TDS on Salary Explained: Why Your First Month Take-Home is Different

I have been writing about Indian payroll for long enough to know that the angriest emails arrive in March. Not because the tax law changes in March — it doesn''t. The slabs are decided by the Finance Act passed back in February, the rules are the same as last year, and the employer''s system is doing exactly what it''s supposed to do. The problem is that nobody explained any of this to the people receiving the salaries.

So somebody opens their March payslip, sees the take-home is roughly half what it was in October, and concludes their company is cheating them. They aren''t. The math is correct. It just looks alarming because TDS on salary is one of the most quietly dynamic numbers on your payslip — and the people whose job it is to explain this almost never do.

Here is what is actually happening, why specific months tend to spring deductions on you, and how to avoid the worst of it. Use Ganak''s Take-home Salary Calculator alongside this article to verify your own numbers before your next salary credit.

How Salary TDS Actually Gets Calculated

Under Section 392 of the new Income Tax Act, 2025 — which replaced Section 192 of the 1961 Act on 1 April 2026 — every employer paying salary must deduct income tax at source. The substantive rules haven''t changed; only the section number and a few form names have. The deduction is based on the average rate of tax on your estimated annual income, not a flat percentage of monthly earnings. Important distinction.

The calculation runs in five steps every payroll cycle:

1. Estimate annual gross salary — basic, DA, HRA, special allowance, perquisites, expected bonuses, plus any income from a previous employer in the same financial year (if you submitted Form 12B).
2. Subtract exemptions and standard deduction — HRA exemption (Section 12 of the new Act, old-regime only), LTA, the ₹75,000 standard deduction in the new regime or ₹50,000 in the old.
3. Subtract Chapter VI-A deductions the employee has declared — 80C, 80D, 80E, 80CCD(1B), and so on, available only if you''ve elected the old regime.
4. Apply slab rates, deduct the Section 87A rebate (₹60,000 in the new regime up to ₹12 lakh income; ₹12,500 in the old regime up to ₹5 lakh), add 4% Health and Education Cess.
5. Divide by remaining months in the financial year. That''s your monthly TDS.

For someone joining in April with stable salary, accurate declarations, and no surprises, this produces twelve identical monthly deductions. I have met perhaps three people in fifteen years who fit that description. For everyone else, the math gets recomputed mid-year, and the recomputation is what creates the swings.

Old Act and New Act: What Changed for Salary TDS

The substantive rules under the new Act are identical to the old framework. The differences are structural — section numbers, form names, presentation. But many payroll systems are still catching up, and you may receive payslips for the next year or so that still reference the old sections. That''s not a problem; the underlying calculation is the same.

Why Your First Month''s Take-Home Looks Wrong

Joiners are the largest single source of "why is my take-home this weird number" questions I get. There are three distinct first-month scenarios. The math behaves differently in each, and people frequently get advice meant for one situation while actually being in another.

You started fresh in April with no previous job that financial year. The math is clean. Your employer projects April-through-March salary, computes the year''s tax, divides by twelve. You get roughly identical deductions every month. The only thing that disrupts this is a joining bonus, sign-on payment, or any one-time component, which gets fully taxed in the month it''s paid because there''s no full year ahead to spread it over.

You joined mid-year — say in August — and didn''t submit Form 12B from your previous employer. This is where most of the trouble starts. Your new employer assumes you earned nothing before joining and projects annual income only on August-through-March. The deduction looks reasonable, you take home a healthy salary for eight months, and then in April you file your ITR and discover that combining the two employers'' salaries pushes you into a higher slab. You owe self-assessment tax. The amount is rarely small — I have seen ₹40,000 to ₹3 lakh on a single ITR for this exact mistake.

You joined mid-year and did submit Form 12B. Now the new employer correctly projects total annual income across both jobs. Your deduction for August through March looks higher than expected — because you''re paying full-year tax over fewer remaining months. This is the right answer. Your monthly take-home is lower, but your March is calm and your ITR shows nothing owed.

Form 12B is one of those documents nobody talks about until they wish they had. Submit it.

The Bonus Month Spike

Most companies pay annual performance bonuses in March or April. When the bonus hits, your TDS jumps — often dramatically — and the jump usually persists for the rest of the financial year.

The mechanism is straightforward and unforgiving. Your employer revises projected annual income to include the bonus. Annual tax goes up. The TDS already taken from earlier months hasn''t changed, so the entire shortfall has to come out of the months remaining. If your March bonus added ₹1,42,000 to the year''s tax liability and there are zero months left, the whole ₹1,42,000 hits your March payslip. I have seen take-home in bonus months drop to less than a quarter of normal.

Larger employers — the Wipros, Infosyses, ICICIs — have payroll teams who can pro-rate bonus tax over multiple months if you ask. Some do it automatically; most need to be asked. Smaller companies typically can''t accommodate this and will deduct the full impact in the month the bonus is paid. If you know a large bonus is coming, ask payroll the question two months ahead, in writing. The answer determines whether you can plan for the dip or get blindsided by it.

The January-March Spike (And Why It''s Avoidable)

This is the most common quiet shock. You declared ₹1.5 lakh of 80C investments back in April. Your employer deducted reduced TDS through the year on that basis. Now it''s January, you haven''t actually made the investments, and HR is asking for proofs.

If you can''t produce them, the employer reverses the assumed deductions and recovers the year''s shortfall in February and March alone. The math is brutal. Say your employer was deducting ₹15,000 a month on the strength of your declaration, and the reversed calculation shows you should have been paying ₹20,000 a month. The gap of ₹5,000 over April-December — ₹45,000 — has to come out of just two payslips. That is ₹22,500 added to each of February and March, on top of the new higher monthly TDS. Take-home in March can land at 30-40% of normal as a result.

Two things prevent this. First, only declare investments you actually intend to make. Aspirational declarations are how this trap gets set. Second, submit Form 124 — which replaced Form 12BB from 1 April 2026 — along with proofs by January at the latest, even if your HR team says December is fine. The earlier the proofs reach payroll, the smaller the recalibration.

The same logic applies to rent receipts for HRA, life insurance premium receipts, home loan interest certificates, and anything else you''ve declared. If the proof doesn''t arrive, the deduction goes away, and the year-end math gets ugly.

What to Do If TDS Looks Wrong

First, calm down. Most TDS that looks wrong is actually correct math with one missing input. Pull your latest payslip and check three things: the projected annual gross salary, the deductions being applied, and the chosen tax regime. In my experience, the discrepancy is almost always something the employee thought they had declared but didn''t.

If TDS is being deducted under the new regime when you wanted the old (or vice versa), update the election with HR. Salaried taxpayers can switch tax regime every financial year — the choice is made through Form 124 and applies from the change month onward. Be aware that switching mid-year recalibrates the previous months too. The change-month payslip can show a spike or, occasionally, a refund-style negative TDS to even things out.

If the employer is deducting TDS but not actually depositing it with the government, you have a serious problem. Form 26AS won''t show the deposits, and at ITR time you can''t claim TDS credit you don''t have evidence of. Verify quarterly that payslip TDS matches Form 26AS at incometax.gov.in. If they don''t match, that''s a written-complaint situation, not a chat-with-HR situation. Non-deposit is treated as a Section 271C offence and gets resolved fast once it''s on paper.

Claiming Back Excess TDS

If the year ends with too much TDS deducted — common when you make late investments your employer couldn''t factor in — you don''t lose the money. You get it back as a refund when filing your ITR.

The mechanics are simple. The TDS amount populates automatically from Form 26AS into your ITR. If your computed annual tax is lower than what was deducted, the difference becomes your refund. The IT department typically credits refunds within 30-90 days of ITR processing. Refunds in the ₹10,000-50,000 range are routine; I''ve seen them come through in two weeks during light filing seasons and three months at the height of July.

Use Ganak''s Income Tax Calculator (New Regime) or Old Regime Calculator to verify your annual tax liability before filing. If the calculator shows liability lower than total TDS deducted (sum your 12 monthly amounts from the payslips), you''re owed a refund.

Frequently Asked Questions

Why does my TDS change every month?

It changes whenever any input changes — a bonus, an increment, an investment declaration update, a missing proof. The employer takes the revised projected annual income, recomputes the year''s total tax, and divides whatever''s still unrecovered across the months remaining. A January increment forces a full year of tax on that increment to come out of the next two payslips, which is why mid-year raises often feel less generous than they should.

What is Section 392 of the Income Tax Act, 2025?

Section 392 governs TDS on salary income under the new Act, which took effect on 1 April 2026. It corresponds to Section 192 of the repealed 1961 Act. The substantive rules are identical — employers estimate annual income, apply the chosen regime''s slab rates, deduct tax monthly at the average rate. The section number changed; the calculation didn''t.

What happens if I don''t submit Form 124 to my employer?

Form 124 — which replaced Form 12BB on 1 April 2026 — is the declaration of deductions and exemptions you''re claiming. Skip it and your employer must deduct TDS as if you have zero deductions, applying full slab rates with only the standard deduction. Your monthly take-home shrinks all year. You can recover the excess as a refund at ITR time, but you''ll have given the IT department an interest-free loan for twelve months. Submit Form 124 in April or May. Don''t wait.

Can I avoid TDS on salary by choosing the new tax regime?

Only if your projected annual income falls below the rebate threshold. Under the new regime for FY 2026-27, income up to ₹12 lakh is effectively tax-free for non-salaried filers, and up to ₹12.75 lakh for salaried (after the ₹75,000 standard deduction) — the ₹60,000 Section 87A rebate absorbs the slab tax. Above that, TDS applies as normal under the new regime slabs. The new regime doesn''t eliminate TDS; it changes the slab structure on which TDS is computed.

What is Form 12B and when do I need it?

Form 12B is the disclosure you give a new employer about salary earned and TDS deducted in the same financial year by your previous employer. You need it the moment you change jobs mid-year. Without it, the new employer can''t accurately project annual income across both jobs and typically under-deducts TDS. The bill comes due as self-assessment tax at ITR time, and it''s rarely small. Form 12B continues unchanged under the new Income Tax Rules, 2026.

Why is my March TDS so much higher than other months?

Three things tend to pile into March: the annual bonus is paid (the entire bonus tax comes from one month''s pay), declared investments aren''t backed by proofs (the year''s assumed deductions get reversed), and any income variations through the year get reconciled in the final month. Take-home in March can land at 30-40% of normal. The fix for next year: submit investment proofs by January, ask payroll about pro-rating bonus tax, and only declare investments you actually plan to make.

Can my employer deduct extra TDS without telling me?

No. Employers must give you a payslip showing each month''s TDS, and they''re required to deposit the deducted amounts with the government and reflect them in your Form 26AS within the next quarter. They cannot legally deduct without disclosure. If your payslip TDS doesn''t match Form 26AS, raise it formally — non-deposit is a serious offence and gets resolved quickly once the IT department is involved. You can verify Form 26AS quarterly at incometax.gov.in.

Sources and Further Reading

This guide is based on the Income Tax Act, 2025 framework and the Income Tax Rules, 2026 that took effect on 1 April 2026, along with CBDT''s transition guidance. For the official text:

• Income Tax Department — Tax Payments and TDS Provisions (incometax.gov.in)
• TDS Compliance Under the Income Tax Act, 2025 (incometax.gov.in)
• Salaried Individuals Return Filing Guide — Income Tax Department
• Form 12BB Format (legacy reference; replaced by Form 124 from 1 April 2026)

Last verified: April 2026. This article will be updated as the Form 124 specifications are formally published by CBDT.