TDS on Salary under Section 192 of Income Tax Act – How to Calculate TDS on Salary?

Introduction

TDS (Tax Deduction at Source) is a sort of income tax that is deducted at the point of transaction. Tax is normally paid by the individual who earns the money; however, the government ensures that tax is deducted in advance from the payment amount through the idea of TDS. TDS is a strong technique that reduces tax evasion since it allows the government to levy tax at the source. This notion requires everyone making a payment to deduct TDS and send it to the government. Tax deducted at source (TDS) on salaried income is dealt with in Section 192 of Income Tax Act of 1961. This article will cover the basics of TDS on salary.

What is TDS on Salary?

Every employer is required by Section 192 to withhold TDS from the salary it pays to its employees. At the time of salary payment, the employer must subtract TDS from the employee’s projected earnings. Because the TDS is deducted from the employee’s projected net taxable income, you must inform your employer of your earnings, deductions, and investments. Employers typically request such information at the start of the fiscal year or at the time of hire, whichever comes first.

Information on Basic exemption limit for TDS on Salary

• INR 2,50,000, if under 60 years old

• INR 3,00,000, if 60 years or more but under 80 years old

• INR 5,00,000, if above 80 years old

TDS must be deducted by the employer at the time of payment in the event of advance and arrears salaries. If the pay exceeds the basic exemption limit, TDS on salary must be deducted even if the employee does not have a PAN (Permanent Account Number).

The entity that are eligible to Deduct TDS under Section 192 of Income Tax Act

• HUF (Hindu Undivided Family)

• Private Limited Company

• Public Company

• Cooperative Societies

• Trust

• Individuals

• Partnership Firm

TDS Deduction Rates

• A TDS rate is not specified in Section 192. TDS will be deducted according to the taxpayer’s income tax slab and rates for the relevant financial year in which the remuneration is paid.

• In most cases, the employer calculates the tax at the start of the fiscal year. TDS is calculated by dividing the employee’s projected tax burden for the fiscal year by the number of months he worked for the particular business.

• However, if the employee does not have a PAN, TDS will be deducted at a rate of 20% plus 4% cess.

• Any excess or deficit emerging from a previous deduction is adjusted by the employer by increasing or decreasing the number of subsequent deductions during the same financial year.

• If an advance tax payment was made by the employee, the TDS computation can be changed accordingly. The employee must inform the employer of the situation.

Information on “How to calculate TDS on Salary?”

To compute the TDS deduction on an employee’s wage, the employer must take the following steps:

• Gross Salary Calculation

1. Calculate your total monthly income, which is made up of your basic salary, allowances, and benefits.

2. Reduce total monthly income by the number of exemptions provided under section 10 of the ITA on allowances such as medical, helper, travel, and so on.

Points to Keep in mind at the time for calculating Gross Salary:

1. The employee should inform the employer whether the previous or new tax rate will be used.

2. If an employee does not submit an application, the employer is required to deduct TDS at the old tax slab rate.

3. If TDS is deducted at the previous tax slab rate and the employee later files an Income Tax Return at the new tax slab rate or vice versa, that is also possible.

4. Any difference, in the form of reduced TDS deducted, must be deposited, or higher TDS deducted can be claimed as a refund in this situation. Furthermore, if the return is filed by the due date, no interest will be charged.

• Total Income and Tax Liability Calculation

1. Calculate an estimate of total income after accounting for other sources of income, however, only losses from real estate are allowed.

2. Calculate the Chapter VI A deductions and subtract them from the income you determined earlier.

3. Calculate tax on the above total revenue for the applicable Financial Year using the new or old tax rate choice chosen by the employees.

• TDS (Tax Deducted at Source) Calculation 

1. The above-mentioned tax amount is now divided by 12 to obtain the monthly TDS amount.

2. This Tax Deducted at Source must be deducted on a monthly basis until February of the following year.

3. At the end of March, total income is recalculated, and tax is applied based on the option selected by the employees (new or old tax rates). The actual tax deductible is now compared to the predicted tax deducted.

4. If the TDS deducted is insufficient, deduct the remaining TDS from your salary in March.

5. If there is any excess TDS (Tax Deducted at Source), the employee is entitled to a reimbursement.

Points to keep in mind, if the salary is more than one employer

• Assume an employee works for multiple employers at the same time. In that situation, they can supply any of the employers with information on their compensation and TDS on salary in Form 12B. The employer must then determine the employee’s gross wage and deduct TDS.

• If a person changes jobs throughout the year, they can submit the new employer with information from their old employer on Form 12B. For the remaining months of the financial year, this employer will take into account the employee’s previous salary and deduct TDS proportionately.

• Assume they decline to share information about their earnings or other employment. In that instance, each employer will deduct TDS from the salary they pay.

The due date for filing TDS under Section 192 of Income Tax Act

 FAQs on TDS on Salary

1. Is it necessary to deduct TDS from a salary?

TDS deduction on salary is required. If the salary payable exceeds the basic exemption limit of Rs 2.5 lakhs, any employer who pays a wage to his employee must deduct TDS.

2. TDS deducted on salary can be claimed in which year?

Employees can collect TDS deducted from their salary in the year it was deducted.

3. What does Section 89 Relief entail?

When you get any salary arrears or advance salary, you are eligible for section 89 relief. Arrear pay refers to a salary that is under dispute or that has been increased retroactively. To claim this relief, you must include the relief computation in your return and complete Form 10E online with it.

4. How do you claim TDS on your salary?

TDS refunds are not claimed using any form or procedure. The deductee is usually only needed to file income tax returns. If the amount of TDS on salary levied in a given year exceeds what the employee is required to pay, a refund will be due and must be mentioned in the returns filed.

Conclusion

The purpose of Tax Deducted at Source was to collect tax directly from the source of revenue. The deductee who has had income tax deducted at source is entitled to a credit for the amount deducted based on the deductor’s Form 26AS or TDS Certificate. Taxpayers will be able to make payments at their preferable time, due to the online TDS  (Tax Deducted at Source) payment method