Every salaried employee gets a Form 16 in June, but few read past the final tax figure. Understanding how your monthly TDS is calculated — and what each section of Form 16 represents — helps you catch errors before they become problems at ITR filing time.
How Monthly TDS Is Calculated
Under Section 192, your employer is required to estimate your annual tax liability at the start of the financial year (or from your joining month) and deduct it in equal monthly instalments. The calculation broadly works like this:
- Estimate annual gross salary (basic + allowances + perquisites + any bonus already announced)
- Subtract exempt allowances (HRA exemption, LTA, etc. — only if the employee has declared the regime and submitted proofs)
- Apply standard deduction
- Subtract Chapter VI-A deductions declared by the employee (80C, 80D, home loan interest) — applicable only under the old regime
- Compute tax on the resulting taxable income using the applicable slab rates for the chosen regime, apply Section 87A rebate if eligible, and add 4% cess
- Divide the annual tax figure by the number of remaining months in the year to arrive at the monthly TDS
This is why your TDS often changes mid-year — a bonus payout, a salary revision, or updated investment declarations all trigger a recalculation for the remaining months. It's also why employees who submit investment proofs late in the year (Jan-March) often see a sharp jump or drop in their final quarter's take-home pay as the employer "true-ups" the annual figure.
Form 16 Part A: The TDS Certificate
Part A is generated by your employer from the TRACES portal and is essentially a certificate confirming tax was deducted and deposited on your behalf. It contains:
- Employer's TAN and PAN and your PAN
- Assessment Year and the period of employment with this employer during the year
- Quarter-wise summary of TDS deducted and deposited (matches the employer's Form 24Q filings)
- A unique certificate number and digital signature
The total TDS shown in Part A should match the TDS deducted entries for this employer in your Form 26AS. If your employer changed mid-year, you'll receive a separate Form 16 (Part A and B) from each employer for the period you worked there.
Form 16 Part B: The Salary & Deduction Breakup
Part B is prepared by the employer's payroll team and contains the actual computation:
| Section of Part B | What It Shows |
|---|
| Gross Salary | Basic, HRA, special allowance, perquisites (e.g., company car, ESOPs exercised), profits in lieu of salary |
| Exemptions under Section 10 | HRA exemption, LTA exemption, and other allowances exempt up to specified limits |
| Net Salary / Income from Salary | Gross salary minus Section 10 exemptions minus standard deduction (and professional tax, if applicable) |
| Deductions under Chapter VI-A | 80C, 80CCD, 80D, 80E, etc. — populated only if you're under the old regime and submitted proofs |
| Total Taxable Income | Net salary minus Chapter VI-A deductions plus any other income reported to the employer |
| Tax Computation | Tax on total income, rebate under Section 87A, surcharge (if applicable), and 4% Health & Education Cess |
| Tax Deducted & Deposited | Should equal Part A's total and your cumulative payslip TDS deductions |
Cross-Checking Form 16 Against Your Payslips
Before filing your ITR, do a quick three-way check:
- Form 16 Part B gross salary vs. sum of 12 payslips: Should match. Mismatches often arise from reimbursements wrongly included/excluded, or a salary revision applied retroactively.
- Form 16 Chapter VI-A deductions vs. your actual investment proofs: Employers sometimes cap or disallow late-submitted proofs — but you can still claim the full eligible amount in your ITR if you have valid proof, even if your employer didn't account for it.
- Form 16 TDS total vs. Form 26AS / AIS: This is the most important check — see our Form 26AS vs AIS vs TIS guide for how to reconcile.
⚠ Common error: If your employer's TDS return (Form 24Q) is filed late or with errors, the TDS credit may not appear in Form 26AS even though it's shown in Form 16 and was deducted from your salary. Claiming this credit in your ITR without it appearing in 26AS/AIS can trigger a tax demand for the "missing" amount — always reconcile before filing, and follow up with payroll if there's a gap.
What If You Switched Jobs Mid-Year?
If you had more than one employer in the financial year, each issues its own Form 16. Crucially, your new employer does not automatically know about income or TDS from your previous employer unless you provide Form 12B (a statement of prior income and tax deducted) at the time of joining. Without this, both employers may apply the basic exemption and standard deduction independently — resulting in under-deduction of TDS overall, which becomes a liability you must settle (often with interest under Section 234B/234C) at the time of filing your ITR.
Frequently Asked Questions
How does my employer calculate TDS on salary each month? ▼
Your employer estimates your total annual salary, subtracts exemptions and declared deductions, computes annual tax under your chosen regime (applying Section 87A rebate and cess), and divides this by the remaining payroll months. The figure is recalculated whenever your declared investments, salary, or bonus change.
What is the difference between Form 16 Part A and Part B? ▼
Part A is a TDS certificate from TRACES showing employer TAN, your PAN, and quarter-wise TDS deposited. Part B, prepared by the employer, contains the detailed salary breakup, Chapter VI-A deductions, and final tax computation. The TDS total in Part A must match Form 26AS.
What should I do if there's a mismatch between Form 16 and Form 26AS? ▼
A mismatch usually means TDS was deducted but not yet deposited or reported in Form 24Q for that quarter. Ask payroll to verify and correct the TDS return. Avoid claiming the higher Form 16 figure if 26AS/AIS shows less — this can trigger a demand notice for the unreconciled amount.