the permissible limit based on the specified salary, the taxable income and TDS calculation will change.

Final Takeaway

Salary TDS is an estimate of the employee’s annual tax liability—not simply a fixed percentage of monthly salary.

Employees should regularly review their projected salary, bonus, interest income, eligible deductions and available tax credits. Timely disclosure to the employer helps ensure accurate TDS, better cash-flow management and fewer surprises while filing the Income Tax Return.

Plan ahead. Stay informed. Stay tax smart.

Disclaimer: This example is for educational purposes and assumes normal slab-rate income without capital gains, special-rate income, surcharge or other adjustments. Actual tax liability should be calculated according to the taxpayer’s complete income and circumstances.

Official references: New Income-tax Act and Tax Year, Standard Deduction—Section 19, Employer NPS Deduction—Section 124, Form 122, Rounding—Section 516

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