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Table of Content
1. How to Calculate TDS on Salary
2. Understanding TDS on Salary
3. Who is Liable to Deduct TDS on Salary?
4. Is TDS on Salary Refundable?
5. How Do I Claim TDS excess deducted?
6. What Happens If TDS on Salary Is Not Deposited?
7. How Can I Save TDS on Salary?
8. What is the TDS rate on salary?
9. How to calculate TDS on salary?
10. When is TDS deducted under section 192?
11. How can I be exempt from TDS payment?
In this policy, the investment risks in the investment portfolio is borne by the policyholder.
If you’ve ever looked at your salary slips, we’re sure you’ve noticed a deduction called TDS. TDS stands for Tax Deducted at Source. Your employer deducts a small portion of your salary and pays tax on your behalf. Over the year, the TDS will amount to the total income tax you owe the government. But, how does your employer calculate the deduction? Let’s find out!
Over the years, your TDS amount would have changed. As you earn more money and fall into different tax brackets, your TDS liability also increases. Your employer will deduct TDS on salary based on your total annual income. Depending on the tax slab you fall under, the TDS amount could be as low as 10% or as high as 30%. You need to provide your employer with proof of your tax-saving investments and other tax-deductible expenses. They will then calculate the TDS amount on your salary after deducting all eligible claims. You can claim deductions for your housing rent allowance, your child’s education, leave travel allowance, tax-deductible investments and more.
We can understand how to calculate TDS better with the help of an example. Mr Kumar is a 35-year-old man. He draws a monthly salary of INR 70,000. So, his annual income works out to INR 8,40,000. Over and above this amount, he earns perquisites worth INR 1,38,600 per year. So, his gross total income is INR 9,78,600. His employer estimates that some investments make Mr Kumar eligible to claim a deduction of INR 1,52,000 per year. Mr Kumar’s total taxable income works out to INR 8,26,600 per year.
Based on this calculation, Mr Kumar’s employer knows that he has to pay INR 77,820 to the Income Tax Department. A health and education cess of 4% gets levied on the amount, totalling INR 80,933. Mr Kumar’s employer must deduct a total of roughly INR 80,900 per year from his salary. So, by breaking up that amount over 12 months, Mr Kumar will receive a monthly salary of INR 70,000, less INR 6,742. Mr Kumar receives INR 63,258 every month.
Employers must deduct the TDS whenever they make a salary payment to their employees. They can deduct TDS only if an employee’s annual income is more than INR 2,50,000. If it is less, they do not have to pay any tax. As per the guidelines under Section 192 of the Income Tax Act, the following types of employers must deduct TDS on salary:
Individual employers
All private and public companies
Hindu Undivided Families
Trusts
Cooperative societies
Partnership firms
Under specific circumstances, yes, your TDS can get refunded. Let’s assume you decided to make a single investment at the beginning of the financial year. You provided your employer with the details of this investment. Before the end of the year, you made another tax-deductible investment. Your employer has deducted TDS based on your single investmentSo, you’re eligible to receive a refund on your TDS based on the excess.
Upon identification of any error, you must check all the details, especially your PAN and the challan details. Depending on the details one needs to change or correct, employer can undertake one or more of the following revisions:
C1 – To revise the name and address of the employer
C2 – To revise challan details including serial number and tender date
C3 – To revise your details
C4 – To revise your salary details
C5 – To update your PAN
C9 – To insert a new challan and underlying deductee
You can file several revised returns to incorporate all the necessary changes.
If the TDS does not get deposited with the government’s IT department, the employee cannot claim tax credits of the TDS while filing their income tax returns. Often, the employee gets stuck between the Income Tax Department and the employer.
If the employer did not deduct or failed to deposit the TDS, they will have to pay a penalty on the amount. If they did not deduct TDS, the company is charged an interest of 1% per month or part thereof from the date when they should have made the deduction to the date they actually make it. If they deduct the TDS but do not deposit it, they are charged interest at a rate of 1.5% per month or part thereof from actual deduction date till payment date
You can save on TDS by making smart tax-saving investments. You can use an online tax calculator to understand how much tax you are liable to pay. To save up to INR 1,50,000 per year on taxes, you can invest your money in a Unit-Linked Insurance Plan (ULIP), PPF, Equity-Linked Savings Schemes and other avenues.
The TDS rate on salary varies across the income level of a salaried employee, based on which he/she falls under different tax slabs. TDS on salary is deducted under Section 192 of the Income Tax Act, 1961 as per the slab rates applicable to each employee. It may range between 5-30%.
You can calculate TDS on salary with the following steps:
Calculate gross monthly income summing up the basic income, allowances and perquisites.
Calculate applicable exemptions like HRA, medical, LTC & similar others as per section 10 of the Income Tax Act, 1961.
Deduct the exemptions from the gross monthly income.
Add up any additional source of income like from house rent received and subtract any loss/expenditure like home loan interests.
Now subtract the total investment amount (subject to Chapter VI-A of ITA) like in life insurance, PPF, ULIP etc. for the year from gross income calculated at step 5.
Deduct the maximum salary-specific exemptions along with professional tax paid, standard deduction of Rs. 50,000/-
Calculate the total tax liability as per the income tax slab applicable to the employee & apportion the same to compute monthly TDS deduction.
In case you resign from your previous job and join a new employer, the previous employment details need to be submitted through Form 12B to the new employer. He/she will take the information into account to calculate your gross income and corresponding TDS.
Understanding TDS on Salary with Example
Total Income |
978600 |
Estimated Deduction (As per Chapter VI-A of ITA) |
152000 |
Taxable Income |
826600 |
Tax amount |
77,820 |
Add: Cess @4% |
3113 |
Total Tax Amount (for a year) |
80933 |
Monthly TDS Deduction |
6742 |
Under section 192 of the Income Tax Act, 1961, TDS is deducted when your employer pays you the salary, whether on time, in advance or arrears. It is not deducted when the salary gets accrued.
Tax is payable only when your estimated salary exceeds the basic exemption limit. This rule applies even to those without a PAN.
The following table specifies the basic exemption limits for different age categories:
Age |
Income threshold for TDS |
Residents of India below 60 |
Rs 2.5 lakh |
Senior citizens between 60-80 |
Rs 3 lakh |
Super Senior citizens above 80 |
Rs 5 lakh |
Yes, TDS gets deducted from your salary every month. According to section 192 of the Income Tax Act, 1961, TDS should be deducted at the point of salary payment to the employee. Hence, as the salary is paid every month, the TDS deduction follows the same format too. In case the employer fails to do that, a penalty and interest is charged to him/her.
TDS deduction is mandatory under section 192 of the Income Tax Act, 1961. Every employer is bound to deduct TDS from the monthly salary of every employee, provided he/she has exceeded the basic exemption limit.
As a salaried employee, you can get exempted from TDS only if your estimated salary is within the basic exemption limit. Else, you can’t escape TDS payment. The rule is applicable even if you don’t have a PAN.
The TDS deduction rules suggest:
TDS payment is mandatory for every employee with an estimated salary above the basic exemption limit, whether or not he has a PAN.
The tax calculation is to be done at the beginning of a financial year under usual circumstances.
TDS needs to be calculated as at the estimated tax liability of the employee for the financial year divided by the number of months of employment under the corresponding employer.
If the employee has no PAN, TDS will be deducted at 20% plus 4% cess.
Any excess or deficit in the previous TDS calculation has to be adjusted by the employer through increasing or decreasing deductions in the same financial year.
In case advance tax payment is made by the employee the same can be adjusted in TDS deduction upon submission of details to the employer.
As per section 192 of the Income Tax Act, 1961, the following are the time limits for depositing the tax to the Central Government.
If TDS is deducted by a non-government employer in March, the deposit should be on or before 30th April of each year.
If TDS is deducted by a non-government employer in any month other than March, the deposit should be within 7 days of the following month.
After deducting TDS from salary, the employer is bound to offer the employee statements containing the breakup of TDS deduction. Hence, every financial year, the employer provides Form 16 to the employee. This form is a statement of salary details, like the amount paid and tax deducted. In addition, Form 12BA can also be provided detailing the perquisites and profits instead of salary.
TDS certificates like Form 16 in the case of salaried employees and Form 16A for non-salaried individuals furnish a summary of the tax deductions for the financial year by employers or deductors. They include details of the income, investments by the employee and corresponding deductions and taxes to facilitate smooth and accurate filing of income tax returns.
Form |
Certifies |
Frequency |
Due date of furnishing the same to the deductee |
Form 16 |
TDS on salary |
Yearly |
31st May |
Form 16A |
TDS on the non-salary payments |
Quarterly |
15 days from the last day of filing ITR TDS Statement |
TDS rate depends on the income level of individuals and corresponding tax slabs. According to the Income Tax Act, 1961, no tax is payable for annual taxable income up to Rs 2.5 lakh. Post that, TDS is 510% for income between Rs 2.5-5 lakh, 20% for Rs 5-10 lakh and 30% if income exceeds Rs 10 lakh.
TDS on salary can be checked online from the tax credit statements by the Income Tax Department. Registered users of the Income Tax Portal can access the tax credit information through online Form26AS, providing their user ID and PAN.
Under the provisions of the Income Tax Act, 1961, an employee can claim TDS on salary, paid or accrued, in the same financial year of TDS deduction.
There are two types of TDS certificates, issued by deductors: a) Form 16 which provides details of salary and corresponding TDS deductions for the year and b) Form 16A listing TDS deductions on incomes other than salary.
Yes, HRA can be claimed as a deduction while calculating TDS on salary. For this, the employee needs to stay in a rented accommodation and declare the rent amount providing receipts and rent agreement as proof.
Investments in EPF, PPF, NSC, ELSS, Tax-saving FD, Transport and House rent allowance and savings under section 80C of the Income Tax Act are allowed for TDS exemption.
Yes, if the payer fails to deduct TDS, he has to pay the penalty and interest for the corresponding period to the government.
Under section 192 of the Income Tax Act, 1961, TDS on salary has to be deducted if the taxable income for the year exceeds the basic exemption limit.
There isn’t any fixed rate for TDS deduction from salary. TDS is deducted as per the average income tax rates corresponding to the tax slab rate applicable to the concerned person’s salary in that financial year.
Yes, submitting the PAN details to the employer is mandatory for TDS deductions. Failing this, TDS will be charged at a flat 20% rate
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#Tax benefits & exemptions are subject to conditions of the Income Tax Act, 1961 and its provisions.
#Tax Laws are subject to change from time to time.
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