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Section 192 of the Income Tax (IT) Act, 1961 relates to the Tax Deducted at Source (TDS) on salary. Your employer is responsible to deduct the TDS from your salary. The applicable TDS is calculated as per your income during the year and the current tax slab rate.
The total TDS will be reflected in Form 16 issued by your employer at the end of the financial year. Explained ahead are some important points related to the TDS such as who can deduct it, when is the deduction applicable, the deduction rate for the financial year 2019-20, and how to calculate TDS on salary, among other aspects.
Private and public limited companies, co-operative societies, individuals, Hindu Undivided Families (HUFs), partnership firms, and trusts may deduct TDS on salaries. These entities are liable to deduct the TDS and deposit the amount with the government authorities within the specified period.
TDS is deducted when the salary is paid and not when it is accrued. However, if your total income does not exceed the basic exemption limits, TDS is not deducted. The rule applies even to employees who do not have a Permanent Account Number (PAN).
In the following instances, TDS deduction is not applicable:
A common question is how to calculate TDS and what is the rate? Section 192 does not specify the TDS deduction rate. The amount of TDS is based on your annual income and tax slab rate applicable during the financial year in which the salary is earned.
Firstly, all the applicable deductions are considered for your salary. The total tax liability is then determined as per the current tax slab rate. Usually, the employers do the estimated tax liability calculation at the start of the financial year.
The TDS is then calculated by dividing the total liability with the number of months during which you are employed by the company. However, if your PAN is unavailable, TDS is deducted at a flat rate of 20%, which excludes higher education cess and the education cess.
Any surplus or shortfall may be adjusted by decreasing or increasing the TDS deductions for the subsequent period during the financial year.Additionally, if you pay any advance tax, the same may be adjusted against the TDS deduction.
Let us take an example to understand how to calculate TDS on salary. Assume that you are 40 years old with a monthly salary of INR 50,000 during the financial year 2019–20.
Your total income during the year is INR 6 lakh. Further, assume that the deduction under Chapter VI A is INR 1 lakh. Therefore, the taxable income is INR 5 lakh. The total income tax liability along with the health and education cess is INR 13,000.
If you continue working with the same employer for the entire financial year, the monthly TDS deducted will be INR 13,000/12, which equals to INR 1083.33 per month.
If you work with more than one employer during the year, you may provide details about your salary and TDS as per Form 12B to either of your employers. After receiving all the relevant information about your income, the responsibility of deducting the applicable TDS after calculating the gross salary lies with the employer.
If you resign from one job and join another company during the financial year, the TDS calculation on salary will be done by your new employer once you submit Form 12B of the previous employer. The new employer considers the previous salary and TDS deduction will be based on the balance months during the financial year.
Every employer must provide Form 16 showing how much TDS is deducted on salary during the year. It may be accompanied by Form 12BA, which shows details about any perquisites or profits paid instead of salary.
Your employer must pay the deducted amount to the government authorities before the due date. Knowing what is TDS and how it is calculated is important; however, it is equally crucial to ensure your employer pays the amount to the government in a timely manner to ensure you receive the benefits at the time of filing your returns.
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Ref. No. KLI/22-23/E-BB/492
