Section 192 deals with the TDS on salary. It mandates every employer to deduct TDS on salary payments in case the salary of the employee exceeds the basic exemption limit.
Tax is one of the main reasons amongst others. Employers deduct tax from your salary before paying it in your account and deposits it with the government on behalf of the employee. This concept of deducting taxes before making the payment is known as TDS: Tax Deduction at Source.
TDS (Tax Deduction at Source) on Salary is the amount deducted from an employee’s income at the source by an authorized deductor and deposited to the Income tax department. Section 192 deals with TDS on salary. It outlines guidelines for employers to deduct the TDS from the salary of an employee before an actual payment. Calculating TDS under Section 192 involves considering your gross salary, applicable TDS deduction on salary and exemptions, and arriving at an estimated tax amount.
What is TDS in Salary?
TDS on salary essentially means that a portion of your income tax is deducted by your employer when they pay your salary. This amount is then deposited with the government on your behalf. Before the deduction of TDS, the employer must first obtain TAN Registration. A TAN number, or Tax Deduction and Collection Account Number, is a 10-digit alphanumeric number used by the Income Tax Department to track all TDS deduction on salary and remittances.
Who is required to deduct TDS u/s 192 of the Income Tax Act?
Any employer who pays salary to an employee(resident or non-resident) is required to deduct TDS every month under section 192
Employer here means:
- Individual
- HUF
- Firm
- Company
- Trusts
- AOP, BOI
- Local Authority
- Every Artificial judicial person
All these employers are required to deduct TDS every month and deposit it with the government within a specific time period.
The employer’s status such as HUF, firm or company is irrelevant for the deduction of tax at source under this section. Only employer-employee relationship matters. According to section 192 of the Income Tax Act, there must be an employer-employee relationship between the dedcutor and deductee for the deduction of tax at source. Moreover, the number of employees employed by the employer also does not matter for deducting TDS.
When is TDS on salary deducted u/s 192?
TDS is required to be deducted by the employer at the time of payment of salary, and the salary income is taxable (i.e., Gross Total Income fewer Deductions under Chapter VIA) of an employee exceeds the basic exemption limit, which is
- Rs. 2,50,000/- in case age is below 60 years
- Rs. 3,00,000/- in case age is 60 years or more but below 80 years
- Rs. 5,00,000/- in case age is 80 or above
The basic exemption limit under the new regime as per Union Budget 2023 is Rs. 3,00,000 for all individuals.
In the case of advance salary and arrears of salary, TDS is required to be deducted by the employer at the time of payment.
TDS on salary is required to be deducted even if the employee does not have PAN if the salary exceeds the basic exemption limit.
How to Calculate TDS on Salary Under Section 192
Step 1: At first, the employer estimates employee’s salary for the relevant financial year. This should include basic pay, dearness allowance, perquisites granted by the employer, other allowances granted by the employer like HRA, LTA, meal coupons, etc., EPF contributions, bonus, commissions, gratuity, salary from the previous employer, if any, etc.
Step 2: In the next step, the employer calculates exemptions under Section 10 of the Income Tax Act. The exemptions can be applicable on allowances like HRA, travel expenses, uniform expenses, children’s education allowances, etc. Also, reduce the amount of professional tax paid, entertainment allowance and standard deduction of Rs 50,000.
Step 3: The employer reduces such exemption from the gross monthly income and the net amount will be treated as the taxable salary income.
Step 4: If the employee has provided the information about other incomes such as rental income from house property or bank deposits, etc. In that case, such amounts should be added to the net taxable salary. Further, the interest paid on housing loans is deducted from the house property income, but if there is no income from house property, there will be a negative figure under the head ‘income from house property’. After adding or reducing the said amounts, the calculated figure will be the employee’s gross total income.
Step 5: Now, the employer reduces the investments for the year, which fall under Chapter VI-A of the Income Tax Act declared by the employees as per the investment declaration submitted. The declaration may include the amounts of investments such as PPF, employee’s provident fund, ELSS mutual funds, NSC and Sukanya Samridhi account. It may also include expenditures such as home loan repayment, life insurance premiums, NSC Sukanya Samridhi account, etc. Similarly, the employer allows a deduction under various other sections such as Section 80D, 80G, etc.
How to calculate tax deductions under section 192
- Income other than salary, like rent income, etc., shall also be considered by the employer for calculation of TDS on salary if details of such income are submitted by the employee.
- Interest on home loan (if any) will be set off from salary income to arrive at estimated income for TDS calculation if the evidence is given in Form 12BB by the employee.
- It also happens that many employees make investments to avail of tax benefits, i.e., to reduce their tax liability. But, as the employer does not know about such investment, the TDS amount increases than the actual tax liability. In such cases, you can declare information about all your tax-saving investments to the employer using Form 12BB. When an employer sees this, he/she will consider these investments and calculate your TDS amount accordingly.
How is TDS deducted in case of multiple employers?
There may be two situations:
- Change of job during the year
- Engaged with two or more employers simultaneously
Change of job during the year
There may be a situation where there is more than one employer in one particular financial year. If the employee resigns and joins another employer during the FY, then the details of his previous employment are required to be given in Form 12B to his new employer to deduct TDS properly. Accordingly, the next employer will consider his previous salary and TDS deducted while calculating TDS for the remaining months of the financial year.
Engaged with two or more employers simultaneously
Similarly, when an employee is engaged with more than one employer simultaneously, he should provide details about his salary and TDS in Form 12B to any one of the employers. And one of the employers is required to deduct TDS on aggregate salary.
Example: A is employed simultaneously by A Ltd and B Ltd on a part-time basis. Salary income from A Ltd. is Rs. 55,000 per month, and Rs. 50,000 per month from B Ltd. A may select any two companies for a TDS deduction on aggregate salary.
Let’s assume A selected B Ltd for TDS calculation on aggregate salary income
| Particulars (A Ltd) | Amount (Rs.) |
|---|---|
| Taxable salary from A Ltd after standard deduction (55,000*12 – 50,000) | 6,10,000 |
| TDS deducted by A Ltd | 35,880 |
| Particulars (B Ltd) | Amount (Rs.) |
|---|---|
| Aggregate taxable salary after standard deduction (55,000*12 + 50,000*12) – 50,000 | 12,10,000 |
| Tax on total income | 1,82,520 |
| Less : TDS deducted by A Ltd | 35,880 |
| TDS to be deducted by B Ltd | 1,46,640 |
Section 192(2B) and Rule 26
If an employee has any other income (except a loss) in the same financial year, which is taxable under a different head, he can give the details of such income and tax deducted from it to his employer. The employer will then consider them while deducting tax from his salary. However, the tax deducted at source should not be lower than what it would have been without considering such other income and tax deducted on it.
Adjustment of loss from house property (Rule 26B):
The employee cannot declare the loss under any other head, but he can declare the loss from house property. If he gives the statement of such loss to his employer, the tax deducted at source can be lower than what it would have been without considering such loss.
TDS Statements
The employer is required to provide Form 16 to you containing the details of salary such as the amount paid and tax deducted. This can also be accompanied by Form 12BA, to show particulars of perquisites, and profits in lieu of salary.
Time Limit to Deposit the Tax Under Section 192
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 that is other than the government office:
a. TDS is deducted in March – On or before 30 April
b. TDS is deducted in any month other than March– Within seven days of next month
Consequences of Non-Compliance under Section 192?
- Levy of Interest: If the employer does not deduct the TDS on salary or deduct the TDS but does not deposit it to the government, then interest is required to be paid on such amount.
- Disallowance of expenses: Also, the employer is only eligible to claim the deduction of salary expense from PGBP income if TDS is deducted on time.
The amount of disallowed salary expenses shall be- 30% of the salary payment goes to the resident.
- 100% of Salary payment to Non-Resident.
FAQs
What is section 192 of the income tax act?
Section 192 of the Income Tax Act deals with the deduction of TDS on salary income by the employer. This section only covers TDS on salary income.
What percentage of TDS is deducted from salary?
There is no fixed rate of TDS to be deducted from salary. TDS on salary is deducted at the average income tax rate for that financial year. The average rate of income tax has to be calculated based on income tax slab rates in force for that year.