- CBDT has issued the Circular on 13th April 2020 to remove the genuine hardship in TDS deduction by the employers. It has been notified that employees need to intimate the employer about their selection of optional tax regime u/s 115BAC for the relevant Financial Year. In absence of intimation, TDS shall be deducted by default under the old tax regime by the employer. Option once opted by the employee can not be changed subsequently in the financial year for the purposes of deduction of TDS. Though, the taxpayer will still have a discretion to change the tax regime at the time of filing the ITR.
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 192Employer here means :
- 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 less Deductions under Chapter VIA) of an employee exceeds 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
In case of advance salary and arrear 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 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 over the period of employment i.e. months.
TDS on salary = Estimated Total Tax Liability ____________________________ Period of Employment
How to calculate tax deduction under section 192?
For the purpose of calculation of TDS on salary, 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 submitted by the employee.
- Interest on home loan (if any) upto Rs. 2,00,000/- will be set off from salary income to arrive at estimated income for the purpose of TDS calculation if evidence is given in Form 12BB by the employee.
- It also happens that many employees make investments to enjoy tax benefits i.e. to reduce their tax liability. But, as the employer does not know about such investment, 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.
|Income from salary||4,00,000|
|Interest on home loan||2,15,000|
|Taxable Income (Interest upto Rs. 2 lakh will be set off from salary income)||2,20,000|
We will understand TDS calculation on salary with one example
|Estimated Salary Income||9,60,000|
|Less :- Standard Deduction||50,000|
|Estimated Gross Total Income||9,10,000|
|Less : Deduction under Chapter VI-A|
|Estimated Total Income||7,60,000|
|Estimated Tax Liability||64,500|
|Add : Health & education cess @ 4% on Rs. 64,500||2,580|
|Estimated Total Tax Liability (A)||67,080|
|TDS per month (A/12)||5,590|
|Monthly in hand salary of Mr. Win|
|Salary per month||80,000|
|Less :- TDS per month||5,590|
|Net salary in hand||74,410|
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
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
|Particulars (A Ltd)||Amount (Rs.)|
|Taxable salary from A Ltd after standard deduction (55,000*12 - 50,000)||6,10,000|
|TDS deducted by A Ltd||35,880|
|Particulars (B Ltd)||Amount (Rs.)|
|Aggregate taxable salary after standard deduction (55,000*12 + 50,000*12) - 50,000||12,10,000|
|Tax on total income||1,82,520|
|Less : TDS deducted by A Ltd||35,880|
|TDS to be deducted by B Ltd||1,46,640|
How to calculate TDS in case salary is payable in foriegn currency?
In such a case, first of all 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 in arrears.
After conversion, calculate TDS as per normal provisions of TDS deduction.
For example, if salary is paid in the month of October in foriegn currency then the rate of exchange shall be taken which prevail 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 TDS is deducted by the employer, he is responsible to provide 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?
- Levy of Interest : If the employer does not deduct the TDS on salary or deduct the TDS but not deposited to the government then interest is required to be paid on such amount.
- Disallowance of expenses : Also, the employer is not eligible to claim the deduction of salary expense from PGBP income if TDS is not deducted on time.
The amount of disallowed salary expenses shall be
- 30% of Salary payment to Resident.
- 100% of Salary payment to Non-Resident.
Some Important Points
- If tips are paid to the waiter directly or through the employer (which may be paid by the customers in the form of service charge), in that case the employer is not responsible to deduct TDS on tip amount since it does not become part of salary income.
- 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.
- 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.
- If tax on non-monetary perquisites is borne by the employer then no TDS is required to be deducted from salary to that extent.
Frequently Asked Questions
Q- Is TDS deducted every month from salary?
Ans. As per Section 192, tax is required to be deducted at source from salary at the time of its payment. Hence, we can say that TDS has to be deducted every month from salary if estimated salary income exceeds basic exemption limit.
Q- What is the section for TDS on salary?
Ans. The section for TDS on salary is Section 192 of The Income Tax Act, 1961.
Q- What percentage of TDS is deducted on salary?
Ans. There is no fixed rate of TDS to be deducted on salary. TDS on salary is deducted at the average rate of income tax for that financial year. The average rate of income tax has to be calculated on the basis of income tax slab rates in force for that year.
Q- What is section 192 of the income tax act?
Section 192 of the Income Tax Act deals with deduction of TDS on salary income by the employer. This section only covers TDS on salary income .
Q- What is the Standard Deduction for salaried employees ?
In budget 2018, standard deduction of Rs. 40,000/- (Interim Budget 2019 Standard deduction increased to Rs. 50,000/- for FY 2019-20) was introduced in place of
- Transport Allowance of Rs. 19,200/-
- Medical Reimbursement of Rs. 15,000/-
Q- What is Relief under section 89?
Relief under section 89 is available when you receive any arrears of salary or advance salary.
Arrear salary is salary in dispute or increase of salary retrospectively. To claim this relief, you need to show the relief calculation in your return along with it you also need to file Form 10E online.
Q- What percentage of TDS is deducted?
Ans. TDS on salary is deducted at the average rate of income tax for that financial year. The average rate of income tax has to be calculated on the basis of income tax slab rates in force for that year.
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