All About Section 192 - TDS (Tax Deducted At Source) on Salary

TDS is deducted from your salary by your employer. The salary you receive from your employer is classified as "income" under the heading 'Salary" and the employer is responsible for deducting TDS at the normal income tax rates applicable to you on your estimated income for the relevant tax year. The TDS deducted under section 192 will be reported on Form 16 issued to the employee by the employer.

Withholding tax, or TDS as it is known, is used to collect taxes at the source. Accordingly, the employer, also known as the withholding agent, is required to withhold the tax and pay it to the central government. According to the deductor's TDS certificate, a person whose income tax has been withheld at source is entitled to a credit for the amount withheld.

Did you know that TDS must be deducted at the rates that the Income Tax Department specifies? The business or person receiving the salary/payment is referred to as the deducted, whilst the business or person making the payment after deducting TDS is known as the deductor.

What is Section 192?

As per Section 192 of the Income Tax Act of 1961 in India, anyone responsible for paying salary must deduct income tax from the recipient's expected salary income. Thus, the provisions of section 192 apply only if the following conditions are met: 

1. There is an employer-employee relationship. 

2. The payment made by the employer to the employee is in the form of 'Salary'; and 

3. The income chargeable under the head 'Salary' exceeds the maximum amount not chargeable to tax. 

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What is Tax Deducted at Source?

Tax deducted at source is a kind of indirect tax. It was introduced to avoid any form of tax evasion or delay. It needs to be collected at the source of income, which makes it a simpler and more organised way of collecting taxes. TDS makes up a considerable portion of the government's income hence it must be collected regularly. It ensures a regular flow of income for the government. The deductor is required to deduct TDS and deposit it with the government before issuing a payment. TDS is still withheld and associated with the deductor's PAN whether payment is made in cash, via check, or with a credit card.

The following forms of payment are subject to TDS:

• Salaries
• Bank interest payments
• Payment of commissions
• Rent payments
• Payment for consultation
• Professional fees

Who Isn't Required to Pay TDS?

One is not required to pay TDS when paying rent or for services rendered by professionals like lawyers and doctors. TDS is a type of advance tax. This tax is periodically required to be deposited with the government, and it is the deductor's responsibility to do so on time. After filing their ITR, the deductee can claim their deducted TDS as a tax refund.

TDS on Salary  

Section 192 of the Income Tax Act of 1961 addresses tax deducted at source on salaries. This type of tax is levied specifically on income paid to employees as a salary. Section 192 requires the employer to deduct tax at source from the amount owed at the relevant income tax rate. This is calculated using the income tax rates that are applicable for the fiscal year in which the payment is made. 

The payment is listed as income under the heading of salary. The employer must deduct TDS at the applicable income tax rates based on the employee's gross income. There is a set tax bracket based on income. The income tax rate ranges from 10% to 30%, which will be deducted at source depending on the tax slab. Not filing the TDS can be treated as a criminal offence. If payment is late, a penalty must be paid. The fine is set at 200 per day.

Who Can Deduct Tax at Source?

Employers may deduct TDS regardless of whether they are public or private companies, cooperatives, Hindu undivided families, trusts or partnership firms. Each of these employers is required to gather TDS monthly and deposit it within a predetermined time frame. According to section 192 of the Income Tax Act, there must be a connection between an employer and an employee to deduct tax at source. The status of the employer, such as Hindu Undivided Family, firm, or corporation, is irrelevant for the purposes of the tax at source deduction under this clause. Furthermore, the employer's personnel count is disregarded when computing and deducting TDS.

When Can an Employer Deduct Taxes?

The employer shall evaluate, after giving effect to any applicable exemptions, allowance refunds, and deductions available to the employee, whether tax is required to be withheld. The number of months of employment is multiplied by the amount of tax deducted from their anticipated income for the relevant financial year. In case the employee does not have a PAN number, tax should be deducted at a rate of 20% plus 4% cess, without taking health and education into account. If the employee has paid any advance tax, the employer may modify it for the TDS computation; however, the employee must inform the employer of this.

When is Tax Deducted at Source?

The source tax deduction is made at the time of salary payment rather than when wages are accrued, according to Section 192. It indicates that tax will be withheld only when the employer pays salary in advance or arrears. The tax amount will be zero if the expected wage is less than the exemption list. In that case, there will be no tax deduction. Those who do not have a PAN must follow this rule. The table below shows the basic exemption limit for various categories.

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How is TDS Calculated?

The employer calculates the gross salary of the employee for the financial year. The gross salary should include basic pay, dearness allowance, prerequisites that employers provide, and other allowances such as House Rent Allowance, Travel Leave allowance, meal coupons, etc. It should also include Employees Provident Fund contributions, bonuses, commissions, gratuity, and salary from the previous employer if any.

Once the salary is estimated the employer calculates exemptions under Section 10 of the Income Tax Act. The exemptions can be applied to allowances like House Rent Allowance, travel expenses, uniform expenses, education allowance for children, etc. Also, the amount of professional tax paid, entertainment allowance and the standard deduction of ₹50,000 will be included.

The employer subtracts such exemptions from the gross monthly salary and the net amount will be treated as taxable salary income.

Income Tax Slabs & Rates for Individuals below 60 years for FY 21-22 & AY 22-23

Income Tax Slab & Rates for Senior Citizens (60 to 80 Years) for FY 21-22 & AY 22-23

Income Tax Slab & Rates for Super Senior Citizens (Above 80 Years) for FY 21-22 & AY 22-23

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What is TDS Return and How Can it Be Filed?

To prevent payment delays, TDS is tax deducted at the source of revenue. If the tax due is greater than the total TDS paid in a given year, the government will refund the difference. This is called TDS Return. It means paying back the taxpayer, their excess TDS deductions. To file this return one needs to get a TDS certificate. In most cases, this return is filed by the employer.

Conclusion

TDS requirements are a crucial component of complying with Indian income tax law. It serves as a consistent source of funding for the government and also serves as a means of reporting earnings received by various groups of people. It helps simplify the tax collection process. Additionally, there are severe penalties for disobeying them, and anyone charged with deduction and remittance duties cannot ignore them. It is also advised that each business entity create a suitable management structure to guarantee that the TDS regulations are appropriately followed. Each taxpayer should know what TDS is to be able to file a TDS return and obtain maximum benefits.  

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