Manual or automatic?
Payroll has two TDS modes, switched from Payroll → Income tax.
Manual is the default. You type each employee's monthly TDS on the run's review screen and payroll deducts exactly that. Simple, and right if your accountant already computes the figure.
Auto projects the tax for you. For each employee payroll takes their annual pay, applies their declared regime and investments, works out the year's tax, subtracts what has already been withheld this financial year, and spreads the rest across the months that remain. Deduct too little early in the year and the later months absorb it — which is why the figure moves when a declaration changes.
An explicit manual figure always wins. If you type a TDS amount on the run, auto leaves it alone for that employee.
Declarations
Payroll → Income tax lists everyone with their regime. Open an employee to record it.
Under the new regime only the standard deduction applies — the investment fields are ignored, so leave them empty. Under the old regime payroll nets off HRA exemption, 80C (capped at ₹1,50,000), 80D, home-loan interest (capped at ₹2,00,000) and anything you put under other exemptions.
HRA exemption is the least of three figures: the HRA actually received, rent paid minus 10% of Basic, and 50% of Basic in a metro (40% elsewhere) — so the metro checkbox matters.
An employee with no declaration is treated as new regime with no investments. That is a safe default, not a guess to leave in place: it usually over-deducts for someone who would have claimed the old regime.
Tax slabs are data, not code
The slab table for each financial year and regime is editable on the same page — bands, standard deduction, the 87A rebate and cess. India's defaults for the year are pre-filled.
Slabs are stored per financial year, so last year's payslips keep last year's tax. When the Budget changes the rates, add the new year's version rather than editing the old one.
Form 16 / Form 130
The Form 16 button on each employee row exports their annual TDS statement: month-by-month gross and TDS across the financial year, the totals, and the declaration you have on file. It reads locked runs only, so the numbers match what was actually paid.
This is a filing aid, not an e-filing. You still file with the Income Tax portal yourself. (The Income Tax Act 2025 renames Form 16 to Form 130 — same statement.)
Before you rely on auto TDS
- PAN must be on the employee's payroll page, or the TDS export has a blank where the PAN should be.
- Check the year's slabs against the current Finance Act before your first run of the year.
- A one-off taxable bonus raises that month's tax — expect the figure to jump and settle.