TDS on Salary - Section 192

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 on salary 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?

Sec 192 of Income Tax Act does not prescribe a specific TDS rate. Instead, TDS on salary is deducted according to the income tax slab rates applicable to the taxpayer for the relevant financial year in which the salary is paid.

With the introduction of the new tax regime under Section 115BAC, employees now have the option to choose between the old and new tax regimes at the start of the financial year. Based on their choice, income tax is calculated on the total income, taking into account any applicable exemptions, deductions, and other considerations.

If an employee does not make a choice regarding the tax regime, the default tax regime will be applied, and taxes will be calculated accordingly. For FY 2023-24 and onwards, the new tax regime is the default option.

Typically, the employer calculates the tax liability at the beginning of the financial year. The TDS is then deducted by dividing the estimated tax liability for the year by the number of months the employee will be employed by that employer.

Any excess or shortfall in earlier deductions is adjusted by the employer in subsequent deductions during the same financial year. If the employee has made any advance tax payments, these can also be adjusted in the TDS calculation in salary, provided the employee informs the employer of such payments.

Understanding TDS on Salary with an Example

The employer is responsible for deducting tax deducted at Source (TDS) from an employee’s salary based on the employee’s average income tax rate. This rate is determined using the following formula:

Let us consider an example: Mr. Sharma, who is 58 years old, earned a monthly salary of ₹1,00,000 for the financial year 2023-24.

To calculate Mr. Sharma’s TDS section 192 for the financial year 2023-24, you need to follow these steps:

Determine the Total Annual Income:

Monthly Salary: ₹1,00,000

Annual Salary: ₹1,00,000 × 12 = ₹12,00,000

Calculate the Income Tax Payable:

Compute the income tax for the total annual income based on the applicable tax slab rates for FY 2023-24.

Compute the Average Income Tax Rate:

Divide the total income tax payable by the estimated annual income.

Determine the TDS Amount:

Apply the average income tax rate to the monthly salary to calculate the TDS amount to be deducted each month.

This approach ensures that TDS is deducted at a rate reflecting the employee’s average tax liability for the year, aligning the monthly deductions with the overall tax obligation.

When is TDS Deducted Under Section 192?

Under Section 192 of Income Tax Act, TDS (Tax Deducted at Source) is deducted based on the actual payment of salary rather than when the salary is accrued. This means that tax is deducted when your employer disburses your salary, whether paid on time, in advance, or arrears.

If your estimated annual salary does not exceed the basic exemption limit, no tax is payable; thus, TDS will not be deducted. This rule applies even if you do not have a PAN (Permanent Account Number).

The table below outlines the basic exemption limits under the old tax regime according to age groups, indicating when TDS is not required:

How to Calculate TDS on Salary?

When managing personal finances, understanding how Tax Deducted at Source (TDS) on salary works is crucial. As an employee, it is essential to know how much tax is being deducted from your salary, why it’s deducted, and how you can manage your taxes efficiently.

Step 1: Estimate Gross Salary

The employer first estimates the employee’s salary for the relevant financial year. This estimate should encompass all components of salary, including:

• Basic pay
• Dearness allowance
• Perquisites provided by the employer
• Additional allowances such as House Rent Allowance (HRA), Leave Travel Allowance (LTA), meal coupons, etc.
• Contributions to the Employee Provident Fund (EPF)
• Bonus and commissions
• Gratuity
• Salary from any previous employer, if applicable

Step 2: Apply Exemptions

Next, the employer calculates the exemptions allowable under Section 10 of the Income Tax Act. These exemptions might include:

• Allowances like HRA
• Travel expenses
• Uniform expenses
• Children’s education allowances
• Professional tax paid
• Entertainment allowance
• Standard deduction of ₹50,000

Step 3: Compute Taxable Salary

The employer then subtracts these exemptions from the gross monthly income. The resultant figure is considered the employee’s taxable salary income.

Step 4: Include Additional Incomes

If the employee has reported other sources of income, such as rental income from house property or interest from bank deposits, these amounts are added to the taxable salary. Interest paid on housing loans can be deducted from the house property income. If there is no income from the house property, the interest will result in a negative figure under ‘income from house property.’ The sum of all these adjustments gives the employee’s gross total income.

Step 5: Apply Deductions

The employer then applies deductions per Chapter VI-A of the Income Tax Act based on the employee’s investment declarations. These declarations might include:

• Contributions to the Public Provident Fund (PPF)
• Employee Provident Fund (EPF)
• Equity Linked Savings Schemes (ELSS)
• National Savings Certificates (NSC)
• Sukanya Samriddhi Account
• Home loan repayments
• Life insurance premiums

Additionally, deductions under various sections, such as Section 80D (health insurance premiums) and Section 80G (donations), are also applied as per the employee’s declaration.

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 under Section 192. The calculation must use the rates in effect for the fiscal year the payment is made.

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 offline using TIN-FC. By registering on the online TRACE portal, you can use the online TDS challan correction service 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?

The employer must file a TDS return on time because tax is withheld at the source before the payment reaches the employee. The Central Board of Direct Taxes (CBDT) may also fine the employer 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. The employer prepares it 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

Uderstanding what is TDS on salary Section 192 is a pivotal when it comes to understand the Indian 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 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 must issue it to you by June 15th of the following financial year.

2

What is the process for filing a TDS return?

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.

Suggested Readings

1. Tax Benefits

2.File Income Tax return