For startups and SMEs, payroll is more than just paying employees on time — it’s about accurate tax compliance. One of the most common areas where businesses falter is TDS (Tax Deducted at Source) on salaries. Even minor mistakes can lead to higher deductions, penalties, and IT scrutiny.

Here’s a practical guide to the top mistakes in salary TDS and how to fix them.

TDS on Salaries: Common Mistakes Startups & SMEs Must Avoid

Incorrect Employee PAN or Missing Details

The Mistake:
Using an invalid or missing PAN for employees can result in higher TDS deductions and notices from the Income Tax Department.

The Fix:

• Verify all employee PANs through the TRACES portal before processing payroll.
• Update HR records regularly to reflect any changes in PAN or personal details.
• Cross-check with Form 26AS to ensure the PAN is correctly linked to the employee.

This simple step avoids unnecessary deductions and ensures smooth tax filings.

Wrong TDS Slabs Applied

The Mistake:
Many businesses apply outdated tax slabs, leading to excess or insufficient deductions.

The Fix:

• Update salary structures according to the latest financial year (FY 2025–26) TDS rates.
• Check if the employees are under the old or new tax regime and apply slabs accordingly.
• Automate TDS calculation through payroll software to minimize manual errors.

Correct application of slabs ensures compliance and prevents underpayment or over-deduction issues.

Not Considering Exemptions & Deductions

The Mistake:
Exemptions like HRA, LTA, and deductions for investments are often ignored, resulting in higher TDS than necessary.

The Fix:

• Collect investment proofs and exemptions from employees before computing TDS.
• Adjust TDS after including all eligible deductions under sections like 80C, 80D, etc.
• Document exemptions for audit readiness and future reference.

This ensures employees pay only the tax they owe, enhancing satisfaction and compliance accuracy.

Late TDS Deposits

The Mistake:
Delaying TDS payments can attract 1.5% interest per month along with penalties under Sections 201/234A/234B.

The Fix:

• Schedule automatic reminders for TDS deposit deadlines.
• Ensure that TDS is deposited before due dates to avoid penalties.
• Reconcile monthly TDS payments with payroll to catch any discrepancies early.

Timely deposits not only save money but also maintain the company’s reputation with tax authorities.

5. Incorrect or Delayed TDS Returns (Form 24Q)

The Mistake:
Errors or delays in filing Form 24Q (quarterly TDS on salaries) invite notices, scrutiny, and fines.

The Fix:

• Use payroll-integrated compliance software to generate accurate TDS returns.
• Conduct an expert review before submission to catch any mismatches or missing entries.
• File returns on time and reconcile with Form 26AS to ensure accuracy.

Proper filing ensures smooth audits, reduces compliance risk, and maintains employee trust.

Payroll TDS may seem routine, but mistakes can be costly in time, money, and reputation. By following these steps, startups and SMEs can:

• Verify employee PANs
• Apply correct TDS slabs and exemptions
• Deposit TDS on time
• File accurate Form 24Q returns

With automation, expert oversight, and proper processes, TDS on salaries becomes a smooth, error-free process.

👉 Book a FREE TDS payroll compliance review today to safeguard your startup from penalties and ensure accurate tax deductions.