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.
What is TDS on Salary?
TDS on salary falls under the purview of Section 192 TDS. Under this tax provision, employers are entitled to deduct tax at source on the salary amount payable to an employee. It is because the salary received from the employer is categorised as income, and the same attracts a TDS based on the average prevailing rates of tax.
The ITA makes it mandatory for employers to deduct TDS on salary if they pay a salaried income to their employees. However, such a deduction can only be carried out if the salaried income is more than the minimum exemption limit.
Usually, TDS on the salary section is refundable. However, such a refund is only possible if the amount of tax deducted is more than an employee’s tax liability. Also, at times, the investment detail declared at a fiscal year’s beginning is not the same as the investments that were made at its end. Under such a situation, the TDS amount on salary will be refunded.
Who is required to deduct TDS u/s 192 of the Income Tax Act?
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. Hence, no TDS is required to be deducted if his salary does not exceed Rs. 3,00,000
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
Calculation of Taxable Income of the Employee
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.
Rate of TDS Deduction
Section 192 does not specify a TDS rate. TDS will be deducted as per the income tax slab rates applicable to the taxpayer for the relevant financial year for which the salary is paid.
After the introduction of the new tax regime under section 115BAC, employees will be provided with an option to choose the tax regime, old or new tax regime, at the beginning of the financial year accordingly, the income tax shall be calculated on the total income after consideration of applicable exemptions, deductions etc.,
If the employee fails to choose the tax regime, the default tax regime shall be applied, and taxes shall be calculated. For FY 2023-24 and onwards, the new tax regime is the default tax regime.
The tax calculation is usually done by the employer at the beginning of the financial year. The TDS is to be deducted by dividing the estimated tax liability of the employee for the financial year by the number of months of his employment under the particular employer.
The employer adjusts any excess or deficit arising out of any earlier deduction by increasing or decreasing the number of subsequent deductions during the same financial year.
If the employee has made any payment as an advance tax, then the same can be adjusted for the calculation of TDS. The employee needs to intimate the same to the employer.
Salary from More than One Employer
If you are engaged with two or more employers simultaneously, you can provide details about your salary and TDS in Form 12B to any one of the employers. Once the employer receives all kinds of information from you, he/she will be responsible for computing your gross salary to deduct TDS.
Subsequently, if you resign and join a different employer, you can provide details of your previous employment in Form 12B to your new employer. This employer will consider your previous salary and TDS will be deducted for the remaining months of the financial year.
If you choose not to provide details of income of other employment, each employer will deduct TDS only from the salary paid by him respectively.
FAQs
When is TDS on salary deducted under section 192 of the Income Tax Act?
An employer deducts the TDS when the taxable income of an employee exceeds the basic exemption limit.
Can an individual claim House Rent Allowance (HRA) as a deduction when computing TDS on salary?
Yes, HRA can be claimed, but employees would have to declare the amount paid as rent.
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