TDS on Salary under Section 192 of the Income Tax Act

Who is required to deduct TDS u/s 192 of the Income Tax Act?

Any employer who pays salary to an employee(resident or non-resident) is required to deduct TDS every month under section 192

Employer here means:

• Individual
• HUF
• Firm
• Company
• Trusts
• AOP, BOI
• Local Authority
• Every Artificial judicial person

The important condition for TDS deduction under section 192 is the presence of Employer-Employee relationship (irrespective of the government employee, private or other).

When is TDS on salary deducted u/s 192?

TDS is required to be deducted by the employer at the time of payment of salary income when taxable income (i.e, Gross Total Income fewer Deductions under Chapter VIA) of an employee exceeds the basic exemption limit, which is

• - Rs. 2,50,000/- in case age is below 60 years
• - Rs. 3,00,000/- in case age is 60 years or more but below 80 years
• - Rs. 5,00,000/- in case age is 80 or above

Basic exemption limit under the new regime as per Union Budget 2023 is Rs. 3,00,000 for all the individuals.

In the case of advance salary and arrears of salary, TDS is required to be deducted by the employer at the time of payment.

TDS on salary is required to deduct even if the employee does not have PAN if the salary exceeds the basic exemption limit.

What is the rate of TDS u/s 192?

TDS under this section is calculated on the estimated income earned during the year at an average tax rate. Unlike other sections of TDS under Income Tax, there is no fixed rate of TDS under section 192. To compute the rate of TDS, the estimated total tax liability on such estimated income is divided throughout employment i.e., months.

TDS on salary      =        Estimated Total Tax Liability
                           ____________________________
                              Period of Employment (months)   

How to calculate tax deduction under section 192?

For calculation of TDS on salary, the following points shall be considered:

• Income other than salary, like rent income, etc, shall also be considered by the employer for calculation of TDS on salary if details of such income are submitted by the employee.
• Interest on home loan (if any) will be set off from salary income to arrive at estimated income for TDS calculation if the evidence is given in Form 12BB by the employee.
• It also happens that many employees make investments to avail tax benefits i.e., to reduce their tax liability. But, as the employer does not know about such investment, the TDS amount increases than the actual tax liability. In such cases, you can declare information about all your tax-saving investments to the employer using Form 12BB. When an employer sees this, he/she will consider these investments and calculate your TDS amount accordingly.

Example to explain section 192 deduction:

In the above case, no TDS is required to be deducted by the employer, as the income is below the basic exemption limit.

We will understand TDS calculation on salary with one example

How is TDS deducted in case of multiple employers?

There may be two situations:

• Change of job during the year
• Engaged with two or more employers simultaneously

Change of job during the year

There may be a situation where there is more than one employer in one particular financial year. If the employee resigns and joins another employer during the FY then the details of his previous employment is required to be given in Form 12B to his new employer to deduct TDS properly. Accordingly, the next employer will consider his previous salary and TDS deducted while calculating TDS for the remaining months of the financial year.

Engaged with two or more employers simultaneously

Similarly, when an employee is engaged with more than one employer simultaneously. In such a case, he should provide details about his salary and TDS in Form 12B to any one of the employers. And one of the employers is required to deduct TDS on aggregate salary.

Example: A is employed simultaneously by A Ltd and B Ltd on a part-time basis. Salary income from A Ltd. is Rs. 55,000 per month, and Rs. 50,000 per month from B Ltd. A may select any of two companies for TDS deduction on aggregate salary.
Let’s assume A selected B Ltd for TDS calculation on aggregate salary income

How to calculate TDS in case salary is payable in foriegn currency?

In such a case, first of all, the salary will be converted into Indian currency. The rate of exchange will be the last day of the month immediately preceding the month in which the salary is due or is paid in advance or arrears.

After conversion, calculate TDS as per normal provisions of TDS deduction.

For example, if a salary is paid in October in foriegn currency, then the rate of exchange shall be taken, which prevails on 30th September.

What is the time limit to deposit TDS under Section 192?

TDS deducted from salary by the employer is required to be deposited to the government within given below timeline to avoid interest :

• TDS deducted for April-Feb : 7th of subsequent month
• TDS deducted for March : 30th April

When is TDS Statement issued and by whom?

When the employer deducts TDS, he is responsible for providing a TDS certificate to the employee. Form 16 is provided to the employee, which contains Part-A & Part-B. Form 16 contains the information related to tax deducted by the employer, salary details & deductions.

What are the consequences of non-compliance under section 192 result into?

1. Levy of Interest: If the employer does not deduct the TDS on salary or deduct the TDS but is not deposited to the government, then interest is required to be paid on such amount.
2. Disallowance of expenses: Also, the employer is only eligible to claim the deduction of salary expense from PGBP income if TDS is deducted on time.
   The amount of disallowed salary expenses shall be
   1. - 30% of the Salary payment to the Resident.
   2. - 100% of Salary payment to Non-Resident.

Some Important Points

1. If tips are paid to the waiter directly or through the employer (which may be paid by the customers in the form of a service charge), in that case, the employer is not responsible for deducting TDS from the tip amount since it does not become part of salary income.
2. Remuneration paid to directors by the company is not covered under section 192. Generally, TDS on remuneration paid to the director shall be deducted under section 194J provided there is no employee-employer relationship exist.
3. Payment made to doctors by the hospital is considered as professional fees hence TDS u/s 192 shall not be deducted. But, if it is a contract of service then TDS u/s 192 shall be deducted.
4. If tax on non-monetary perquisites is borne by the employer then no TDS is required to be deducted from salary to that extent.