How to compute TDS on Salary of employee and file returns before due date?
Section 192 of the Income Tax Act, 1961 deals with tax deducted at source (TDS) on salary. The employer will deduct TDS from the salary payable to employee. The salary received from the employer is categorised as ‘Income’ under the head ‘Income from Salary’ and the employer will be responsible for deducting TDS on an average rate of income tax based on the current slab rate during the relevant financial year by considering your estimated income. The TDS deducted u/s 192 is reflected in Form 16, which is issued by the taxpayer at the end of the financial year.
When TDS on salary is to be deducted by the employer?
The employers are required to deduct TDS at a specific time period and deposit it to the government. According to section 192 of the income tax act, there must be an employer-employee relationship for the deduction of tax at source. The employer’s status such as HUF, firms or company is not relevant for the deduction of TDS under section 192. Also, the number of employees employed by the employer does not matter while calculating and deducting TDS.
As per Section 192, TDS is required to be deducted by the employer at the time of actual payment of salary and not at the time of accrual of salary. TDS will also be deducted in case the employer pays salary in advance to the employee or employee receives arrears of salary for previous Financial Year. Where the estimated salary is not more than the basic exemption limit, not TDS will be deducted. This rule is applies even if the person who is receiving the salary do not have a PAN.
What is the rate of tax to be considered for TDS deduction on Salary?
Section 192 does not specify a TDS rate. TDS will be deducted as per the income tax slab and the rates thereof applicable to the relevant financial year for which the salary is paid. At the time of deducting TDS, the salary of the employee is calculated after taking into consideration all the deductions applicable and then tax is calculated accordingly at tax rate applicable. In some case tax calculation is usually done by the employer at the beginning of the financial year.
TDS has to be calculated at the average rate of income-tax computed on the basis of the rates in force for the relevant financial year in which the payment is made, on the estimated total income of the assessee. Therefore, the liability to deduct tax at source in the case of salaries arises only at the time of payment.
However, if the employee does not have PAN, TDS shall be deducted at the rate of 20% (excluding education cess and higher education cess). Any excess or deficit arising out of any earlier deduction can be adjusted by increasing or decreasing the number of subsequent deductions during the same financial year. If you have made any payment as an advance tax, then the same can be adjusted for calculation of TDS.
In case an employee intends to opt for concessional rate of tax under section 115BAC and he intimates to the deductor, being his employer, of such intention, then, the employer shall compute his total income, and deduct tax thereon in accordance with the provisions of section 115BAC. If such intimation is not made by the employee, the employer shall deduct tax at source without considering the provision of section 115BAC of the Act.
Below are the slab rates to be considered at the time of calculating TDS on salary:
If the individual opts for new tax regime then has to pay tax as per the below slab rates:
|SI||Total Income||Rate of Tax|
|1||Up to Rs. 2,50,000||Nil|
|2||From Rs. 2,50,001 to Rs. 5,00,000||5 per cent.|
|3||From Rs. 5,00,001 to Rs. 7,50,000||10 per cent.|
|4||From Rs. 7,50,001 to Rs. 10,00,000||15 per cent.|
|5||From Rs. 10,00,001 to Rs. 12,50,000||20 per cent.|
|6||From Rs. 12,50,001 to Rs. 15,00,000||25 per cent.|
|7||Above Rs. 15,00,000||30 per cent.|
If the individual opts for old tax regime then has to pay tax as per below slab rates:
|SI||Total Income||Rate of Tax|
|1||Up to Rs. 2,50,000||Nil|
|2||From Rs. 2,50,001 to Rs. 5,00,000||5 per cent.|
|3||From Rs. 5,00,001 to Rs. 10,00,000||20 per cent.|
|4||Above Rs. Rs. 10,00,000||30 per cent.|
1. Average rate of income-tax means the rate arrived at by dividing the amount of income- tax calculated on the total income, by such total income.
2. The concept of payment of tax on non-monetary perquisites has been provided in sections 192(1A) and (1B). These sections provide that the employer may pay this tax, at his option, in lieu of deduction of tax at source from salary payable to the employee. Such tax will have to be worked out at the average rate applicable to aggregate salary income of the employee and payment of tax will have to be made every month along with tax deducted at source on monetary payment of salary, allowances etc.
What all to include at the time of calculation of TDS from salary?
The following to be include at the time of calculation of TDS from salary:
1. Basic Salary
2. Dearness allowance
4. Bonus received
5. Advance/ arrears of salary subject to relief under section 89
In cases where an assessee is simultaneously employed under more than one employer or the assessee takes up a job with another employer during the financial year after his resignation or retirement from the services of the former employer, he may furnish the details of the income under the head “Salaries” due or received by him from the other employer, the tax deducted therefrom and such other particulars to his current employer. Thereupon, the subsequent employer should take such information into consideration and then deduct the tax remaining payable in respect of the employee’s remuneration from both the employers put together for the relevant financial year.
For purposes of deduction of tax out of salaries payable in a foreign currency, the value of salaries in terms of rupees should be calculated at the prescribed rate of exchange as specified in Rule 26 of the Income-tax Rules, 1962.
In respect of salary payments to employees of Government or to employees of companies, co-operative societies, local authorities, universities, institutions, associations or bodies, deduction of tax at source should be made after allowing relief under section 89(1), where eligible.
There are several deductions employee can claim from the total income to bring down the taxable income and thereby reduce the tax outgo. Section 89 deals in respect of salary paid to employees of the government, companies, co-operative societies, local authorities, universities, association or bodies, etc. and should be adjusted for marginal relief as per Section 89 of the Income Tax Act, if applicable. Marginal relief is provided in respect of salary or arrears of salary being subject to a higher rate of tax due to change in the slab rates. To get this relief, you must file Form 10E on the official income tax portal. In the absence of this form, you will not receive relief under Section 89.
What all to be excluded at the time of calculation of TDS from salary?
Below are the list of allowance and deduction excluded at the time of calculation of TDS from salary:
|1.||10(13A)||House Rent Allowance (Sec. 10(13A) & Rule 2A)||Least of the following is exempt: a) Actual HRA Received b) 40% of Salary (50%, if house situated in Mumbai, Calcutta, Delhi or Madras) c) Rent paid minus 10% of salary * Salary= Basic + DA (if part of retirement benefit) + Turnover based Commission Note: i. Fully Taxable, if HRA is received by an employee who is living in his own house or if he does not pay any rent ii. It is mandatory for employee to report PAN of the landlord to the employer if rent paid is more than Rs. 1,00,000 [Circular No. 08 /2013 dated 10th October, 2013].|
|2.||10(14)||Children Education Allowance||Up to Rs. 100 per month per child up to a maximum of 2 children is exempt|
|3.||10(14)||Hostel Expenditure Allowance||Up to Rs. 300 per month per child up to a maximum of 2 children is exempt|
|4.||10(14)||Transport Allowance granted to an employee to meet expenditure for the purpose of commuting between place of residence and place of duty||Rs. 3,200 per month granted to an employee, who is blind or deaf and dumb or orthopedically handicapped with disability of lower extremities|
|5.||10(14)||Transport Allowance to an employee working in any transport business to meet his personal expenditure during his duty performed in the course of running of such transport from one place to another place provided employee is not in receipt of daily allowance.||Amount of exemption shall be lower of following: a) 70% of such allowance; or b) Rs. 10,000 per month.|
|6.||10(14)||Conveyance Allowance granted to meet the expenditure on conveyance in performance of duties of an office||Exempt to the extent of expenditure incurred|
|7.||10(14)||Any Allowance granted to meet the cost of travel on tour or on transfer||Exempt to the extent of expenditure incurred|
|8.||10(14)||Daily Allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty||Exempt to the extent of expenditure incurred|
|9.||10(14)||Helper/Assistant Allowance||Exempt to the extent of expenditure incurred|
|10.||10(14)||Research Allowance granted for encouraging the academic research and other professional pursuits||Exempt to the extent of expenditure incurred|
|11.||10(14)||Uniform Allowance||Exempt to the extent of expenditure incurred|
|12.||10(7)||Foreign allowances or perquisites paid or allowed by Government to its employees (an Indian citizen) posted outside India||Fully Exempt|
|13.||–||Allowances to Judges of High Court/Supreme Court (Subject to certain conditions)||Fully Exempt.|
|14.||10(45)||Following allowances and perquisites given to serving Chairman/Member of UPSC is exempt from tax: a) Value of rent free official residence b) Value of conveyance facilities including transport allowance c) Sumptuary allowance d) Leave travel concession||Fully Exempt|
|15.||–||Allowances paid by the UNO to its employees||Fully Exempt|
|16.||10(45)||Allowances to Retired Chairman/Members of UPSC (Subject to certain conditions)||Exempt subject to maximum of Rs.14,000 per month for defraying services of an orderly and for secretarial assistant on contract basis. The value of residential telephone free of cost and the number of free calls to the extent of 1500 per month shall be exempt.|
|17.||10(14)||Special compensatory Allowance (Hilly Areas) (Subject to certain conditions and locations)||Amount exempt from tax varies from Rs. 300 per month to Rs. 7,000 per month.|
|18.||10(14)||Border area allowances, Remote Locality allowance or Disturbed Area allowance or Difficult Area Allowance (Subject to certain conditions and locations)||Amount exempt from tax varies from Rs. 200 per month to Rs. 1,300 per month.|
|19.||10(14)||Tribal area allowance given in (a) Madhya Pradesh (b) Tamil Nadu (c) Uttar Pradesh (d) Karnataka (e) Tripura (f) Assam (g) West Bengal (h) Bihar (i) Orissa||Rs. 200 per month|
|20.||10(14)||Compensatory Field Area Allowance. If this exemption is taken, employee cannot claim any exemption in respect of border area allowance (Subject to certain conditions and locations)||Rs. 2,600 per month|
|21.||10(14)||Compensatory Modified Area Allowance. If this exemption is taken, employee cannot claim any exemption in respect of border area allowance (Subject to certain conditions and locations)||Rs. 1,000 per month|
|22.||10(14)||Counter Insurgency Allowance granted to members of Armed Forces operating in areas away from their permanent locations. If this exemption is taken, employee cannot claim any exemption in respect of border area allowance (Subject to certain conditions and locations)||Rs. 3,900 per month|
|23.||10(14)||Underground Allowance is granted to employees working in uncongenial, unnatural climate in underground mines||Up to Rs. 800 per month|
|24.||10(14)||High Altitude Allowance is granted to armed forces operating in high altitude areas (Subject to certain conditions and locations)||a) Up to Rs. 1,060 per month (for altitude of 9,000 to 15,000 feet) b) Up to Rs. 1,600 per month (for altitude above 15,000 feet)|
|25.||10(14)||Highly active field area allowance granted to members of armed forces (Subject to certain conditions and locations)||Up to Rs. 4,200 per month|
|26.||10(14)||Island Duty Allowance granted to members of armed forces in Andaman and Nicobar and Lakshadweep group of Island (Subject to certain conditions and locations)||Up to Rs. 3,250 per month|
|27||16 (ia)||Standard deduction u/s 16||Rs. 50,000|
|28||16 (ii)||Entertainment allowance||For employees of the central government and state government, the deduction available is the least of the following: 1. 20% of basic salary 2. Rs. 5,000 3. Amount granted as entertainment allowance in the financial year|
|29||16 (iii)||Profession tax||Lower of Rs. 2,500 or Actual Profession tax paid|
|30||Deduction under chapter VIA||Click below link for list of deduction under chapter VIA https://facelesscompliance.com/8250/31st-july-2020-is-the-last-date-for-claiming-80c-80d-80g-etc-deduction-in-income-tax-for-fy-2019-20|
What are the various evidence/ proof/ particulars of claims to be obtained from the employee by the employer?
Section 192(2D) of the Income tax act, 1961 casts responsibility on the person responsible for paying any income chargeable under the head “Salaries” to obtain from the assessee, the evidence or proof or particulars of prescribed claims (including claim for set-off of loss) under the provisions of the Act in the prescribed form and manner, for the purposes of –
1. Estimating income of the assessee; or
2. Computing tax deductible under section 192(1).
Rule 26C requires furnishing of evidence of the following claims by an employee to the person responsible for making payment under section 192(1) in Form No.12BB for the purpose of estimating his income or computing the tax deduction of tax at source:
|S. No.||Nature of Claim||Evidence or particulars|
|1.||House Rent Allowance||Name, address and PAN of the landlord(s) where the aggregate rent paid during the previous year exceeds Rs. 1 lakh.|
|2.||Leave Travel Concession or Assistance||Evidence of expenditure|
|3.||Deduction of interest under the head “Income from house property”||Name, address and PAN of the lender|
|4.||Deduction under Chapter VI-A||Evidence of investment or expenditure|
What is the date of payment of TDS and filing TDS returns?
Due date of payment of TDS on Salary?
If the TDS is deducted by any government employer – It has to be deposited on the same day. If the TDS is deducted by any employer other than the government than TDS to be deposited as follows:
a. If the salary is credited and TDS is deducted in the month of March – On or before 30 April of the next financial year.
b. If the salary is credited and TDS is deducted in any month other than March- Within seven days from the end of the month in which the deduction is made. i.e. on or before 7th day of the following month. For instance TDS for salary paid in the month of January 2021 to be deposited on or before 7th of February 2021.
Due date for filing of TDS return:
|Q1||1 April – 30 June||31st July of the FY|
|Q2||1 July – 30 September||31st October of the FY|
|Q3||1 October – 31 December||31st January of the FY|
|Q4||1 January – 31 March||31st May of the FY|
X, a resident of India and a salaried employee employed with ABC private ltd aged 30 years, received the following sums during the previous year 2020-21.
Basic Salary: Rs. 6,24,000 p.a.
HRA: Rs. 3,12,000 p.a.
Profession tax deducted from salary: Rs. 2,500 p.a.
Mr. X contributed Rs. 25,000 to approved Pension Fund of LIC. He also pays Rs. 35,000 by account payee cheque for mediclaim premium to insure the health of her father, aged 65 years, who is not dependent. Mr. X Was paying a rent of Rs. 2,16,000 during FY 2020-21
Let us, compute the amount of TDS to be deducted from the salary of Mr. X for the A.Y. 2021-22.
|Total salary paid||9,36,000|
|Less: HRA Exempt during FY 2020-21 Lower of a or b or c a. 50% of Basic Salary= 624000*50%= 3,12,000 b. Actual HRA= 3,12,000 c. Rent paid- 10% of Basic salary= 1,53,600 (2,16,000- 62400)||(1,53,600)|
|Less: Standard deduction u/s 16||50,000|
|Less: Profession tax paid||2,500|
|Less: Deduction under Chapter VIA|
|80C: Deduction of approved Pension Fund of LIC||(25000)|
|80D: Deduction of Mediclaim paid||(35000)|
|Net Total Income||6,69,900|
|Tax liability of above income as per slab rates||46,480|
|Add 4% Health and Education cess||1859|
|Total TDS to be deducted from Salary of Mr. X||48,339|
Thus, ABC pvt Ltd can deduct above TDS from the last salary paid or by calculating average rate and deduct TDS from each month as follow:
Average rate of TDS on salary: (Total TDS for the year/ Total Income for year)*100
= (48,339/ 6,69,900)*100= 7.22% per month shall be deducted as TDS every from the salary of Mr. X