TDS questions check how tax is deducted from salary and other payments, and how it is deposited and reported.
Below are 60 TDS questions with the correct answer and a short explanation, grouped from fresher to experienced level. Try each one before you open the answer.
In Indian payroll, what does TDS stand for?
Answer: D. Tax deducted at source
TDS means tax deducted at source. The employer estimates the employee annual income tax, deducts it from salary each month and deposits it with the government. It is reported in quarterly returns and Form 16.
Why must payroll collect a valid PAN from each employee in India?
Answer: B. Because TDS is reported against the PAN, and missing PAN can lead to higher tax deduction
The tax deducted is deposited and reported against the employee PAN, so it appears in their tax records and Form 16. Without a valid PAN, tax law can require deduction at a higher rate. PF uses the UAN, not the PAN, as its main identifier.
What does the year-to-date (YTD) column on an Indian payslip show?
Answer: B. The cumulative amount from the start of the financial year to the current month
YTD totals each earning and deduction from April, the start of the Indian financial year, to the current month. It helps employees check tax deducted so far and ties to Form 16 at year end.
For FY 2025-26, how much standard deduction does a salaried employee get under the new tax regime?
Answer: C. ₹75,000
The Finance Act 2024 raised the standard deduction under the new regime to ₹75,000 from FY 2024-25, and it continues for FY 2025-26. Under the old regime it stays at ₹50,000. Payroll deducts it from gross salary before applying slab rates.
An employee has opted for the old tax regime. What standard deduction should payroll allow from salary for FY 2025-26?
Answer: B. ₹50,000
The old regime allows a flat standard deduction of ₹50,000 (or the salary, if lower). The higher ₹75,000 figure applies only to the new regime. The deduction needs no bills or proofs.
After computing income tax (plus any surcharge) on salary, what Health and Education Cess does payroll add?
Answer: D. 4% of tax plus surcharge
Health and Education Cess is 4% of the income tax plus surcharge, not of income. It applies under both regimes. Payroll adds it before dividing the annual tax into monthly TDS.
Under the new regime for FY 2025-26, up to what total income does a resident individual pay zero tax because of the Section 87A rebate?
Answer: C. ₹12,00,000
From FY 2025-26 the 87A rebate under the new regime is up to ₹60,000 for total income up to ₹12 lakh, which wipes out the slab tax on that income. With the ₹75,000 standard deduction, salary up to ₹12.75 lakh ends up with no tax.
For an employee aged 35 who has chosen the old regime, up to what income is the tax rate nil?
Answer: A. ₹2,50,000
Under the old regime the basic exemption limit for residents below 60 is ₹2.5 lakh. It is ₹3 lakh for senior citizens (60–79) and ₹5 lakh for those 80 and above. The new regime uses ₹4 lakh for everyone.
In the old regime for FY 2025-26 (Income-tax Act, 1961 numbering), an employee declares PPF ₹1,00,000, ELSS ₹60,000 and own PF ₹70,000. How much can payroll allow under Section 80C?
Answer: B. ₹1,50,000
Section 80C, which includes the employee's own PF, PPF, ELSS, life insurance, tuition fees and home loan principal, has an overall cap of ₹1,50,000. The declared ₹2,30,000 is limited to that cap. It is only available in the old regime.
An employee in the old regime claims HRA exemption at year end. What evidence should payroll collect through Form 12BB (Income-tax Act, 1961, FY 2025-26)?
Answer: C. Rent receipts and the landlord's details
Form 12BB asks for rent paid and, for HRA, evidence such as rent receipts and the landlord's name and address. Without proof, payroll should not allow the exemption in TDS. The employee can still claim it in the return with valid evidence.
For FY 2025-26 (Income-tax Act, 1961 numbering), the employer pays the premium for a group mediclaim policy covering employees. How is it treated in the employee's salary?
Answer: C. Not a taxable perquisite
Premium paid by the employer on a health insurance scheme approved by IRDAI for employees is not a perquisite. It does not appear in taxable salary under either regime. The employee also cannot claim it under 80D, since they did not pay it.
What is the due date for filing the quarterly salary TDS statement (Form 24Q, Income-tax Act 1961, FY 2025-26) for January–March?
Answer: C. 31 May
Form 24Q is due 31 July (Q1), 31 October (Q2), 31 January (Q3) and 31 May (Q4). The Q4 return carries the full-year salary details in Annexure II. Late filing attracts a fee of ₹200 per day.
An employee without any disability receives transport allowance of ₹1,600 a month for commuting. How is it taxed?
Answer: C. Fully taxable salary
The old ₹1,600 a month commuting exemption was removed from FY 2018-19 and folded into the standard deduction. Commuting allowance is now fully taxable for most employees. A separate exemption still exists for employees with specified disabilities.
For FY 2025-26 (Income-tax Act, 1961 numbering), an employee who chose the new regime submits PPF and life insurance proofs at year end. What should payroll do with them for TDS?
Answer: D. Not allow them, as 80C is not available
Chapter VI-A deductions like 80C are not available under the new regime. CBDT has said the regime intimated to the employer cannot be changed mid-year, so payroll ignores these proofs. The employee may still choose the old regime in the return and claim them.
An old-regime employee below 60 declares savings bank interest of ₹14,000. How much can be deducted under Section 80TTA (Income-tax Act, 1961, FY 2025-26)?
Answer: A. ₹10,000
80TTA allows up to ₹10,000 deduction on savings account interest for individuals below 60. The interest itself must first be declared as other income. Senior citizens use 80TTB, which has a higher limit and covers deposits too.
A startup hires its first salaried employees. Before deducting and depositing TDS, what must it have?
Answer: B. A TAN
The Tax Deduction and Collection Account Number (TAN) must be quoted in TDS payments, returns and certificates. Without it, challans and returns cannot be filed correctly. PAN is not a substitute for TAN.
For FY 2025-26 (Income-tax Act, 1961 numbering), an employee in the new regime pays ₹25,000 rent a month and receives HRA of ₹20,000 a month. How much of the HRA is exempt?
Answer: C. None of it
The Section 10(13A) HRA exemption is only available under the old regime. In the new regime the whole HRA is taxable and rent receipts are not needed for TDS. Employees with high rent should compare both regimes.
An old-regime employee has a ₹40,000 flexible benefit plan for LTA and fuel bills but submits bills for only ₹15,000 by year end. What happens to the other ₹25,000 if paid out?
Answer: C. It is paid as taxable salary
Exemptions under a flexible plan need actual qualifying spends and proof. Any unclaimed amount that is paid out is ordinary taxable salary. Payroll should run TDS on it in the payout month.
A shop-floor employee earns ₹12,000 overtime in a month. How is it treated for TDS on salary?
Answer: B. As taxable salary for the year
Overtime is part of salary and fully taxable. Payroll adds it to the year's estimated income and adjusts the average-rate TDS. There is no separate exemption for overtime.
Payroll takes investment declarations in April and actual proofs in January. Why are both steps used?
Answer: D. Declarations set TDS early; proofs confirm it before year end
Early declarations let payroll spread a lower, realistic TDS across the year. Proofs collected before the last months let payroll allow only what is supported and recover any gap before March. Without proof, deductions should not be allowed in final TDS.
Under old-regime rules, HRA exemption is the lowest of: actual HRA received, rent paid minus 10% of basic, and 50% of basic for a metro city. Monthly basic is 40,000, HRA received is 20,000 and rent paid is 22,000 in a metro. What is the monthly exempt HRA?
Answer: C. 18,000
The three limits are: HRA received 20,000; rent minus 10% of basic = 22,000 - 4,000 = 18,000; 50% of basic = 20,000. The lowest is 18,000, so that is exempt and the remaining 2,000 of HRA is taxable.
Under old-regime rules, exempt HRA is the lowest of: actual HRA, rent paid minus 10% of basic, and 40% of basic for a non-metro city. Monthly basic is 30,000, HRA is 15,000 and rent paid is 12,000. What is the monthly exempt HRA?
Answer: C. 9,000
The limits are 15,000 (actual HRA), 12,000 - 3,000 = 9,000 (rent minus 10% of basic) and 40% x 30,000 = 12,000. The lowest is 9,000, so 9,000 is exempt and 6,000 of the HRA is taxable.
An employee receives HRA but lives in their own house and pays no rent. Under old-regime HRA rules, how is the HRA treated?
Answer: A. Fully taxable, because there is no rent paid to claim exemption
HRA exemption depends on rent actually paid. With no rent, the rent minus 10% of basic limit is zero, so the exemption is zero and the whole HRA is taxable. The allowance itself can still be paid.
What is the difference between Part A and Part B of Form 16?
Answer: D. Part A shows employer and employee details with tax deducted and deposited; Part B shows the salary breakup, deductions and tax computation
Part A covers employer TAN, employee PAN and quarterly TDS deducted and deposited. Part B gives the salary details, exemptions, deductions and how the tax was computed. Employees use both to file their return.
Under the old regime for FY 2025-26 (Income-tax Act, 1961 numbering), what is the maximum Section 87A rebate for a resident individual with taxable income up to ₹5 lakh?
Answer: A. ₹12,500
Under the old regime the rebate is the tax payable or ₹12,500, whichever is lower, for resident individuals with income up to ₹5 lakh. That exactly cancels the 5% tax on the ₹2.5–5 lakh band. The larger ₹60,000 rebate belongs to the new regime.
For FY 2025-26 (Income-tax Act, 1961 numbering), an employee in the new regime asks which of these can still reduce taxable salary. Which one is allowed?
Answer: D. Employer's contribution to NPS under Section 80CCD(2)
The new regime removes most deductions, but the employer's NPS contribution under 80CCD(2) is still allowed. 80C, 80D and self-occupied home loan interest are only for the old regime. Many employers restructure CTC to include employer NPS for this reason.
An employee in the old regime has already used the full ₹1.5 lakh under 80C (Income-tax Act, 1961, FY 2025-26) and puts ₹50,000 of their own money into NPS Tier I. What else can payroll allow?
Answer: D. ₹50,000 under Section 80CCD(1B)
80CCD(1B) gives an extra deduction of up to ₹50,000 for the employee's own NPS contribution, over and above the ₹1.5 lakh 80C limit. 80CCD(2) is for the employer's contribution, not the employee's. 80CCD(1B) is not available in the new regime.
An employee aged 40 in the old regime pays health insurance of ₹22,000 for self and family and ₹48,000 for parents aged 65 and 68. What 80D deduction can payroll allow (Income-tax Act, 1961, FY 2025-26)?
Answer: A. ₹70,000
For self, spouse and children the 80D limit is ₹25,000 (below 60), so ₹22,000 is fully allowed. For senior citizen parents the separate limit is ₹50,000, so ₹48,000 is fully allowed. Total deduction is ₹70,000.
For FY 2025-26 (Income-tax Act, 1961 numbering), payroll deducted ₹2,500 of professional tax from an employee during the year. When is it deducted from salary income for TDS?
Answer: A. Only under the old regime
Professional tax paid is a deduction from salary under Section 16(iii) in the old regime. The new regime allows only the standard deduction among Section 16 items. Payroll must still deduct and pay the PT to the state in both cases.
For an HRA claim, above what annual rent must the employee give the landlord's PAN in Form 12BB (Income-tax Act, 1961, FY 2025-26)?
Answer: B. ₹1,00,000 a year
CBDT rules require the landlord's PAN when annual rent paid exceeds ₹1 lakh. If the landlord has no PAN, a declaration from the landlord is needed. Payroll should check this before allowing the HRA exemption.
How many journeys can an employee claim LTA exemption for in one block of four calendar years?
Answer: B. Two
The exemption is allowed for two journeys in a block of four calendar years (the current block is 2026–2029). An unused journey can be carried to the first year of the next block. Payroll should track claims per employee across blocks.
A private-sector employee retires and receives leave encashment of ₹30 lakh. What is the maximum amount that can be exempt?
Answer: D. ₹25 lakh
Since April 2023 the ceiling for non-government employees under 10(10AA) is ₹25 lakh, raised from ₹3 lakh. The exemption is the least of the ceiling, actual amount, 10 months' average salary and leave credit at 30 days a year. So at most ₹25 lakh is exempt.
For FY 2025-26, an employer gives meal vouchers of ₹100 per working day usable only for food during office hours. For an old-regime employee, how much per meal is exempt?
Answer: C. ₹50 per meal
Food or non-alcoholic drinks provided through non-transferable vouchers during working hours are exempt up to ₹50 per meal. The excess ₹50 per day is a taxable perquisite, and the benefit was not available under the new regime. From tax year 2026-27 the Income-tax Rules, 2026 raise the limit to ₹200 per meal.
An old-regime employee contributes ₹1,00,000 of their own money to NPS and has no other 80C items (Income-tax Act, 1961, FY 2025-26). What is the most tax-efficient way to allow it?
Answer: A. ₹50,000 under 1B, rest under 80CCD(1)
The employee's own NPS contribution counts under 80CCD(1), which sits inside the ₹1.5 lakh 80C cap, and also under 80CCD(1B) for an extra ₹50,000. Using ₹50,000 under 1B and the rest under 80CCD(1) gives the full ₹1 lakh deduction while leaving 80C room. 80CCD(2) applies only to employer contributions.
An employee exercises 1,000 ESOPs at ₹100 each. The fair market value on the exercise date is ₹450. What is the perquisite added to salary?
Answer: B. ₹3,50,000
The perquisite is the fair market value on the date of exercise minus the amount paid: (₹450 − ₹100) × 1,000 = ₹3,50,000. It is taxed as salary when shares are allotted. The later gain on sale is a capital gain, using ₹450 as the cost.
For FY 2025-26 (Income-tax Act, 1961 numbering), an employer ends an employee's job without notice and pays three months' salary in lieu of notice. How is this payment taxed?
Answer: C. As profits in lieu of salary
Payment in lieu of notice is a profit in lieu of salary under Section 17(3) and is fully taxable. TDS applies at the employee's average rate. It is different from retrenchment compensation under the labour law, which has its own exemption.
An old-regime employee pays ₹1,80,000 interest (and ₹2,00,000 principal) on an education loan taken for their own MBA. What is the 80E deduction (Income-tax Act, 1961, FY 2025-26)?
Answer: D. ₹1,80,000, as interest has no cap
Section 80E allows the full interest on an education loan with no upper limit, for up to eight years from when repayment begins. Principal is not deductible under 80E. The deduction is only in the old regime.
An old-regime employee has a certified disability of 50% (not severe). What deduction can they claim under Section 80U (Income-tax Act, 1961, FY 2025-26)?
Answer: C. ₹75,000
80U gives a fixed deduction of ₹75,000 for a person with disability (40% or more) and ₹1,25,000 for severe disability (80% or more). It needs a medical authority certificate, not bills. It is available only in the old regime.
An employee's salary is fixed and paid in US dollars by an Indian employer. Which rate does Rule 26 require for converting it to rupees for TDS?
Answer: C. SBI's telegraphic transfer buying rate on the TDS date
Rule 26 says income in foreign currency is converted at the State Bank of India's telegraphic transfer buying rate on the date tax is required to be deducted. Using a fixed or average rate can create mismatches. Payroll should store the rate used each month.
In Form 16 Part B (Income-tax Act, 1961, FY 2025-26), how does the employer's NPS contribution usually appear?
Answer: D. In gross salary, then deducted under 80CCD(2)
The employer's NPS contribution is part of salary under Section 17(1)(viii). It is then allowed as a deduction under 80CCD(2) up to the limit. This is why gross salary in Form 16 can be higher than the payslip gross.
In the new regime for FY 2025-26, a resident employee has taxable income (after standard deduction) of ₹12,10,000. With marginal relief, what is the tax including 4% cess?
Answer: D. ₹10,400
Slab tax on ₹12.1 lakh is ₹20,000 + ₹40,000 + ₹1,500 = ₹61,500. Marginal relief caps the tax at the income above ₹12 lakh, which is ₹10,000. Adding 4% cess gives ₹10,400.
A resident employee below 60 in the old regime has taxable income of ₹5,10,000 for FY 2025-26. What is the tax including cess?
Answer: C. ₹15,080
The old regime 87A rebate (up to ₹12,500) applies only if taxable income is ₹5 lakh or less, and there is no marginal relief for crossing it. Tax is ₹12,500 + 20% of ₹10,000 = ₹14,500, plus 4% cess = ₹15,080. A small extra deduction to get under ₹5 lakh would save the whole amount.
A CXO with salary income of ₹6 crore wants to know the highest surcharge rate that can apply under the new regime. What is it?
Answer: B. 25%
Under the old regime surcharge can go up to 37% for income above ₹5 crore. The new regime caps surcharge at 25%, so very high earners often prefer it. Cess of 4% is still added on tax plus surcharge.
A private-sector employee has basic plus DA of ₹1,00,000 a month. Under the new regime for FY 2025-26, up to how much employer NPS contribution per year is deductible under 80CCD(2)?
Answer: B. ₹1,68,000 (14% of salary)
From FY 2024-25 the 80CCD(2) limit under the new regime is 14% of salary (basic plus DA) for all employers. Under the old regime it remains 10% for private employers. Annual salary is ₹12 lakh, so 14% is ₹1,68,000, subject to the separate ₹7.5 lakh cap on total employer retirement contributions.
An employee in the old regime has basic of ₹50,000 a month, HRA of ₹20,000 a month and pays rent of ₹4,500 a month in Jaipur. What is the HRA exemption?
Answer: D. Nil
The exemption is the least of actual HRA, 40% of salary (non-metro), and rent paid minus 10% of salary. Rent of ₹54,000 a year minus 10% of ₹6,00,000 (₹60,000) is negative, so the least amount is nil. All ₹2,40,000 of HRA is taxable.
A private company gives an employee a flat it owns in Mumbai (population over 40 lakh per the 2011 census). Salary for perquisite purposes is ₹24,00,000 a year. What is the perquisite value under the rules in force since September 2023?
Answer: A. ₹2,40,000 (10% of salary)
For accommodation owned by the employer, the value is 10% of salary in cities with population above 40 lakh (2011 census), 7.5% for 15–40 lakh, and 5% elsewhere. These rates replaced the older 15%/10%/7.5% from 1 September 2023. Any rent recovered from the employee reduces the value.
During the year an employee receives a ₹4,000 Diwali voucher and a ₹2,000 anniversary voucher from the employer. How much does payroll treat as a taxable perquisite?
Answer: A. ₹6,000, the whole amount
The ₹5,000 limit is on the total value for the year. Once the total crosses it, the common and safer view followed by payroll is that the entire value is taxable, not just the excess. So ₹6,000 is added to salary for TDS.
A 24Q return showing total TDS of ₹8,000 is filed 60 days late. What late fee applies under Section 234E (Income-tax Act, 1961, FY 2025-26)?
Answer: C. ₹8,000, capped at the TDS amount
Section 234E levies ₹200 for each day of delay, but the total fee cannot be more than the TDS amount in that statement. 60 days × ₹200 is ₹12,000, which is capped at ₹8,000. Penalty under Section 271H can apply separately in some cases.
An employee in the new regime has a let-out flat where interest exceeds rent, giving a loss of ₹1,20,000. How should payroll treat it in TDS?
Answer: B. Ignore it, as the set-off is not allowed
Under the new regime, interest on let-out property can reduce that property's income, but a resulting loss cannot be set off against salary or other heads. It cannot be carried forward either. So TDS on salary is computed without it.
An employer chooses under Section 192(1A) (Income-tax Act, 1961, FY 2025-26) to pay the tax on an employee's non-monetary perquisites itself. How is that tax treated in the employee's hands?
Answer: D. It is exempt and not added to salary
Tax paid by the employer on non-monetary perquisites under 192(1A) is exempt for the employee under Section 10(10CC). So there is no tax-on-tax. This differs from an employer bearing tax on cash salary, which is grossed up.
A former Agniveer now on your payroll contributed to the Agniveer Corpus Fund. Under which regime(s) is the deduction under Section 80CCH available (Income-tax Act, 1961, FY 2025-26)?
Answer: C. Both the old and the new regime
Section 80CCH allows a deduction for contributions to the Agniveer Corpus Fund, and the government's matching contribution is first added to income. It is one of the few deductions specifically allowed in the new regime as well. Payroll handling such employees should know it exists.
An eligible DPIIT-recognised startup allots ESOP shares to an employee. Under Section 192(1C) (Income-tax Act, 1961, FY 2025-26), within 14 days of which event must TDS on the perquisite be deducted?
Answer: B. Earliest of 48 months after the AY, sale or exit
For eligible startups, tax on the ESOP perquisite is deferred. TDS is due within 14 days of the earliest of: 48 months from the end of the relevant assessment year, sale of the shares, or the employee leaving. The tax is at the rates of the year of allotment.
A retiring private-sector employee receives gratuity and also commutes part of their pension. What portion of the full commuted value of pension is exempt?
Answer: B. One-third
For non-government employees, commuted pension is exempt up to one-third of the full commuted value if gratuity is also received, and one-half if no gratuity is received. Government employees get full exemption. Uncommuted (monthly) pension is taxable as salary.
For FY 2025-26 (Income-tax Act, 1961 numbering), a foreign parent pays part of a seconded employee's salary into an overseas bank account, while the employee works full-time in Bengaluru. Is that part taxable in India?
Answer: C. Yes, it is earned for work done in India
Under Section 9(1)(ii), salary earned for services rendered in India is deemed to accrue in India, wherever it is paid. The Indian entity often handles TDS on the split salary (shadow payroll). Treaty relief may apply only in narrow short-stay cases.
A non-resident employee in the new regime has taxable salary in India of ₹10 lakh for FY 2025-26. Does the 87A rebate make the tax nil?
Answer: A. No, 87A is only for resident individuals
The 87A rebate is available only to resident individuals. A non-resident pays slab tax on ₹10 lakh: ₹20,000 + ₹20,000 = ₹40,000 plus 4% cess = ₹41,600. Payroll must check residential status before applying the rebate.
For FY 2025-26 (Income-tax Act, 1961 numbering), a company pays salary outside India to an employee on which TDS was required but not deducted. Apart from interest, what is the effect on the company's own tax?
Answer: D. The salary is disallowed as a business expense
Section 40(a)(iii) disallows salary payable outside India, or to a non-resident, if tax was not deducted and paid. The company's taxable profit goes up by that amount until TDS is paid. This is on top of the interest and penalty exposure.
For FY 2025-26 (Income-tax Act, 1961 numbering), an employee received a ₹1,50,000 relocation bonus last year (taxed then) and repays it this year on leaving early. How does payroll treat the repayment in this year's TDS?
Answer: D. It is not deductible from this year's salary under the Act
The Income-tax Act has no provision to deduct salary repaid in a later year from that year's salary, so payroll should not reduce taxable salary for it. Last year's TDS and Form 16 were correct when issued. Some employees seek relief through litigation, but payroll follows the law as written.
An employer contributes 15% of basic to a recognised PF for an employee. Ignoring the ₹7.5 lakh cap, which part is taxable to the employee?
Answer: A. The contribution above 12% of salary
For a recognised provident fund, employer contributions up to 12% of salary are exempt, and the excess is taxable salary. The ₹7.5 lakh aggregate cap across PF, NPS and superannuation applies in addition. Payroll should show the excess in taxable salary.
For FY 2025-26 (Income-tax Act, 1961 numbering), in February payroll discovers it applied old-regime deductions all year for an employee who had chosen the new regime, so TDS has been too low. What is the right action?
Answer: A. Recompute and recover the gap in Feb–March
TDS must follow the regime the employee intimated. Payroll should recompute annual tax under the new regime and deduct the shortfall in the remaining months under Section 192(3). Leaving it creates short-deduction interest for the employer.
A company-owned car is used by an employee for both office and personal trips, and the company pays all running costs. How is the perquisite valued?
Answer: D. A fixed monthly sum by engine size, plus for a driver
For mixed use, Rule 3(2) uses fixed monthly amounts that depend on engine capacity, with an extra amount if a chauffeur is provided. Cars above 1.6 litres carry a higher fixed amount than smaller cars. Actual-cost logic applies only when the car is used wholly privately.
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