written by Sourish | June 8, 2021

TDS On Salary Under Section 192

What is TDS?

As per the Income Tax Act (ITA), 1961, an authorised person has to deduct tax at source when making payment beyond a specific limit. The TDS rates for different categories range from 1% - 30%. TDS has to be deducted when you pay a salary to someone whose income falls in the taxable slab.

The person who makes the payment and deducts tax is called the deductor, and the person who receives the payment is called the deductee. The amount deducted must be paid to the government by the deductor within the time limit to avoid penalties. Tax is deducted if the amount is taxable in the hands of the receiver.

Generally, TDS is deducted either at the time of payment or when the payment becomes due, whichever is earlier. But in the case of salary, it is only deducted at the time of actual payment of salary.   

Tax Deducted at Source on Salary 

TDS as per Section 192 of the ITA

Under section 192 of the ITA, tax has to be deducted at source on salary. 

TDS Deductors under Section 192

An employer has to deduct TDS on salary paid to the employee and deposit it to the government. These employers include:

  1. Companies
  2. Individuals
  3. HUF
  4. Trusts
  5. Partnership firms
  6. Co-operative societies

Points to note: 

The existence of an employer and employee relationship is necessary for the deduction of tax at source. TDS has to be deducted irrespective of the number of employees employed.

Also Read: Salary Calculator 2020-21 - Take Home Salary Calculator India

Nature of Payment 

The salary received from the employer is categorised in ‘Income’ under the head ‘Salary’. The salary paid by the employer or the CTC for an employee includes components like basic salary, allowances such as house rent allowance, travel allowance, dearness allowance, medical allowance, and other allowances along with several other perks, travelling, hotel expenses, and so on. 

When is TDS deducted?

As mentioned above, tax has to be deducted at the time of actual payment of salary. This means that TDS deduction on salary applies even in case the salary is paid in advance.  TDS is not deducted during the accrual or accretion of salary.

Rate of TDS deduction

TDS deduction on salary is based on the slab rate during the relevant financial year by considering the estimated gross total income of the employee.

In case the estimated salary is less than the basic exemption, no TDS will be deducted. The same rule applies in case the employee does not hold a PAN. 

No TDS is required to be deducted in case salary falls below the limits of basic exemption as prescribed: 

Age 

Basic Exemption Limit

Residents and non-residents in India (less than 60 years old)

Rs 2.5 lakh

Resident Senior Citizens (from 60 years and less than 80 years old )

Rs 3 lakh

Resident Super-Senior Citizens ( from 80 years old and above)

Rs 5 Lakh

 

For FY 2020-21, a new option was introduced for individuals and HUF. They have been given an option to pay tax as per the old tax rates or the new tax rates. 

Tax as per the Old Slab Rate

Income Range

Tax Rate

Up to Rs 2.5 Lakhs

NIL

Above Rs 2.5 to Rs 5 Lakhs

5% (Rebate of Rs. 12,500 as per section 87A is available

Above Rs 5 Lakhs to Rs10 Lakhs

20%

Above Rs 10 Lakhs

30%

*4% Health and education cess and surcharge shall be added. 

Tax as per the New Slab Rate 

Income Tax Slab

Tax Rate

Up to Rs 2.5 Lakhs

Nil

Above Rs 2.5 Lakhs to Rs.5 Lakhs

5% (Rebate of Rs. 12,500 as per section 87A is available

Above Rs 5 Lakhs to Rs.7.5 Lakhs

10%

Above Rs 7.5 Lakhs to Rs.10 Lakh

15% 

Above Rs10 Lakhs to Rs.12 Lakhs

20% 

Above  Rs12 Lakhs to Rs 15 Lakhs

25% 

Income above Rs 15 Lakhs

30% 

*4% Health and education cess and surcharge shall be added.

However, under the new system, the following deductions and exemptions not available. 

  • Allowances (such as Travel allowance, HRA, i.e. House Rent allowance, other allowance, and so on) 
  • Deductions available under Chapter VIA.
  • Profession Tax,
  • Housing Loan on EMI basis (Interest part)
  • Standard Deduction

Also Read: Income Tax Slabs 2021 & Tax Rates For FY 2020-21/ FY 2019-20/ FY 2018-19

TDS Calculation Steps 

The following steps are required for the employer to calculate the TDS deduction on salary of an employee:-

Calculation of Gross Salary

  1. Calculate total monthly income, which is a sum of basic salary, allowances, and perquisites.
  2. Reduce exemptions available u/s 10 of the ITA on allowances such as medical, helper, travel, etc., from gross monthly income as calculated. 

Points to be noted 

Here the employee has to choose whether to opt for the old or the new slab rate. It would be better to make two calculations, one as per the old slab rate, after the exemptions and deductions available. Make the other one with the new rates without most of the exemptions and deductions available in the ITA. By doing it this way, you compare your tax savings.

  • Calculate yearly taxable income from salary by multiplying the figure calculated above with 12. 
  • The employee should confirm to the employer whether to use the old or the new tax rate. 
  • If no application is received from an employee, the employer shall deduct TDS as per the old tax slab rate.
  • In case TDS is deducted as per the old tax slab rate and the employee wants to later file Income Tax Return as per the new tax slab rate or the other way round, that too can be done. 
  • However, any difference arising in this case in the form of lower TDS  deducted has to be deposited, or higher TDS deducted can be claimed as a refund. Further, interest is not chargeable if the return is filed by the due date.

Calculation of Total Income and tax liability

  • Calculate approximate total income after considering income from other heads, but you can only consider losses from house property.
  • Calculate deductions available under Chapter VI A, and deduct this amount from the income calculated above.
  • Calculate tax on the above total income for the relevant Financial Year based on the new or old tax rate option selected by the employees.

Calculation of TDS

  • The amount of tax as arrived above is now divided by 12 to get the monthly TDS amount. 
  • This TDS amount has to be deducted every month until February of the next year.
  • At the end of March, total income is re-computed and tax thereon as per alternative as chosen by the employees (i.e. new or old tax rates)
  • Now the actual tax-deductible is compared with the estimated tax deducted.
  • If TDS deducted is short, deduct the balance amount of TDS on salary for March. If there is excess TDS, the employee can claim a refund of the same.

Salary from More Than One Employer

  • Suppose an employee has more than one employer at the same time. In that case, they can provide details about their salary and TDS on salary in Form 12B to any one of the employers. The employer will then be required to calculate their gross salary and deduct TDS. 
  • In case there is a change of job during the year, the employee can provide details of their previous employer in Form 12B to the new employer. This employer will consider the employee's prior salary and deduct TDS accordingly for the balancing months of the financial year. 
  • Suppose they choose not to provide details of income or other employment. In that case, each employer will deduct TDS on salary paid by them, respectively.

Also Read: What Is Gross Salary? Know How To Calculate Gross Salary Or CTC

TDS Certificates

The deductor, i.e. the employer, must provide a TDS certificate in Form 16 to the employee. This form contains the details of salary, such as the amount of salary paid and tax deducted by the employer during the relevant financial year. 

Time limit to deposit the tax under section 192

Government employee 

Challan 

 Due date 

Tax deposited without challan 

Deposited on the same day.

Tax deposited with challan

 As applicable to non-government employee

Non -  Government employee 

Month

 Due date of payment of TDS 

April to February

7th of the next month

March

30th April

 

Penalties for TDS not deducted on Salary 

Interest, late fees, and penalties are levied on failure to follow the provisions of TDS. 

Consequences of not deducting TDS on salary

In case the employer has not deducted TDS, the expense for the same shall not be allowed to calculate income from the business.

TDS deducted late  

  • In case TDS has not been deducted on time, i.e., at time of payment or accrual, then interest is levied at 1% per month or part thereof. 
  • It means that even if there is a delay of a single day, interest for the whole month will be levied. 
  • Maximum interest shall be subject to the amount of TDS to be deducted. 

TDS paid late

  • In case the employer fails to deduct or deposit TDS, they will have to pay the penalty in the form of interest on the tax he was liable to deduct. 
  • The employer must pay interest at 1.5 % if TDS deducted on salary is not paid to the government. However, interest payable is limited to a maximum of the TDS amount. Interest on TDS will be charged from the date the employer should have paid it to the time it is deposited to the government. 

TDS return filed late

TDS return has to be filed for each quarter as mentioned below

Quarter

Due Date of filing return

April - June

31st July

July - September

31st October

October - December

31st January

January - March

31st May

 

In case Return is not filed up to the due date, a late fee of Rs 200/- per day is charged (maximum up to the amount of TDS) till the time return is filed.

Also Read: PF Calculator - Calculate EPF Online

FAQ

Is it mandatory to deduct TDS on salary every month?

Yes, TDS has to be deducted from salary every month.  Section 192 requires the employer to deduct TDS on salary at the time of payment to the employee. 

Is TDS deduction in case of salary mandatory?

Yes, TDS deduction on salary is mandatory. Every employer who pays a salary to his employee needs to deduct TDS in case salary payable is over the limit of basic exemption of Rs 2.5 Lakhs.

How can I claim TDS that has been deducted on Salary?

Income tax returns need to be filed to claim TDS on salary that has been deducted. 

Who is exempt from payment of TDS?

An employee whose salary is lower than the basic exemption limit is exempt from TDS deduction. 

Is Tax deducted at source in case of salary, refundable at any point in time?

TDS on salary can be refunded if the amount deducted is higher than the employee’s actual tax liability. At times, the investment details declared at the beginning of the financial year are not the same as the actual investments at the end of the year. In such cases, TDS deducted will be refundable for such excess amount paid.

Which year can TDS deducted on salary be claimed?

Employees can claim TDS deducted on salary in the Financial Year TDS has been deducted.

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