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All about TDS on salary

[ecis2016.org] This is your guide to TDS on salary under Section 192 of Income Tax Act

A person authorised under the Income Tax Act (ITA) of 1961 is required to deduct tax at the source for payments above a certain threshold. The TDS rates for various categories vary between 1% and 30%. TDS must be deducted when, for example, an employer pays a salary to an employee whose income is under the taxable threshold. 

The deductor is the person who makes the payment and deducts tax, whereas the deductee is the person who receives the payment. The deductor must pay the amount deducted to the government within the specified time frame to avoid penalties. If the sum is taxable in the hands of the recipient, tax is deducted. If the sum is taxable in the hands of the recipient, a tax deduction is taken out of it. Form 16 is given to employees by their employers, and it is on this form that the TDS is deducted under section 192. 

On what basis is TDS calculated?

In India, salaries are often computed using the Cost To Company (CTC) formula, which includes salary and perks. Perquisites, privileges, and perks include employer-provided facilities and advantages such as travel expenditures, fuel subsidies, accommodation charges, etc.

CTC Includes: 

  • Basic salary
  • Travel allowance
  • House rent allowance
  • Medical allowance
  • Dearness allowance
  • Special allowances
  • Other allowances

The following items qualify for tax exemptions for an employee:

House rent allowance

You can claim an exemption for HRA if you pay rent for your home.

Transportation or travel allowance

You are eligible for a tax deduction for the amount spent on travel, commuting, etc.

Medical allowance

You may claim medical allowance by submitting receipts.

Who deducts tax under Section 192?

Under Section 192, the below-mentioned entities can deduct TDS:

  • Public and private enterprises
  • Individual taxpayers
  • Trusts
  • Hindu Undivided Families( HUF)
  • Co-operative societies
  • Partnership companies

 

For Section 192 to be relevant, there must be a connection between the taxpayer and the aforementioned companies that is analogous to that of an employer and employee. Regarding the calculation of the TDS, neither the number of staff nor the amount of salary is of any consequence.

Time of deduction

Under the requirements of section 192, tax is required to be deducted at the time of actual payment of salary. If the employee is paid their pay in arrears or in advance, then the tax withholding obligation must be met.

If the predicted pay is lower than the amount that is exempt from taxation, then there is no need to deduct any portion of the income. Even if the employee doesn’t have a PAN, this regulation still applies to them. 

Following is the threshold limit for the current fiscal year, i.e., FY 2022-23:

  • Individual taxpayers and HUFs under age 60: Rs 2.5 Lakhs
  • Senior persons between the ages of 60 and 79: Rs  3 lakhs
  • Super-seniors aged 80 years and above: Rs 5 lakhs

TDS Payment due dates

The deadlines for paying the tax deducted at source and submitting the TDS return for the financial year 2022-23 are shown in the table below. 

Quarter  Quarter Period  TDS Return Due Date 
1st Quarter  1st April to 30th June 31st July 2022
2nd Quarter  1st July to 30th September 31st October 2022
3rd Quarter 1st October to 31st December 31st January 2023
4th Quarter  1st January to 31st March 31st May 2023

New income tax bracket for all individuals for FY 2021-22 (AY 2022-23)

Income Tax Bracket  Tax Rate 
Up to Rs 2.5 lakh Nil
Rs 2.5 lakh to Rs 5 lakh 5% 
Rs 5 lakh to Rs 7.5 lakh 10%
Rs 7.5 lakh to Rs 10 lakh 15%
Rs 10 lakh to Rs 12.5 lakh 20%
Rs 12.5 lakh to Rs 15 lakh 25%
Rs 15 lakh and above 30%

Old income tax bracket for FY 2021-22

Income Tax Bracket  Tax Rate 
Up to Rs 2.5 lakh Nil
Rs 2.5 lakh to Rs 5 lakh 5% of total income exceeding 2.5 lakh
Rs 5 lakh to Rs 10 lakh 12,500 + 20% of total income exceeding 5 Lakh
Above 10 lakh 1,12,500 + 30% of total income exceeding 10 Lakh

Income tax bracket for senior citizens (60 Years Old Or More but Less than 80 Years Old) for FY 2021-22

Income Tax Bracket  Tax Rate 
Income up to Rs 3,00,000 Nil
Income from Rs 3,00,000 to Rs 5,00,000 5 %
Income from Rs 5,00,000 to 10,00,000 20%
Income more than Rs 10,00,000 30%

Calculating tax deduction under section 192

For the purpose of calculating TDS on salary, the following factors must be taken into account:

 

  • When calculating TDS on salary, the employer must additionally take into account non-salary income such as rental income, etc., if the employee has provided data about such income.
  • The interest on a house loan (if any) up to Rs. 2,00,000/- shall be deducted from the employee’s pay income to arrive at an estimated income for the purpose of calculating TDS provided the employee provides proof in Form 12BB.
  • Many employees also make investments to get tax advantages, i.e., to lower their tax obligation. However, since the employer is unaware of such investments, the TDS amount exceeds the real tax due. In such circumstances, you may advise your employer about all of your tax-saving investments using Form 12BB. 

Here is an illustration to help you comprehend the calculation (according to the new regime). Assume that your yearly income is Rs 15 lakh. The estimated TDS is as follows:

Particulars Amount (in Rs)
Gross annual salary 15,00,000
Less: Standard deduction   50,000
Gross total income 14,50,000
Less: Chapter VI A deductions (Section 80C)   2,50,000
Total taxable income 12,00,000
Tax liability

Upto Rs 2.5 lakh- Nil

Rs 2.5 lakh to Rs 5 lakh- 5% – Rs 12,500

Rs 5 lakh to Rs 7.5 lakh- 10%- Rs 25,000

Rs 7.5 lakh to Rs 10 lakh- 15%- Rs 37,500

Rs 10 lakh to Rs 12.5 lakh- 20%- Rs 50,000

1,27,500
Cess @ 4% 5,100
Total Tax 1,32,600
TDS per month (1,32,600/12)   11,050

TDS in the event of more than one employer 

If you change employment more than once a year, you might end up earning an income from two or more employers in the same fiscal year. The TDS would be calculated and deducted by each employer based on your income and investment declaration in this situation.

But if you provide your new employer Form 12B, they’ll take into account the TDS that was taken by your old employer when calculating their own TDS. In this way, any misunderstanding about TDS rates would be eliminated.

How do you compute TDS when a salary is paid in foreign currency?

In this situation, the payment will first be converted to Indian rupees. The exchange rate will be determined on the last day of the month before the month in which the payment is due, paid in advance, or paid in arrears. Calculate TDS according to the regular requirements for TDS deduction after conversion. For instance, if a salary is paid in foreign currency during October, the exchange rate applicable on September 30th must be used.

Under section 192, when should the TDS be deposited?

Following the deduction of TDS from your income, the employer is obligated to provide the same information to the department of income tax. In addition, there are certain dates by which the TDS must be deposited. These schedules are broken out as follows:

  • TDS must be deposited the same day if it has been deducted by a government employer.
  • If the payment is received and the TDS is deducted in March, then the return must be submitted by April 30th at the latest.
  • The amount of the Tax Deducted at Source is required to be deposited with the government by the 7th of the following month. For illustration purposes, the TDS that was made during July is due to the government by the 7th of August.

If you are a salaried employee, you should be aware of what tax deductions and contributions (TDS) on pay are, how they are deducted, and when they should be filed to the income tax department.

Why should you file the correct tax return?

When it comes time to file income tax returns, you can choose from a number of ITR forms. You need to choose the appropriate ITR form based on the amount of money you make and the sources you get that money from. It is necessary to submit your taxes using the appropriate ITR to prevent any potential delays in the tax filing process. 

In addition, if you make errors in choosing the appropriate form, you may be subject to significant fines in the form of increased tax obligations. You should make certain that you submit an accurate tax return on your income at the end of each fiscal year.

Penalties for TDS not deducted on salary 

Following the provisions of section 234E, if a person fails to submit the TDS/TCS return on or before the set due date, the individual is subject to paying a charge of Rs. 200 for every day that the failure persists. It is required that the total amount of late fines not exceed the whole amount of TDS. If the terms of TDS are not followed, late fines, penalties, and interest will be charged.

Implications of not deducting TDS on salary

If the employer has not deducted TDS, the associated expenditure cannot be subtracted for calculating company income.

Late deduction TDS 

If tax withholding was not deducted at the time when payment or accrual was made, then interest will be charged at a rate of 1% each month or portion thereof. It indicates that interest will be charged for the whole month even if the payment is late by one day.

Late payment of TDS

For every month or part of a month that the tax is not paid on time, an interest charge of 1.5 % per cent will be imposed.

Particulars  Minimum Penalty  Maximum Penalty 
Delayed filing of Form 24Q (Penalty under Section 234E) Rs 200 per day until TDS return is filed Penalty amount should not exceed tax deducted 
Non- filing of Form 24Q (Penalty under Section 271H) Rs 10,000 Rs 1,00,000

No penalty will be imposed if the following conditions are met:

  • The company pays TDS to the government.
  • Late filing costs and interest are paid.
  • Return is submitted within one year of the due date.

Tax deductions under Section 89

There are several deductions you can take from your overall income to lower your taxable income and your tax bill.

  • The tax that is deducted from the salaries paid to those employed by the government, corporations, co-operative societies, local authorities, universities, associations or organisations, etc., shall be adjusted for marginal relief following Section 89.
  • Following subsection 89 of the Income Tax Act, if a person’s pay or salary arrears are subject to a higher tax rate as a direct result of a change in the tax slab rates, a marginal relief could be available.
  • You need to submit Form 10E on the government income tax portal for taxes to qualify for this reduction. You will not be eligible for relief under Section 89 unless you fill out and submit this form.

TDS statements

Your employer is obligated to provide you with a copy of Form 16 that contains the specifics of your salary, such as the amount paid and the amount of tax that was withheld. In addition to this, you may also attach a Form 12BA to provide specifics on perks and profits in place of income.

TDS: When return is filed by employer

Form 24Q must be used to submit a TDS salary return by the employer quarterly. 24Q requires the reporting of salary paid to employees and TDS deducted from such payments. Employers can submit TDS returns online.

Form 24Q has two attachments: Annexure I and Annexure-II.

Annexure I must be filed for all 4 quarters of a fiscal year.

Annexure-II is not necessary for the first 3 quarters. Annexure-II must only be presented in the last quarter – January to March. 

TDS must be deducted from salaries following the applicable income tax slab. If the employee submits documentation of their investments, the employer is obligated to take into account all deductions and investments made by the employee.

Annexure I of 24Q

Annexure I highlights the deductee wise break up of TDS against each particular challan.

Information of challans to be mentioned in Annexure I

  • BSR code of the branch
  • Date of deposition of challan
  • Challan serial number
  • Total Amount in Challan
  • TDS amount to be allocated among deductees
  • The interest amount to be allocated among deductees

Information of deductees to be mentioned in Annexure I

  • Employee reference number (if available)
  • PAN of the employee
  • Name of the employee
  • TDS Section Code
  • Date of payment/ credit
  • Amount paid or credited
  • TDS amount
  • Education Cess

Aside from that, if the employer does not deduct TDS or deducts it at a reduced rate, they will have to explain the grounds for the same.

TDS certificate

  • It is the responsibility of the employer to provide a TDS certificate to the employee for any taxes that have been deducted from the pay.
  • After the TDS return has been submitted, the TDS certificate (Form 16) will be created in a predetermined format. You will then be able to retrieve the certificate via the TRACES application. Both Part-A and Part-B can be found on Form 16.
  • The majority of the information that is required to be provided can be found in Part A of Form 16, which includes data on the PAN and TAN of the employer, in addition to other information.
  • Form 16’s Annexure Part B is attached to the main form’s Part A. The employer is responsible for putting together Part B for its staff members. It includes the income tax amount, and the salary breakdown, exemptions, and deductions granted under Chapter VI-A.

Refund from TDS

Tax deducted at source (TDS) is the amount taken out of a payment. There is a difference between the amount of taxes paid and the amount of taxes owed at the conclusion of the fiscal year. If the tax deducted at the source exceeds the actual tax burden, the TDS refund is sent.

How to check TDS refund status?

Verifying the status of a TDS refund can be done in the following ways:

  • An acknowledgement is sent to the email address on file.
  • You can utilise your PAN on https://incometaxindiaefiling.gov.in/
  • You can also contact CPCs to inquire about the application’s progress.

Refund time for the TDS

One is entitled to a refund of any excess tax withholding that was paid. The length of time it takes for you to get your TDS refund amount is determined by whether or not you submitted your income tax return on time or before the deadline. If you have submitted it within the allotted time frame, any excess tax withholding amount will be reimbursed to you between three and six months later. 

Source: https://ecis2016.org/.
Copyright belongs to: ecis2016.org

Debora Berti

Università degli Studi di Firenze, IT

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