TDS On Salary

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TDS on salary is the tax deduction that is made by the employer at source on the employee’s salaried income and it is an income means by which the government augments its revenue inflow. Along with the mandatory nature of the TDS system comes some deductions that the employee can avail to reduce his or her tax liability such as using provisions under Section 80C, 80D of the Income Tax Act. 

What is TDS on salary?

The amount that the employer deducts on the salary that is payable to the employee in lieu of tax is termed as TDS. This will be based on the current income tax slab that the employee falls in. 

According to Section 192, there must be a relationship of employer-employee for making the TDS deduction on salary. Also, the following employers are liable to make TDS on salary deduction namely, Individuals, Companies, HUFs, Trusts, Partnership firms and Co-operative societies

How can you calculate your TDS?

TDS is calculated by reducing the amount of exemption from the total annual salaried income of the employee. The amount will be so reduced only after obtaining documents to prove the exemption claimed. TDS is deducted on a monthly basis – a failure to deduct the same will result in fines and penalties for the employer. One can use an income tax calculator that is available online to estimate and calculate the TDS amount that is to be paid.

What is TDS calculated on?

The TDS is calculated on the income of the employee that is to be paid. Form 16 and Form 16A, as issued by the employer, lays down the details regarding the calculation of TDS and the deductions other than that on salary. 

TDS deductions based on Section 80C and 80D

Section 80C provides for a host of deductions all amounting to a maximum limit of Rs. 1,50,000. The tax saving instruments that are available under this section are – 

  • Tax saving fixed deposits
  • PPF – Public Provident Fund
  • EPF – Employee Provident Fund
  • NPS - National Pension Scheme
  • NSC – National Savings Certificate
  • Insurance - term, ULIP, Life Insurance

Section 80D allows the taxpayer an upper limit of INR 25,000 per annum for claiming deductions. This is for the premium that the taxpayer has to pay toward the medical insurance of oneself, his or her spouse and dependent children. This benefit can be availed only if the payment for all transactions concerned are made through debit or credit cards or cheques. 

When is TDS deducted under section 192?

Section 192 states that TDS will be deducted at the time of actual payment of the salary and not at the time of accrual of the salary. This TDS will be deducted even if the employer pays salary in advance to you or receive arrears. 

The table below shows the basic exemption limit as per the age that does not require TDS to be deducted: 

Age

Minimum income (in INR)

Resident in India below 60 years

2.5 lakh

Senior Citizens between 60 years and below 80 years

3 lakh

Super Senior Citizens above 80 years

5 lakh

Rate of Tax Deduction

Section 192 does not specify a TDS rate – it will be decided as per the tax slab. The salary of the employee is calculated taking into consideration deductions and then tax rate is calculated after taking into consideration all the deductions that are applicable. In the absence of PAN, TDS will be deducted at the rate of 20% (which excludes education and higher education cess).

What happens if you get a salary from more than one employer?

In circumstances that you are working under two employers simultaneously, you must provide the details about your salary and TDS in Form 12B to any one of the employers. 

Standard deduction for salaried individuals

This is the amount that a salaried employee is allowed to claim as an exemption reducing the tax outflow of the individual.

Deductions under Section 89

Section 89 states that the tax deducted in respect of salary paid to employees of the government, companies, co-operative societies, local authorities, universities, association or bodies, etc. should be adjusted for marginal relief. 

Marginal relief is that which is provided in lieu of the salary or arrears of salary being subject to a higher rate of tax due to change in the slab rates. To claim this, Form 10E must be filled and duly submitted to the income tax department.

Conclusion 

TDS is an inescapable payment that one has to make once his or her salary exceeds the exemption limit. But the quantum of what is paid can be altered by making smart investment choices. Learn about these in order to save significant amounts of your hard-earned income.

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