TDS — TAX DEDUCTED AT SOURCE ON PAYMENT OF SALARY

TDS ON SALARIES: – 

Section 192 of the Income Tax Act, 1961 deals TDS on Salaries.

Who is liable to Deduct: –

Any Employer responsible for paying salary is required to deduct tax at source from the amount payable to employee as salary, as applicable. In layman language only net salary is paid to employee i.e. after deduction of tax as applicable.

Rate of Tax: –

Tax is to be deducted on Average rate of tax calculated on the basis of rates of tax applicable for that financial year i.e. slab rates applicable for that financial year.

This average rate of tax will differ for each employee as it is calculated by dividing the total tax payable by total tax salary for that employee. In simple terms it means total tax can be divided by 12 to work out the monthly deduction from the salary payable to employee.

How to Calculate TDS on Salary: –

Employer is liable to deduct tax at taxable salary of employee and taxable salary in general sense means total of

• Basic Salary
• Taxable part of all allowances e.g. HRA, Conveyance Allowance etc., (Taxable means amount received from employer minus the exemption available under Income Tax Act, 1961)
• Taxable Value of Perquisites provided by the employer to employee e.g. rent free accomodation, free car,electricity gas etc. (Taxable Value means the valuation mechanism defined u/s 17 of the Income Tax Act, 1961)
• Taxable part of Other sum e.g. Bonus, Commission, Leave Encashment, Gratuity, Pension, Retrenchment Compensation, Arrears of Past Salary etc.

From this gross salary calculated above the total of deductions lists out below is allowed while calculating the final tax payable by employee

• Standard Deduction
• Professional Taxes Paid
• Interest on Housing Loan as available u/s 24
• Deduction u/s Chapter VI-A i.e. From Section 80C to 80U

The tax so calculated is divided by total taxable salary to find the Average Tax Rate for deduction TDS. In simple terms and in practical/professional life tax so calculated in being divided by 12 to find out the tax to be deducted monthly.

The tax so calculated can be increased/decreased to make adjustment for any excess or wrong deduction in earlier months of the year.

CHANGE IN JOB OR TWO EMPLOYMENT AT A TIME

In case any employee changes his job then he will provide the full information regarding past salary and Tax deducted thereon to his new employer in form no. 12b and new employer will calculate the taxable salary as per method laid out above considering his past earning as well and calculate the tax accordingly.

If an employee is working with two different employers at a time (part time type of options) then TDS has to be calculated on the combined salary.

DEPOSITION OF TDS WITH GOVERNMENT AND FILING OF QUARTERLY STATEMENT

The tax so deducted by the employer has to be deposited with the Government of India through ITNS Challan No. 281 by 7th of the Next Month (in the case of TDS for March month relaxation is being provided to deposit it up to 30th April) . The most important information required at the time of depositing the challan is TAN (Tax Deduction Account Number) of the employer. While depositing the Challan PAN Details of employees are not required as challan is deposited for the total sum deducted for all employees.

In addition to this Employer is required to file Quarterly TDS Statement with Department wherein all the details regarding Name, Address, PAN, Salary Structure and TDS deducted is being provided by the employer and on that basis Tax Departments issues Form 16 for individual Employees and this details is also being reflected in the Form 26 AS of the particular employee. This return needs to be filed within one month from the last day of the quarter but for March Quarter Return relaxation has been provided for 2 months instead of one month.

INTEREST ON DELAY IN DEPOSITION OF TDS

There arises two circumstances viz.

• Either tax not deducted or less deducted: – In this case interest @ 1% per month for each month or part of the month will be charged from the date on which tax needed to be deducted to the date of actual deduction
• Tax has been deducted but not paid to government account: – Interest @ 1.5% per month for each month or part of the month will be charged from the date of deduction to the date of payment