How Income Tax Works for Salaried Indians

Short answer: Your employer deducts tax (TDS) from your salary each month based on your projected annual income and chosen regime, and you reconcile it by filing a return after the financial year ends.

Slabs and Regimes

India taxes income in slabs — higher income is taxed at higher rates only on the portion in each slab. You choose between the old regime (higher rates, many deductions) and the new regime (lower rates, few deductions). The financial year runs April to March.

TDS Through the Year

Your employer estimates your yearly income, applies your declared deductions and regime, and deducts roughly one-twelfth of the resulting tax from each month's salary as TDS. That is why declaring your investments and rent early matters — it spreads the deduction evenly instead of bunching it at year-end.

Beyond Salary

Interest from fixed deposits, savings accounts, capital gains from selling shares or mutual funds, and rental income are all taxable too and may not have full TDS. You must add these when filing, even though your employer never saw them.

Form 16 and Filing

After the year ends, your employer gives you Form 16 summarising salary paid and tax deducted. You use it, along with your annual information statement and bank details, to file your income-tax return. If too much tax was deducted you get a refund; if too little, you pay the balance.

Why File Even If TDS Covered It

Filing is how you claim refunds, carry forward losses, and create an income record useful for visas and loans. Missing the deadline can mean penalties and interest, so note the due date each year.

Sources: Income Tax Department of India

This explainer was written by The Dispatch desk to answer a question readers commonly ask. It is general information, not personalised financial advice.