How to compute tax on salary and TDS for FY 2021-22
Reference is invited to Circular No. 20/2020 dated 03.12.2020 whereby the rates of deduction of income-tax from the payment of income under the head “Salaries” under Section 192 of the Income-tax Act, 1961 (hereinafter ‘the Act’), during the financial year 2020–21. were intimated. The present Circular contains the rates of deduction of Income-tax from the payment of income chargeable under the head “Salaries” during the financial year 2021-22 and explains certain related provisions of the Act and Income-tax Rules. 1962 (hereinafter the Rules). All the sections and rules referred are of Income-tax Act. 1961 and Income-tax Rules, 1962 respectively unless otherwise specified. The relevant Acts. Rules, Forms and Notifications arc available at the website of the Income Tax Department www.incometax.gov.in
As per section 192 (1) or the Act. any person responsible for paying any income chargeable under the head “Salaries” shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee under the head of Salary income for that financial year.
The section also provides that a person responsible for paying any income chargeable under the head “Salaries” shall furnish to the person to whom such payment is made a statement giving correct and complete particulars of perquisites or profits in lieu of salary provided to him and the value thereof.
1. Definition of “salary”, “perquisite” and “profit in lieu of salary” (section 17)
1.1 What is salary?
As per section 15 of the Act, the following incomes are chargeable to income-tax under the head “Salaries”—
- any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not;
- any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him;
- any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year.
As per section I7 of the Act. Salary includes the following:
ii) any annuity or pension;
iii) any gratuity;
iv) any fees. commissions, perquisites or profits in lieu of or in addition to any salary or wages;
v) any advance of salary;
vi) any payment received by an employee in respect of any period of leave not availed of by him;
vii) the portion of the annual accretion to the balance at the credit of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under rule 6 of Part A of the Fourth Schedule;
- contributions made by the employer to the account of the employee in a recognized provident fund in excess of 12% of the salary of the employee, and
- interest credited on the balance to the credit of the employee in so far as it is allowed at a rate exceeding such rate as may be fixed by Central Government by notification in the Official Gazette;
viii) the contribution made by the Central Government or any other employer to the account of the employee under the New Pension Scheme as notified vide Notification F.N. 25/7/2003- ECB&PR dated 22.12.2003 (enclosed as Annexure VII) referred to in section SOCCD (para 5.5.3 of this Circular);
ix) the aggregate of all sums that are comprised in the transferred balance as referred to in sub rule (2) of rule 11 of Part A of the Fourth schedule of the Act in case of an employee participating in a recognized provident fund, to the extent to which it is chargeable to tax under sub-rule (4) thereof.
It may be noted that, since salary includes pension, tax at source would have to be deducted from pension also, unless otherwise so required. However, no tax is required to be deducted from the commuted portion of pension to the extent exempt under section 10 (104
Family Pension is chargeable to tax under the head “Income from other sources” and not under the head “Salaries”. Therefore, provisions of section 192 of the Act are not applicable. Hence, DDOs are not required to deduct TDS on family pension paid to person.