The system of record for how work actually happens.
Project the annual income. Peel off the exemptions the employee actually claims. Run the slabs, layer surcharge with marginal relief, add cess, then divide by the months remaining. The cumulative method, worked out in plain view — the number an in-house payroll team would arrive at, generated the same way.
Projected annual income
Incl. ₹1L bonus · March
Eligible exemptions
Std ₹75k + Employer NPS ₹75k
Tax + 4% cess (no surcharge)
New regime · ₹14.5L taxable
₹2,26,200
₹18,850
The Section 192 formula
Section 192 of the Income Tax Act tells the employer to deduct tax monthly on "the average rate of income tax" computed from the projected annual income. In practice that's a fixed five-step computation — project, deduct, slab, surcharge, divide. The studio shows each step so the result isn't a black box.
Add up the monthly gross across the remaining months of the financial year, plus any one-time payments expected before March 31 — bonus, joining, retention, retro increments. Year-to-date already-paid income is included so the projection is total-year, not remaining-year.
annual_income = YTD + (monthly × months_left) + lump_sums
Standard deduction always applies — ₹75,000 in the new regime, ₹50,000 in the old. The old regime additionally allows HRA exemption (10(13A)), 80C, 80D, NPS contributions, and home-loan interest. Pull these off before the slab math runs.
taxable = annual_income − exemptions
The new regime has six brackets (Nil / 5 / 10 / 15 / 20 / 30%); the old has four (Nil / 5 / 20 / 30%). Compute the tax for each bracket the taxable income spans, sum them. This is the base income tax before surcharge or cess.
tax = Σ (slab_amount × slab_rate)
Surcharge stacks on the base tax above ₹50L (with marginal-relief checks). Health and Education Cess applies 4% on top of (tax + surcharge), uniformly. Cess is the final additive layer before the result divides into monthly figures.
total = (tax + surcharge) × 1.04
The annual TDS liability divides across the months remaining in the financial year — typically 12 at year-start, fewer for a mid-year joiner or after a mid-year recalculation. That per-month figure is what shows up as the TDS line on the payslip.
monthly_tds = (total − ytd_deducted) ÷ months_left
The cumulative method
Section 192 explicitly uses the cumulative method: every month, the year's total liability is recomputed against the latest income projection, then the already-deducted amount is subtracted, and the remainder spreads across the months still in the FY. When the inputs don't change, the monthly figure stays flat. When they do — bonus, increment, mid-year regime switch — the figure adjusts so the cumulative cleanly lands at year-end.
A retention or performance bonus paid in February or March arrives after most of the year's TDS has already been spread evenly. The cumulative method re-runs the whole year — surplus tax for the bonus month surfaces as a one-time additional deduction.
An increment in October raises the projection for the second half of the year. The first six months had less TDS deducted than the new projection warrants — the remaining six months have to absorb the catch-up. The studio shows the adjusted figure with a one-line reason on the payslip.
Salaried employees can switch tax regimes once per FY before March 31. A switch from old to new (or vice versa) recomputes the year's liability against the new regime; the remaining months absorb the delta from the YTD already deducted.
Surcharge tiers
Surcharge is an additional tax stacked on top of the base income tax for high-income earners. The thresholds are absolute — at one rupee above each cliff, the surcharge rate jumps. Without marginal relief, that single rupee could cost lakhs in extra tax; the relief rule ensures the additional surcharge never exceeds the incremental income above the threshold.
First surcharge tier. Most often hit by senior management or founders drawing structured CTC. Marginal relief is critical just above ₹50,00,000 — without it, ₹1 of additional income triggers up to ₹1.4L of additional surcharge.
₹1,40,000 jump
Smooth across ₹1
Second tier. Common for partners at professional firms and senior executives at listed companies. Relief math applies again — additional surcharge can't exceed the income exceeding ₹1Cr.
₹3L jump
Smooth across cliff
Third tier — capped here in the new regime. Both regimes converge at 25%. Marginal relief continues to apply at the threshold.
₹4.6L jump
Smooth across cliff
Fourth tier — exists only in the old regime. The new regime caps at the 25% tier even at very high incomes; this is one of the reasons high earners often gravitate to the new regime even after losing 80C / HRA exemptions.
Old regime tier
Capped at 37%
The exemption ladder
Exemptions are the only lever an employee has between their gross income and the slab calculation. The old regime offers a full ladder — HRA, 80C, 80D, NPS, home-loan interest, donations. The new regime offers a much shorter list but a higher standard deduction. The studio surfaces both ladders so the regime choice is informed by the rungs you can actually climb.
Min of (HRA received, rent − 10% basic, 50% basic for metros / 40% non-metros). Requires actual rent paid + landlord PAN above ₹1L/yr.
Cap · Min-of-3 formula
PPF, ELSS, life insurance premium, principal on home loan, child tuition. The classic catch-all bucket for retail tax-saving instruments.
Cap · ₹1,50,000
Premium for self + family (₹25k) plus parents (additional ₹25k, or ₹50k if senior citizens). Preventive health-checkup limit ₹5k.
Cap · ₹25k–₹1L combined
Self-contribution to NPS Tier-1 over and above 80C. Stacks on top of the ₹1.5L cap — total reachable is ₹2L through 80C + 80CCD(1B) combined.
Cap · Additional ₹50,000
Employer's contribution to employee NPS, up to 10% of (basic + DA) for private sector, 14% for central government. The one major exemption still available in the new regime.
Cap · 10% of basic + DA
Interest on a self-occupied home loan. Hugely impactful for borrowers in the first 5–7 years where interest dominates the EMI. Old regime only for self-occupied properties.
Cap · ₹2,00,000
Flat deduction applied to salaried income with no documentation required. The only universal exemption that applies in both regimes.
Cap · ₹75k new / ₹50k old
The challan flow
Deducting TDS is one job. Depositing it correctly, filing the quarterly return that ties the deduction to the employee, and issuing the year-end certificate that the employee uses to file their return — that's the rest of the chain. The studio's TDS output drops into each of those handoffs in the format the receiving system expects.
The TDS figure computed here lands as a deduction line on the employee's monthly payslip. Same engine writes both — the stub's TDS line equals the studio's calculation to the rupee.
Cadence · Every payday
Employer aggregates the month's TDS across all employees, generates Challan 281 (or its successor, the digital ITNS 281 equivalent), and deposits via NSDL or any authorised bank. Late-payment interest kicks in from day one of delay.
Cadence · By 7th, next month
Statement of TDS deducted in the quarter — employer summary (Annexure I) plus employee-wise breakup (Annexure II for Q4). Filed against the deductor's TAN through TRACES / NSDL.
Cadence · End of next month, Q-end
Year-end certificate issued to each employee. Part A is generated by TRACES from the deductor's filings; Part B is generated by the employer (or the studio) summarising the salary, exemptions claimed, and tax paid.
Cadence · By June 15, next FY
Employees use Form 16 to file their annual return on the IT department's e-filing portal. The TDS deducted from salary appears as pre-filled credit against the assessed tax liability — the income tax "refund" is the difference.
Cadence · By July 31, next FY
The IT department's TRACES portal reconciles the employee's Form 16 against the employer's Form 24Q, flags mismatches, and processes refunds or demands. Any discrepancy comes back to the employer for correction.
Cadence · Rolling, post-ITR
The Q&A column
Late-payment interest, mid-cycle revisions, return mismatches, refund chasing. The narrow questions that come up when withholding is the topic — not the broader "what's the take-home" salary questions, which live on the calculator page.
Interest accrues at 1% per month for each month of delay between deduction and deposit — calculated from the date TDS should have been deposited (the 7th of the next month) to the date it actually was. Additionally, the IT department can impose penalties under Section 271C up to the amount of TDS not deducted. The studio dates every deduction so the deposit deadline is visible from the start.
Continue with
The TDS calculator is the withholding view of the same engine the salary calculator uses for take-home. The PF/ESI calculator computes the other statutory subtractions; Form 16 generates the year-end certificate from a year of TDS deductions; the payslip generator renders the deduction as a stub line.
Project, subtract, slab, layer, divide. Each step traceable, the year's liability reconcilable, the per-month number deposited on time — the audit-trail every payroll desk owes.