TDS is referred to as Tax Deduction at Source on salary. Further, in the case of TDS in salary, it is related to deductions made by employers on their employee’s payroll. Moreover, these deductions are done on a monthly basis.
TDS on Salary is a medium to collect income tax by the Government at the source of the income. There are certain aspects related to TDS on salary, which are important to understand and follow.
Therefore, we have curated this simple and effective guide that will clear all your doubts. We’ll cover:
- What is TDS on Salary?
- How to Calculate TDS?
- How to Compute TDS on Salary?
- Who Deducts TDS on Salary?
- When TDS is deducted?
- Tax Rates for FY 2020-21
- What is the Rate of TDS on Salary?
- Time Limit to Deposit TDS on Salary?
- Check TDS Deduction on Salary?
- What is Form 16 and its Parts?
- TDS on Salary from More than one Employer
- How You Can Save TDS on Salary?
- Tax Rebate and Relief
- Frequently Asked Questions (FAQs)
- How Can Deskera Help You
What is TDS on Salary?
Salary could be defined as— the remuneration you receive at periodic intervals (monthly)— for providing professional services or skills to organizations or businesses.
Further, an employer who receives salary is categorized as income that is required to deduct under the ITA provision.
According to the Indian Income Tax Act (ITA), 1961, a salary includes pension, wages, gratuity, fees, commission, perquisites, etc.
TDS on salary falls under Section 192 of the Income Tax Act. This Act provision mandates that every employer is entitled to deduct the estimated TDS payroll amount of employees. It is implemented at the time of generating a monthly salary.
Generally, Tax deduction at source on salary is refundable. However, it is usually possible if the tax deduction is more than employees’ tax liability.
Also, note that the investment details during the beginning of the fiscal year differ from the year’s end investments. In that scenario, TDS payment on salary will get refunded.
How to Calculate TDS?
Salary is commonly calculated as CTC (Cost to Company), and it consists of two primary components. These components include salary and perquisites.
CTC covers the following items: special allowance, housing rent allowance, travel allowance, medical allowance, basic income, dearness allowance,, and so on.
Whereas, perquisites or perks are benefits and services provided by an employer. It further covers travel expenditures, fuel subsidies, cafeteria expenses, and hotel expenses.
Furthermore, employees can seek tax exemptions on the following items based on the information:
- To claim the amount spent on commuting, use the travel allowance.
- Medical expenses can be claimed by presenting the necessary documentation.
- If the employee lives in a rented home, he or she is exempt from the house rent allowance.
How to Compute TDS on Salary?
We have mentioned a few steps on which TDS on salaried income is computed.
Step 1: Calculate Earnings
Calculate an employee's total wages over the course of a year. Moreover, it is necessary to add commission, incentives, bonuses, and other items in this section.
Furthermore, you can refer to an offer letter or Form 16 to check the salary breakdown.
Step 2: Gather and Verify Investment Declarations
Obtain an employee's declarations regarding prospective investments. By the end of the year, one must have gathered proof of investment from people who can vouch for it. An employer can then authorize tax exemptions.
Form 12BB is required for the investment declaration. Moreover, in the statement of the form— an employee can state his or her claims for tax exemptions relating to investments or expenses.
In addition, form 12BB must be filed at the end of the fiscal year. Furthermore, the paid employee must provide documentary proof for any investments indicated on this form.
Step 3: Amount Computation that qualifies for Tax Exemption.
Calculate the exemption amount against each allowance receivable to claim the section 10 exemption. One must consider all of the exemptions to which employees are entitled.
Following that, employers must deduct the allowed exemptions from the gross wage. The outcome is the taxable income of an employee.
Moreover, an employer is required to deduct TDS from a worker's salary based on the applicable tax slab.
Step 4: Gathered TDS Deposition
The employer must deposit the collected TDS to the Central Government. Further, you need to use a relevant and trusted online TDS calculator for computation. In order to obtain accurate details, you must provide relevant information.
Who Deducts TDS on Salary?
Employers who pay monthly salary income to employees are responsible for the tax deduction on salary. Moreover, the applicability of Section 192 is irrespective of the number of employees.
Following is the list of employers who deduct TDS tax under Section 192. It includes:
- Hindu Undivided Family HUF
- Co-Operative Society
- Trust, charitable, or otherwise
- Public Limited Company
- Private Limited Company
- Partner Firm including a Limited Liability Partnership LLP
- Association or Person AOP, Body of Individuals BOI
When TDS is deducted?
Section 192 allowed for deductions to be made at the time of payment rather than at the time of salary accrual.
Employees receive the salary on a monthly basis therefore, TDS is deducted each month as well.
TDS must be deducted monthly by the employer, including any advance payment or wage arrears. Furthermore, TDS is only applicable if the employee's pay exceeds the basic exemption amount.
Remember that TDS is not applicable if the total income after all deductions and allowances is less than the slab rate.
For the financial year 2021-22 and assessment year 2022-23, the basic exemption limit or slab rate is as follows:
Tax Rates for FY 2020-21
What is the Rate of TDS on Salary?
Section 192 allows for the income tax deduction on amounts paid at the average rate of income tax (i.e. the income tax slab rate). Furthermore, the average income tax rate must be calculated using the slab rate relevant for the fiscal year.
The employer must compute the employee's projected income and the income tax due on that income at the applicable slab rate. Further, the total income tax for the fiscal year must then be divided by 12 months, or the months remaining in the year. Every month, the company will deduct this tax as TDS from the employee's pay.
The employer might increase or lower the TDS amount to compensate for any excess or deficiency in TDS deductions during the financial year.
However, if an employee fails to disclose his or her PAN to his or her employer. Then, the employer is entitled to deduct TDS at a rate of 20%.
Time Limit to Deposit TDS on Salary?
On the 7th day of the following month, the employer must deposit TDS to the credit of the Central Government. Further, TDS deducted in February must be deposited to the credit of the Central Government by the 7th of March.
On the other hand, TDS deducted for the month of March can be submitted on or before the 30th of April (the following month.)
Moreover, a TDS return must also be filed by the employer. This further allows the employer to guarantee that all pertinent information is uploaded and represented in the employee's Form 26AS.
Check TDS Deduction on Salary?
- Every employer who deducts TDS is required to file a TDS return quarterly. Also, they need to state the relevant TDS deduction details. It includes PAN, amount, name, and so on.
- The details of the TDS deduction will appear in the employee's Form 26AS upon the filing of the TDS return. Further, you can check Form 26AS for the relevant financial year to know the deducted and deposited tax by your employer.
- Every financial year, your employer will also send you a TDS certificate in Form 16. Moreover, the salary income, allowances, deductions, investments, and TDS deduction are all detailed on Form 16. On or before the 31st of May of the next fiscal year, The employer will provide Form 16 on or before the 31st of May, the following financial year.
- You must use Forms 26AS and Form 16 to state salary income and TDS deductions when filing your income tax return.
What is Form 16 and its Parts?
Form 16 is the certificate issued by the government under Section 203 of the Income Tax Act. Furthermore, TDS from income is also shown on the certificate under the heading ‘salary.’
Moreover, after deducting TDS from employee salaries, you must fill out and generate this form. Similarly, it is a complete report of the amount paid to employees as well as information on the same.
Form 16 is divided into two sections:
Part A: How TDS is calculated on salary is described in this section. You'll find information like the employee's name, address, TDS, PAN, and TAN (Tax Deduction Account Number) number.
Part B: It is a supplement to Part A that is provided by the employer. Here you'll find information on employees’ salaries breakdown, including allowances, deductions, and reliefs.
TDS on Salary from More than one Employer
If you work for two or more employers at the same time, then you can give information to any of them using Form 12B. This information includes your salary and TDS. Furthermore, once your employer has all of your information, he or she will be responsible for calculating your gross wage and deducting TDS.
Moreover, if you later join a different company, you can provide your previous employer with information from Form 12B. This employer will take into account your previous salary and deduct TDS for the remaining months of the financial year.
If you choose not to disclose information about additional sources of income, each employer will take TDS only from the salary he pays you.
If you do not provide the new or existing employer with the information of your previous employer's salary. Then, you may be liable to tax and interest.
Moreover, when you don't give complete financial information, your employer will deduct taxes assuming that you only work for that company.
However, by permitting you to use the standard exemption limit, your prior and new employers will deduct taxes. Consequently, you will have lesser income and lower TDS deduction as both will demonstrate your slab benefit.
How You Can Save TDS on Salary?
It is crucial to plan and strategize your taxes to save TDS on salary. Also, you need to plan during the beginning of the financial year. Further, make sure to provide all relevant information and details to your employer. It includes payroll income details, exemptions, deductions, supporting documents, and so on.
Structure of Salary
Exemption Claiming Against Allowances
Deduction Against Contributors and Taxes
Tax Rebate and Relief
You can receive a tax credit of up to Rs 12,500 if your total taxable income is less than Rs 5,00,000. After deducting all deductions, exemptions, and allowances, the total taxable income is computed.
You can seek tax relief under section 89 if you received any salary arrears throughout the fiscal year.
Frequently Asked Questions (FAQs)
We have covered some common FAQs that will help you to understand TDS on payslip properly:
1. When payment is received in a foreign currency, how do you compute TDS?
If your salary is paid in a foreign currency, you must first convert it to INR before deducting TDS. On the day of TDS deduction, you must take into account the State Bank of India's telegraphic transfer buying rate.
2. A TDS certificate has yet to arrive. Is it possible to claim TDS on my ITR?
Yes, even if you haven't obtained the TDS certificate (Form 16), you can claim TDS in your ITR. Fill out the ITR with your paystub and Form 26AS for TDS.
3. Is it mandatory to deduct TDS from my salary on a monthly basis?
Yes, deducting TDS at the average tax rate is required every month. TDS is not applicable if the employee's income is less than the basic exemption amount.
4. Is the Family Pension taxable as a salary?
No, income from a family pension is not taxable as salary income. Family pensions, on the other hand, are taxable under the heading Income From Other Sources.
5. My employer pays for things like energy, gas, and groceries. Is this a taxed item?
Yes, these reimbursements are perquisites and therefore taxed as salary income. The valuation of such perquisites must be done in accordance with the Income Tax Act's requirements.
6. What happens if TDS is not deducted from salary?
If TDS is not deducted from your salary, you will have to pay tax on your earnings. If a taxpayer's total tax in a financial year exceeds Rs 10,000, he or she must pay an advance tax.
As a result, if the total tax exceeds Rs 10,000, you may be required to pay an advance tax. Interest and penalties are now charged if you pay late or don't pay at all in advance. As a result, you must make sure that your employer deducts TDS or that you pay tax on a regular basis.
7. Threshold Limit?
Unless the estimated salary exceeds the maximum amount not payable to tax, no tax must be deducted at the source. There will be no TDS under Section 192 of the employee's tax liability (after taking the rebate under Section 87A) is zero.
8. Is pension income taxable in the same way as salary income is?
Yes, pension income is subject to taxation under the heading ‘Income Under the Head Salaries.’ On the other hand, Pension income from United Nations organizations is tax-free.
How Can Deskera Help You?
Deskera People helps digitize and automate HR processes like hiring, payroll, leave, attendance, expenses, and more.
Simplify payroll management and generate payslips in minutes for your employees.
In addition to a powerful HRMS, Deskera offers integrated Accounting, CRM & HR Software for driving business growth.
Do not forget to check out our articles on running payroll for India and best practices in HR.
We have summarised crucial points for your reference. Check out:
- TDS on salary comes under Section 192 of the Income Tax Act.
- Tax deduction at source on salary is refundable.
- Employers who pay monthly salary income to employees are responsible for the tax deduction on salary.
- Section 192 allowed for deductions to be made at the time of payment rather than at the time of salary accrual.
- On the 7th day of the following month, the employer must deposit TDS to the credit of the Central Government.
- If you work for two or more employers at the same time, then you can give information to any of them using Form 12B
- You can seek tax relief under section 89 if you received any salary arrears throughout the fiscal year