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What is TDS on Salary? - Section 192

TDS on salary under Section 192 is the tax deducted at source by employers from employees' salaries, ensuring compliance with income tax regulations.

  • 3,778 Views | Updated on: Jun 21, 2024

TDS is the tax deducted at source from income payment at the time of making essential payments, such as rent, profit, professional fees, salary, interest, and so on, by the people who make those payouts. In most cases, the individual who receives money is responsible for paying income tax. However, the government ensures that income tax is taken in advance from your payments by using Tax Deducted at Source (TDS) regulations. After deducting TDS, the net amount is given to the income receiver.

The total amount is added to the recipient’s income, and the amount of TDS is deducted from their ultimate tax liability. The receiver is given credit for the money already deducted and paid on their behalf.

What is the TDS Rate on Salary under section 192?

Businesses are also obligated to subtract the TDS rate on salary under Section 192 when giving wages and salaries to their employees. The remaining amount after the deduction of TDS is due to be given to the employees. The TDS rate on salary needs to be collected based on the taxpayer’s average income tax rate for the financial year. The average earnings taxation rate is determined using the income tax slab rates for that fiscal year. Every financial year has a different rate. For example, by utilizing the TDS calculator for FY 2021-22, you can find out what TDS slab you fall into each year.

TDS on Insurance

While TDS is normally taken from a life insurance policy’s maturity value, it is not the same everywhere. Under Section 10 (10D), you can save TDS on life or term insurance if:

  1. The plans were issued on or before March 31, 2012, and the amount assured is at least five times the average premium paid.
  2. The policies were issued on or after April 1, 2012, and the amount assured is at least 10 times the yearly premium paid.

TDS Tax benefits on specific allowances exist, just as they do for other forms of taxes. The Income Tax Department offers TDS exemptions and tax benefits under the following conditions:

  1. Those who are not required to file a Section 139 income tax return.
  2. For those taxpayers who make a disclosure under Section 15G/15H at the start of the fiscal year and have it validated by the tax deductor in accordance with the regulations.
  3. For those instances that are explicitly exempted under Section 194A of the Income Tax Act (subsection 3).
  4. For those who acquire a certification from the assessment authority under Section 197 of the Income Tax Act. This certification orders the deductor not to deduct tax on that specific assessment, to deduct tax at a reduced rate, or to deduct tax in accordance with the certificate’s terms. The Income Tax Officer also determines the legitimacy.

How to Calculate TDS on Salary?

If you are under 60 and have a taxable income totaling ₹5 lakh, you must pay tax on ₹2.5 lakh, or 5% of ₹(income up to ₹2.5 lakh is not taxable). Please be aware that your employer will deduct TDS each month. Therefore, your anticipated yearly tax liability is divided by 12 and paid in full each month.

Calculation of Taxable Income of the Employee

Income tax is calculated using the following formula:

Taxable Income = Gross Salary - Deductions;

Income Tax = (Taxable Income x Applicable Tax Rate) - Tax Rebate.

Salary from More than One Employer

If you are employed by two or more employers simultaneously, you can submit your salary and TDS details using Form 12B to any employer. Once the employer has received all necessary information from you, they will be responsible for computing your gross salary and deducting TDS accordingly.

If you resign and join a new employer, you can provide your previous employment details in Form 12B to the new employer. This employer will then consider your previous salary, and TDS will be deducted for the remaining months of the financial year.

If you choose not to provide income details from other employment, each employer will only deduct TDS from your salary.

Who is Liable to Deduct TDS On Salary?

Amounts owed at the average income tax rate must have tax withheld at source by the employer in accordance with Section 192. The calculation must use the rates in effect for the fiscal year the payment is made.

Is TDS Deducted Every Month from Salary?

Yes, TDS is subtracted from salaries each month. In accordance with Section 192, the employer will take TDS from the employee’s wage at the time of payment. Since the employee receives a monthly salary, the employer will deduct TDS on the salary limit from the employee’s monthly pay.

How to Claim Your TDS on Salary?

To download the appropriate form for an income tax refund, simply go to the income tax portal and log in. Fill out the form completely and submit it. You could claim the money if your employer withheld taxes from your pay when you weren’t entitled to them by filing income tax returns.

How Can I be Exempted from TDS Payment?

Tax deductions (TDS) on the interest generated from bank accounts do not apply to seniors aged 60 or over. However, the exemption applies if the interest on deposits from each bank totals up to ₹50,000 per year.

Is TDS on Salary Refundable?

The difference is refundable when the TDS on a payment is larger than the employee’s actual tax burden. The investment information disclosed at the beginning of the fiscal year frequently diverges from the actual investments made by year’s end.

How to Claim Revised TDS Return?

All additional updates, excluding PAN number and challan changes, must be made using the offline mode using TIN-FC. By registering on the online portal TRACE, you can use the service of online TDS challan correction as a tax-paying citizen.

What are TDS Deduction Rules?

Employers are required to deduct TDS from the salaries of employees surpassing the maximum exempt limit. In contrast, employees can furnish evidence of tax-saving investments and expenditures to mitigate the TDS deducted by their employer. Banks will levy a 10% TDS on interest payments for fixed deposits.

What Happens if TDS is not Deposited?

It is the employer’s duty to file a TDS return on time because tax is withheld at the source before the payment reaches the employee. The employer may also be fined by the Central Board of Direct Taxes (CBDT) for not depositing the government’s tax on time.

How Can I Save TDS?

When Form 15G or 15H is submitted, TDS can be avoided. Form 15H is for senior citizens. It can be submitted if there is no tax on total income. Form 15G is for everybody else except NRIs.

TDS Statements

The employer must provide you with Form 16, which includes details of your salary, such as the amount paid and tax deducted. This may also be accompanied by Form 12BA, which shows particulars of perquisites and profits in lieu of salary.

TDS Return Filed by Employer

The employer must file a salary TDS return using Form 24Q, which must be submitted quarterly. This form reports the employee salary and the TDS deducted from these payments.

TDS Certificate

The employer is responsible for providing a TDS certificate to the employee for the tax deducted from their salary.

After filing the TDS return, the TDS certificate (Form 16) is generated in a specified format and can be downloaded from the TRACES utility. Form 16 comprises Part A and Part B.

Part A of Form 16 primarily includes details of the quarterly TDS deducted and deposited, the employer’s PAN and TAN, and other relevant information.

Part B of Form 16 is an annexure to Part A. It is prepared by the employer for their employees and contains a salary breakdown, exemptions, deductions approved under Chapter VI-A, and the income tax amount.

Key Takeaways

  • TDS deduction on salary, governed by Section 192, is deducted by employers before disbursing salaries.
  • It ensures that taxes are collected in advance, easing the burden on taxpayers.
  • TDS rates vary based on the individual’s income, deductions, and exemptions.
  • Employers calculate TDS on salary based on the employee’s estimated annual income.
  • TDS deductions consider investments, exemptions, and declarations made by the employee.

Wrapping Up

TDS on salary under Section 192 is a pivotal element of India’s tax framework, ensuring systematic tax collection and compliance. It places the responsibility of tax deduction on employers, simplifying the process for employees and contributing to a streamlined tax system. Understanding the nuances of TDS on salary helps both employers and employees navigate their tax obligations efficiently, promoting transparency and accountability in income tax payments.

FAQs

1

How can I obtain a TDS certificate (Form 16)?

You can obtain your TDS certificate (Form 16) from your employer, who is required to issue it to you by June 15th of the following financial year.

2

What is the process for filing a TDS return?

The process for filing a TDS return involves preparing and submitting the required forms (such as Form 24Q for salary TDS) every quarter through the Income Tax Department’s e-filing portal or authorized TIN facilitation centers.

3

How does TDS on salary affect my annual income tax return?

TDS on salary is considered a pre-paid tax. It reduces your overall tax liability when you file your annual income tax return. The TDS amount is credited against your total tax due, and any excess TDS can be claimed as a refund.

4

Can I reduce my TDS liability by investing in tax-saving instruments?

You can reduce your TDS liability by investing in tax-saving instruments such as PPF, ELSS, NSC, and other schemes eligible for deductions under Sections 80C, 80D, and other relevant sections of the Income Tax Act.

5

What happens if my employer fails to deposit the TDS deducted from my salary?

If your employer fails to deposit the TDS deducted from your salary, they may face penalties and interest. However, you will still receive credit for the TDS amount reflected in your Form 26AS, and the employer is responsible for any discrepancies.

6

Is there a penalty for late payment or non-payment of TDS on salary?

Yes, there are penalties for late payment or non-payment of TDS. Employers may be charged interest, and additional penalties may apply for failure to comply with TDS regulations.

7

Can I claim a refund if my tax liability is less than the TDS deducted?

Yes, if your actual tax liability is less than the TDS claim on ITR, it is a refund by filing your annual income tax return. The excess amount will be refunded to you by the Income Tax Department.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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