If you are employed, your major source of income is your salary. It is a fixed amount of money that you receive on a pre-determined date every month to compensate you for the services you provide.
If your salary falls within a certain income tax slab, then it is taxable under Section 192 of the Income Tax Act, 1961. Your employer will deduct tax before crediting your salary to the bank account. This is referred to as Tax Deducted at Source or TDS.
Wondering what is TDS on salary? To understand this, you need to know how it is computed, when it is deducted, and how you can reduce your tax liability.
What is TDS on salary?
Section 192 requires that your employer credit your salary after deducting TDS. Typically, a TDS deduction on salary takes place on an estimate of your income.
This is also the reason why you are required to provide information about your income, investments, and other deductions either at the beginning of the year or when you join the organization, whichever is earlier.
When is TDS deducted on salary?
TDS on salary is deducted when your salary is paid. It does not happen before or after. It is not applicable when your salary is in accrual.
However, if your employer chooses to pay you an advance on your salary or if they pay you your outstanding salary in one go, then that will be taxed and a TDS deduction on salary will occur.
Moreover, it is important to note that TDS is only applicable on salaries above a certain limit. So, if your annual income falls below the taxable limit, then you do not need to worry about TDS on salary.
What is the rate of TDS under Section 192?
According to Section 192, the TDS rate is not specific. The TDS calculation on salary is based on the income tax slab and rate in the particular financial year during which your salary is credited.
Moreover, TDS deduction on salary occurs only after factoring in tax exemptions, allowances and rebates, and other deductions you are eligible for.
Essentially, the total tax that has to be deducted from your income for a specific financial year is divided by 12 or the number of months remaining in that year.
The subsequent amount is considered as the tax at source to be deducted.
Who is responsible to deduct TDS on salary under Section 192?
Here are a few entities that can deduct TDS. However, as per the TDS Section 192 for salary, there must be an employer-employee relationship between the following entities and the taxpayer.
- Taxpayers who are individuals
- Association of Persons (AOP) or a Body of Individuals (BOI)
- A firm that runs on partnership
- Trusts, both charitable and others
- Companies that are both private and public
- Hindu Undivided Families (HUFs)
- Co-operative societies
- Any other organization going by any name
Read on to find out how your TDS on salary is calculated.
How is TDS on salary calculated?
Your employer will ideally arrive at an estimate of your net taxable income and make a TDs deduction on that. To do so, the employer will deduct allowances and tax exemptions from your gross salary.
If you have any other income, in addition to your salary, and have declared that, then your employer will add that to your taxable salary.
If you have declared any tax-saving investments under Section 80C, 80D, and other sections of the Income Tax Act, 1961, then your employer will deduct those too from your income.
Finally, your employer will deduct TDS on salary depending on the tax slab in which your taxable income falls.
These steps will be much clearer with an example.
Let us say your basic salary is INR 8 lakhs. In addition to this, the following items are included in your salary
- Dearness allowance (DA) – INR 2 lakhs
- House Rent Allowance (HRA) – INR 1 lakh
- Leave Travel Allowance (LTA) – INR 1 lakh
- Bonus – INR 2 lakhs
Your gross salary would be the sum of all these components which is INR 14 lakhs. Now, to calculate the TDS, the following steps are to be followed.
INR 14 lakhs
Less: Tax-exempted HRA (assume the entire amount)
INR 1 lakh
Less: Tax-exempted LTA
INR 1 lakh
Less: Standard deduction
Less: Deductions under Section 80C
Less: Deductions under Section 80D
Net taxable salary
So, we see that the total taxable income is INR 9,50,000. Going by the most recent income tax regime, if your income is up to INR 5 lakhs, you pay 5% of INR 2.50 lakhs, which is INR 12,500.
From INR 5 lakhs to INR 9,50,000, you pay the INR 12,500 + 20% of INR 4.50 lakhs, which is INR 1,02,500.
Next, the TDS rate on salary is calculated by dividing this tax amount by the gross salary, which is (1,02,500/14,00,000) x 100 = 7.28%.
TDS on the salary received from multiple employers
If you work in more than one employment
If you hold more than two jobs and have more than one employer, then you will need to choose one employer to make TDS deductions on your salary.
You will need to submit Form 12B—which contains details of your other TDS and salary from your other employer—to the employer who will deduct TDS.
Then, your new employer will deduct TDS on salary after calculating your total income.
If you have resigned from one employment and moved to another
Similar to what you did in the previous case, you will need to submit Form 12B to your new employer that will deduct TDS based on the total income earned during the financial year, including the amount from your previous employment.
If you do not submit details of your salary
If you fail to provide details of your previous salary to your new employer, then they will deduct TDS assuming you have only been receiving a salary from that particular employer.
Both employers might give you the benefit of basic deductions and you may end up having a lower deduction of TDS because your income might seem smaller.
How to reduce the TDS amount on salary?
You may end up saving a lot by planning your taxes at the beginning of the financial year. Ensure that you have these documents ready. Details of:
- Any other income
Here are two things to consider.
Use your allowances to claim an exemption
In a few cases, your HRA is not a part of your salary and if that is your case too, then claim the rent you pay under Section 80GG of the Income Tax Act, 1961.
Otherwise, you can claim the HRA deduction you receive in your salary.
For travel and medical reimbursement, you may claim a standard deduction of INR 50,000 without submitting any proof.
Another exemption you can claim is against your LTA. You must submit proof of domestic travel and note that the exemption is limited to the actual travel costs, which include the air, bus, or rail fare incurred by you.
For a period of 25 working days every month, you may claim an exemption of INR 2500 (INR 50 every day) for meals.
Claim deductions against taxes and other contributions
Every month, a professional tax of INR 200 is deducted by your employer which you can claim for the financial year.
Employee Provident Fund (EPF) contribution
This might be easy to miss but make sure you also make a claim on the deductions made against your PF contribution.
This deduction can be included under the Section 80C limit of INR 1,50,000.
Under Section 80C of the Income Tax Act, 1961, you can claim up to INR 1,50,000 in deductions against your investments during the financial year. A few investments applicable under Section 80C are as follows:
- Equity Linked Savings Scheme or ELSS
- Sukanya Samriddhi Yojana or SSY
- A tax-saving fixed deposit (FD)
- Public Provident Fund or PPF
- National Savings Certificates or NSCs
- Tuition fees
In addition to Section 80C, you may claim deductions against your medical insurance premium, any charitable contributions, and your home loan interest under Sections 80D, 80G, and 24 of the Income Tax Act, 1961, respectively.
Tax rebates and tax relief
You may claim a tax rebate of up to INR 12,500 if your annual taxable income is under INR 5 lakhs.
You can also claim tax relief under Section 89 of the Income Tax Act, 1961 if you have received any outstanding salary in the financial year.
When to deposit the deducted TDS amount?
Your employer is required to submit your deducted TDS to the Income Tax Department for you and there are a few timelines that they must follow.
- Government: On the same day when TDS is deducted
- If the TDS is deducted in March, then by April 30
- If the TDS is deducted in any other month, then within seven days of the last day of the month within which the TDS was deducted.
List of items on which TDS is deducted
Your Cost to Company or CTC consists of your salary and perquisites. These perks are any benefit that your employer provides. For instance, hotel expenses, fuel subsidies, canteen expenses, and so on.
For each of these expenses, you as an employee can claim deductions from your employer if you submit your bills. In addition, you may claim deductions on HRA, medical allowance, and LTA. Everything else is then eligible for TDS computation.
Frequently Asked Questions (FAQs)
My actual tax liability is INR 1 lakh, but a total of INR 1.50 lakhs has been deducted as TDS by my employer. What do I do?
Any excess TDS is eligible for an income tax refund. You must make sure to file for one with the Income Tax Department.
TDS has already been deducted from my salary. Why do I need to file IT returns then?
TDS computation is always based on an estimate. And if your income is above the threshold limit, you must file your Income Tax Return (ITR). This way, you will pay tax according to your actual liability and anything you paid in excess will be refunded to you.
I just got a bonus of INR 1 lakh. Do I need to worry about TDS?
Yes, TDS is deducted from any income that you earn.
What do I do if I have not received a TDS certificate?
Even if you have not received your TDS certificate or Form 16, you can fill your ITR using your payslips and Form 26AS.
Will my employer still issue Form 16 if they have not deducted TDS?
Probably not. In that case, they might issue a salary certificate to help you file your taxes.
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