Regular post-retirement income | Additional tax benefit on investments up to ₹50,000 u/s 80CCD (1B) - EEE Category | Regulated by PFRDA (Pension fund regulator under Ministry of Finance, Govt. of India)

Example to Explain TDS

XYZ Private Limited makes a payment for the rent of office of Rs. 1,00,000 per month to the property owner. TDS is needed to be deducted at a rate of 10% (let’s say). XYZ Pvt Ltd should deduct a TDS of Rs. 10,000 and pay the remaining balance of Rs. 90,000 to the property owner. Hence, the property owner in this case will receive a net amount of Rs. 90,000 after deducting the tax at the source. He will then add the gross amount of Rs. 1,00,000 to his income and take credit of the already deducted amount by XYZ Pvt Ltd against his final tax liability.

 

Let’s discuss the TDS on Salary and all of its dimensions.

How is Salary Defined?

Salary is your gross salary that your employer pays you minus the tax-free deductions and exemptions. It is basically the payment made to you by your employer to engage in their tasks. It includes the below mentioned parts:

 

  • Basic Pay

  • Dearness allowance

  • Other allowances like HRA, meal allowance, LTA, and many more that the employer grants

  • EPF contributions

  • Perquisites that the employer grants

  • Bonus

  • Gratuity

  • Commissions

  • Annuity payments

TDS on Salary

According to Section 192 of the Income Tax Act (ITA), 1961, TDS (Tax Deducted at Source) gets deducted on the salary income. Your employer deducts the TDS from your salary for you based on your net taxable salary and deposits it into the department of income tax (IT). This deducted TDS gets reflected on Form No. 16 which is issued annually. Post this, you can compute your liability on tax after the current financial year ends and then adjust the Tax Deducted at Source to either pay the excess liability or claim the tax refund.

Who is eligible for TDS deduction on Salary?

According to Section 192, the following entities can deduct the TDS:

 

  • Individual taxpayers

  • Trusts

  • Private and public corporations

  • Hindu Undivided Families

  • Partnership firms

  • Co-operative societies

Under Section 192, this can be done only if there’s a relationship of an employee-employer between the taxpayer and the above-mentioned entities. However, for the determination of the TDS, the salary and the no. of employees are irrelevant.

Cases of the TDS Deduction on Salary Income

Tax deduction on salary as TDS is only deducted from the income salary only when that amount is paid to the employee. It is never deducted at the time when your income salary is being accrued, that is, when you earn it but the employee has not paid for it. Besides, if they pay the outstanding amount in full sum or you get an advance on your salary, then the TDS shall get deducted on it.

 

If your taxable income salary, however, is less than the threshold tax limit, TDS will not be deductible from your salary income. Below mentioned is the limit of threshold for the current F.Y.:

 

  • Hindu Undivided Families and individual taxpayers less than 60 years of age - Rs. 2.5 Lakhs

  • Senior citizens whose ages lie between 60 and 79 years - Rs. 3 Lakhs

  • Older senior citizens more than 80 years of age - Rs. 5 Lakhs.

What is the Rate of TDS?

Under Section 192, TDS is computed on the basis of the estimated income that you earn during the financial year at an average rate of tax. There is no fixed rate of Tax Deducted at Source (TDS) under this section. In order to calculate the rate of TDS, the total tax liability that is estimated on such estimated income is divided over the employment period in months.

 

Hence, TDS rate on salary = Estimated Total Tax Liability/Employment Period (in months)

How to Calculate TDS on Salary?

In order to compute the Tax Deducted at Source, the employer is required to estimate the net salary which is taxable and deduct the TDS on it. The exemptions and the allowances which are tax-free are deducted from the gross salary in order to calculate the net salary income. After this deduction, if the employee declares the tax-saving instruments and the expenditures that are mentioned u/s 80C, 80D, and other sections of the ITA will be deducted from the income salary. Other income is also added to the salary if it is declared by you. Hence, based on the block of your taxable income, the Tax Deducted at Source is deducted.

 

Note: There are several online salary calculators where you can perform the TDS calculation on your salary.

 

Let’s consider the below mentioned illustration to understand the process of calculation of TDS:

 

  • Basic Salary - Rs. 5,00,000

  • Dearness Allowance - Rs. 2,00,000

  • Home Rent Allowance - Rs. 1,00,000

  • Leave Travel Allowance - Rs. 1,00,000

  • Bonus - Rs. 2,00,000

Gross salary is nothing but equal to the sum of the above mentioned terms and will come up to Rs. 11,00,000. The net salary will be determined for the TDS calculation on salary as mentioned below:

Gross salary 

Rs. 11,00,000

Deduct: HRA exempted from tax (assume the total amount)

Rs. 1,00,000

Deduct: LTA deducted from tax

Rs. 1,00,000

Standard Deduction

Rs. 50,000

Net income salary 

Rs. 8,50,000

Deduct: Deductions u/s 80C which the employee declares 

Rs. 1,50,000

Deduct: Deductions u/s 80D which the employee deducts

Rs. 50,000

Net taxable income salary 

Rs. 6,50,000

Tax payable 

Up to Rs. 5,00,000 – 5% of 2,50,000 = Rs. 12,500

Rs. 5,00,000 to Rs. 8,50,000 – 12,500 + 20% of 3,50,000 = Rs. 82,500

TDS deduction rate 

Tax liability / gross total income *100

=(82,500 / 11,00,000) * 100

= 7.5%

Hence, the employer shall deduct a tax at the rate of 7.5% every month of the income salary and after this, they will credit into the bank account of the employee.

What is TDS calculated on?

When you accept a particular position or offer at a corporation, you will be provided with a detailed break-down of the salary that you will get. It includes all your allowances and basic pay.

Few components amongst these will be exempted from being taxed and will not be a part of the TDS calculation on your salary income. There is a list of investment tools or components which are exempted from being taxed and they will be deducted from your net salary to compute your taxable income salary.

The TDS deduction on salary may be greater than the amount you are required to pay because your employer might not be synchronized with your entire investment plans. Therefore, the corporations enquire about your investment declarations so that you can avoid the excess TDS. If you end up paying more than you are required to, you can claim a TDS refund when you file your Income Tax Return (ITR).

TDS Implications In Case of More Than One Employer

There may be two cases in case there is an involvement of more than one employer:

  • If you change your job during the financial year:

There may be a case wherein you resign and start working with another employer during the same financial year. In that case, the details of your prior employment needs to be included in Form 12B to your current employer in order to deduct the TDS properly. According to this, the current employer shall consider your prior salary and TDS deduction while computing the TDS for the remaining period of the financial year.

  • If you are engaged with multiple employers simultaneously:

When you are working with multiple employers simultaneously, you should provide one of them with the details of your salary and TDS in Form 12B. That particular employer is then needed to deduct TDS on your aggregate salary.

 

Let’s take a look at an example mentioned below:

X works with A Ltd and B Ltd simultaneously. He gets a salary of Rs. 55,000 per month from A Ltd. and Rs. 50,000 per month from B Ltd. Let’s assume that X asks B Ltd. to compute his TDS deduction on salary.

Particulars (A Ltd)

Amount (Rs.)

Salary that’s taxable from A Ltd after the standard deduction (55,000*12 - 50,000)

6,10,000

TDS that A Ltd. has to deduct

35,880

 

Particulars (B Ltd)

Amount (Rs.)

Aggregate taxable salary after the standard deduction (55,000*12 + 50,000*12) - 50,000

12,10,000

Tax on the total income

1,82,520

Less : TDS deducted by A Ltd

35,880

TDS to be deducted by B Ltd

1,46,640

 

Reduction of TDS Rate on Your Salary Income

Chapter VI A of the ITA provides you with several deductions which help you mitigate the rate of TDS that the employer deducts. These deductions can be claimed by you if you declare them so that they are recorded by the employer while computing your net taxable income. Below mentioned are the popularly claimed deductions by several employees:

1. Section 80C

Deductions of up to Rs. 1.5 lakh are allowed u/s 80C of the ITA, 1961, provided you incur qualifying expenses or invest in the eligible avenues during a specific financial year. Below mentioned are a few eligible deductions u/s 80C:

 

  • Life insurance premiums

  • Sukanya Samriddhi Yojana

  • NPS

  • ELSS investments

  • EPF

  • Home loan repayment 

  • PPF

  • Stamp duty paid on a property

  • NSC

  • Tuition fee paid for children

  • Senior Citizen Saving Scheme

2. Section 80D

The premiums paid by you are claimed as a deduction u/s 80D if health insurance plans are invested in by you. The maximum amount that can be deducted is Rs. 25,000 for people less than 60 years of age and Rs. 50,000 for the senior citizens. In addition to this, if the premiums are paid for the health insurance plans of parents by you, a deduction of Rs. 25,000 or Rs. 50,000 can also be claimed.

3. Section 80CCD (1B)

An additional deduction of up to Rs. 50,000 under this section is allowed by the National Pension System if the scheme is invested in by you.

4. Section 80TTA

Interest amount earned on your savings account of up to Rs. 10,000 is allowed as an income which is tax-free under this section.

Deduction Available U/S 89

U/S 89 of the ITA, mitigation in the tax liability is allowed through the marginal relief. If you’re an employee of a corporation, university, co-operative society, body, government, or association, you can reap the benefits of this section. This section allows you to claim a marginal tax relief if your outstanding salary gets charged at a rate that’s higher than usual due to the change in the tax rates. You must fill and file Form 10E on the IT department’s website to do so.

TDS statements

Post the deduction of the TDS that is applicable from your income salary, your employer must offer the TDS statements showing the detailed break-down of the TDS. Form 16 contains these statements which are issued by the employer once the current financial year ends but prior to the last date of the tax filing. If you receive any profits or perquisites owing to your salary, Form 16 may be available attached with the Form 12BA.

TDS Deduction List

The salaried employees can claim a tax deduction on salary for the following list of items under the ITA, 1961:

 

  • Investments in Public Provident Fund (PPF)

  • National Savings Certificate (NSC)

  • Employee’s share of Provident Fund contribution

  • Subscription to debentures / equity shares of approved eligible issues

  • Subscription to deposit scheme of companies involved in offering housing finance or public sector companies

  • Premium which is paid for  life insurance policies

  • ULIP investments

  • Tuition fees of children

  • Repayment of home loan principal amount

  • Investment in Sukanya Samriddhi Account

  • Subscription to NABARD’s notified bonds

  • Subscription to notified deposits scheme / notified securities

  • Amount paid to buy deferred annuity

  • Contribution to LIC’s notified annuity plan

  • Senior Citizens Savings Scheme

  • Contribution to notified Pension Fund set up by UTI

  • Savings under Section 80C of the Income Tax Act, 1961

  • Subscription to National Housing Bank’s Home Loan Account Scheme

  • Bank FDs

  • Transport allowance

  • House Rent Allowance

Time Limit to Deposit Tax U/S 192

TDS which a government employer deducts should be transferred on that very day. Below mentioned are a few pointers which shall aid you with the deadlines for the tax deposit if you’re not a government employee:

 

  • The amount should get transferred before 30th of April if the TDS gets deducted in the month of March.

  • The amount should get transferred within seven days from the last day of the month when the deduction is done if the TDS is deducted in any other month.

Need to File the Correct Tax Return

To file your Income Tax Returns (ITR), there are various types of ITS forms. Based on the level and sources of your income, you must choose the correct ITR form. It is important to file your taxes in the right ITR in order to avoid the delays possible in your tax filing. Besides, if you choose the wrong form, you might have to incur certain penalties in taxes which can prove to be a financial burden for you. Hence, it is imperative that you make sure to file the right tax return on your salary every financial year.

Consequences of Non-compliance U/S 192 

Below mentioned are a few consequences of non-compliance under Section 192:

  • Levy of Interest

If the TDS is not deducted on the salary by the employer and deposited to the government, the interest will then be levied on that amount.

  • Disallowances of Expenses

The employer cannot claim the deduction of income expense from PGBP income if they don’t deduct the TDS on time. The disallowed amount of salary expenses will be:

  • 30% of the salary paid to the resident

  • 100% of the salary paid to the non-resident

 

TDS certificate

The TDS certificates are Form 16, 16A, 16B, and 16C. A person who deducts the TDS to the assessee from whose salary the TDS is deducted while they make the payment  issues this certificate. For example, the banks issue Form 16A to the one who deposits when the TDS gets deducted on the interest from the FDs. Form 16 is mainly issued to the employee by the employer.

Form

Certificate of

Frequency

Due date

Form 16

TDS on the salary payment

Yearly

31st May

Form 16 A

TDS on the non-salary payments

Quarterly

15 days from the last date of filing income tax return

Form 16 B

TDS on the sale of property

Every transaction

15 days from the last date of filing income tax  return

Form 16 C

TDS on the rent

Every transaction

15 days from the last date of filing income tax return

Conclusion

According to the Section 80C of the IT Act, 1961, the premiums which are paid for the life insurances are qualified for the deduction of tax up to Rs. 1.5 lakh. In addition to this, the amount of maturity gets completely exempted from tax u/s 10(10D), provided the sum that’s assured is 10 times more than the amount of premium. Hence, life insurance is such an imperative tax-saving instrument.

 

Note: You can also calculate the TDS on salary by using an online TDS salary calculator.

 

Bajaj Allianz Smart Protect Goal provides you with a cover of about Rs. 1 Crore if you pay premiums as less as Rs. 500 per month. Login to the online portal of Bajaj Markets today and channel your Tax Deducted at Source (TDS) towards the life insurance so that you can protect your loved ones.

FAQs

  • ✔️How can I get a PAN card immediately?

    Yes, you can claim HRA as a deduction while computing the TDS deduction on salary if you declare the proof of the amount of money you pay for the rent.

  • ✔️Is the TDS deducted from my salary every month?

    Yes, the TDS is deducted from your salary every month if your estimated income salary crosses the basic exemption limit. This is so because according to Section 192 of the ITA, 1961, the tax must be deducted at source from your salary while making its payment.

  • ✔️Is there a fixed rate at which TDS is deducted on salary?

    No, there isn’t any fixed rate at which the TDS is deducted from your salary. TDS is deducted at an average income tax rate for that particular financial year. This rate must be calculated based on the income tax slab rates which are effective for that specific year.

  • ✔️Is there a relief u/s 89?

    Yes, there’s a relief u/s 89. You can reap its benefits when you receive an advance salary or any arrears of salary. In order to be able to claim this relief, you must show the calculation of relief in your return in addition to which you must also file Form No. 10E online.

  • ✔️Is a PAN card imperative for the TDS deductions?

    Yes, you must furnish the details of your PAN card to your employer for your TDS deductions. If you are not able to furnish these details, the TDS will then be deducted at a rate of 20% flat.