Tax deducted at source (TDS) is the amount deducted at the source of the income. TDS on salary is deducted by the employers on your taxable earnings.
Moreover, TDS on salary ensures the government collects the income tax from the source itself.
What is section 192 of the Income Tax Act?
Section 192 of the Income Tax Act, 1961 relates to TDS on salary earnings. Your employer deducts the applicable TDS from your salary.
The company is responsible to deduct the accurate TDS based on your taxable income and tax rate for the relevant financial year. Your employer provides Form 16, which shows the TDS deducted after the end of the financial year.
Who is liable to deduct TDS under section 192?
As per the provisions of Sec 192 of the Income Tax Act, 1961, employers must deduct the applicable TDS.
Employers include individuals, local authorities, Hindu Undivided Families (HUFs), Association of Persons (AOPs) or Body of Individuals (BOIs), partnership firms, co-operative societies, trusts, companies (public and private), and every artificial judicial person.
The presence of an employer-employee relationship is mandatory as per the provisions of this section.
However, the employer status and the number of employees do not matter while calculating and deducting the applicable TDS.
When should TDS be deducted under section 192?
Employers must deduct the TDS and deposit it into the government account. As per the provisions of the Income Tax Act, 1961, employers must deduct the TDS when the salary is paid and not when it accrues.
Moreover, TDS is deducted if your employer pays an advance salary or if you receive past arrears. Further, the employer must deduct TDS on salary even if the employee does not provide their Permanent Account Number (PAN) details and the income from salary exceeds the basic exemption limit.
If your estimated salary income is less than the basic exemption limit, the employer will not deduct TDS.
The following are the exemption limits when TDS is not applicable.
- Indian residents who are less than 60 years: INR 2.50 lakhs
- Senior citizens between 60 and 80 years: INR 3 lakhs
- Super senior citizens who are over 80 years old: INR 5 lakhs
What is the rate of tax deduction under section 192?
As per the provisions of section 192, TDS is deducted as per your income tax slab and the applicable rates relevant to the financial year.
The employer calculates the taxable income after considering the various exemptions and deductions available as per the various sections of the Income Tax Act, 1961. The TDS is then deducted as per the income tax slab rate.
Your employer calculates the estimated tax at the start of the financial year. The TDS is then determined by dividing the approximate tax liability for the year by 12 (based on the assumption that you will continue working in the company for the entire duration during the financial year).
Moreover, if you do not provide your PAN details, your employer will deduct TDS at the rate of 20%.
Any deficit or excess due to earlier deductions can be adjusted by enhancing or reducing the subsequent deductions during the remaining period of the financial year.
If you have paid any advance tax, it can be also adjusted against the TDS.
Furthermore, you must inform your employer at the beginning of the financial year if you will continue with the old tax regime or opt for the new tax regime.
If you select the latter, it ensures your employer calculates and deducts the accurate TDS as per the new regime.
What is section 192A and why is TDS important?
Section 192A of the Income Tax Act, 1961 covers TDS on withdrawals made from provident funds. If the PAN card is submitted, TDS is at 10%; however, if you submit Form 15G or Form 15H, TDS is not deducted.
Employers calculate the estimated tax liability at the start of the financial year based on your salary and other factors. The TDS is then deducted each month from your salary and deposited in the government account.
This helps the government collect the tax from the source directly and reduces the chance of any missed payments.
TDS is deducted from your salary every month when it is paid. This helps in budgeting since you know the exact amount you will receive in hand, which enables you to plan your finances well.
Additionally, a proportionate amount is deducted each month, thus, you do not have to pay a huge lump sum at the end of the financial year. Therefore, your burden is reduced and regular deductions ensure you do not face any liquidity crunch at the end of the year.
How to calculate TDS on salary?
To calculate TDS on salary, the following points need to be considered.
- If you provide details from other earnings like rental income, your employer will include it in the TDS calculation.
- If you submit Form 12BB, interest on a home loan of up to INR 2 lakhs paid during the year is deducted from your salary.
- If you invest in any tax-saving products, you must provide proof of such investments, which reduces your taxable income and the applicable TDS.
Here is an example for understanding the calculation. Assume that your annual salary is INR 12 lakhs. The TDS estimation is as follows:
However, if you opt for the new tax regime, the tax liability is INR 119,800 and the monthly TDS will be INR 9,983.
How is TDS deducted in the case of two or more employers?
Job change during the financial year
You may change your job during the financial year, which means you will earn a salary from two employers. In this case, you must submit Form 12B to your new employer to ensure they deduct the appropriate TDS.
The new company considers the TDS deducted by your previous employer to determine the amount for the remaining period during the year.
Employed with two or more companies simultaneously
If you work with more than one company simultaneously during the financial year, you must submit Form 12B to any one employer.
And one of the companies must then deduct the applicable TDS payable on the total salaries received from all employers.
The standard deduction for salaried employees in income tax
The standard deduction available to salaried individuals has been increased to INR 50,000 per year, which reduces their taxable income.
However, the higher standard deduction replaces the medical reimbursement and transport allowance benefits that were previously available.
TDS calculation in case salary is payable in foreign currency
The foreign currency salary is converted into Indian Rupees. The conversion is calculated based on the foreign exchange rate as on the last day of the preceding month when salary is due or is paid in advance, or arrears.
For example, if the salary is paid in January 2022, the exchange rate as of 31st December 2021 is used.
Once the foreign salary is converted to Indian Rupees, the standard procedure to determine the TDS is followed.
What is the time limit to deposit tax under section 192?
Employers must deposit the TDS with the government within a specified time limit, which is as follows:
- Amount deducted between April and February of the financial year: 7th of the subsequent month
- Amount deducted for March: on or before 30th April
Difference between section 194A and section 192
Section 194A relates to the provisions of TDS on interest other than that on securities. TDS under this section has to be deducted if interest is paid to a resident.
These provisions do not apply to interest paid to non-residents, which is governed by section 195.
On the other hand, section 192 relates to the TDS deducted by employers on the salary paid to the employees at the time of payment. TDS is deducted even if the salary is paid in advance or as arrears.
Frequently Asked Questions (FAQs)
What is section 192?
Employers deduct TDS on salary paid to employees as per the provisions of this section of the Income Tax Act, 1961.
Is TDS deducted every month?
According to the rules, TDS is deducted when salary is paid. Therefore, it is deducted every month if your salary income exceeds the basic exemption limit.
How many types of TDS certificates are there?
TDS certificates are of two types, which include Form 16 and Form 16A. The former is issued by the employers and reflects the TDS deductions made during the year. The latter shows TDS deductions on income other than salary.
How is TDS on salary determined?
There is no specific rate at which TDS is calculated. The tax liability is determined as per the applicable income tax slab rate for the relevant financial year.
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