Article explains How TDS is deducted on Salary, What is the Rate of TDS, How is TDS deposited to Govt. Account, How to know that TDS has been deducted, When you are required to make Direct Payment of Tax, How salary can be received without deduction of TDS or with Lower TDS, How to deduct TDS if salary is received by two or more Employer, How TDS is deducted if non-monetary benefit(Perquisite) is received, Whether you should give details of Other Income earned by you apart from salary to Employer, How TDS is deducted in case Salary is payable in Foreign Currency, How to deduct TDS in case of relief u/s 89 and Deferment of TDS in case of ESOP of Start-ups. v

1. Introduction

The population of India is 1.25 crores and majority of working population earns income from salary. It would have been huge task for Govt. to regulate each salaried person and collect taxes from them. Therefore concept of TDS was introduced which aimed at collecting tax from sources itself.

2. How TDS is deducted on Salary

Section 192 of Income-tax Act puts an obligation on employer to deduct tax at the time of making payment of salary to employee. The terms of deducting TDS mentioned in Income-tax Law are as follows-

  • Employer-Employee relationship should exist to deduct TDS.
  • TDS should be deducted at the time of making payment and not when salary becomes due.
  • TDS has to be deducted on estimated income of employee.

3. What is the Rate of TDS

  • TDS should be deducted at average rate of tax monthly. For Eg: Mr. Rajesh (40 years) works for Financial Tree Company and receives salary of Rs.1,25,000/- monthly for F.Y.2019-20. Rate at which TDS should be deducted is as follows-
S.No. Particulars Amount (In Rs.)
(a) Salary(Rs.125000*12) 15,00,000
(b) Less: Deduction under Chapter VI-A 1,50,000
(c) Less: Standard deduction 50,000
(d) Taxable Income 13,00,000
(e) Tax due 2,10,600
(f) Rate of TDS(e/a)*100 14.04%
(g) TDS to be deducted monthly (125000*14.04%) 17,550
  • If PAN is not given by employee then employer shall deduct TDS @20%.
  • TDS can be increased or decreased at the time of deducting TDS for the purpose of adjusting any previous deficiency or excess deduction.

4. How is TDS deposited to Govt. Account

  • Deductor has to make payment of TDS deducted within 7 days from end of month in which TDS has been deducted. Suppose salary for month of May is paid on 31st May, than TDS is required to be deducted on 31st May and payment of TDS deducted shall be made up to 7th
  • Deductor has to file quarterly TDS returns and after filing quarterly returns, TDS deducted shall be reflected in Form 26AS.

5. How to know that TDS has been deducted

  • If employer deducts TDS then he has to file TDS returns quarterly. After filing TDS return, TDS deducted is reflected in Form 26AS of employee.
  • TDS certificate will be given to employee in Form No.16 annually on or before May 31 after the end of financial year unless extended by Govt. For Perquisite assessee is required to issue Form 12BA when salary exceeds Rs.1,50,000/-. In case salary does not exceed 1,50,000/-, Part-B of Form-16 itself would be sufficed and there is no requirement of separate Form 12BA. Form 12BA is provided along with Form-16.
  • Employee should necessarily file his return of income at the yearend declaring all his income.

6. When you are required to make Direct Payment of Tax?

Employee has to make sure that TDS has been deducted or not. If TDS is not deducted than section 191 of Income-tax Act, 1961 is attracted and he has to make direct payment of taxes. Otherwise he would be treated as assessee in default and has to pay interest. For details click here.

7. How salary can be received without deduction of TDS or with Lower TDS?

To get salary without TDS or with lower TDS, employee will have to approach Assessing Officer by submitting application in Form No.13 u/s 197.

8. How to deduct TDS if salary is received by two or more Employer?

  • In case salary is received by two or more employers, employee shall choose any one employer and furnish Form 12B to chosen employer. Form 12B contains details of salary received and TDS deducted by another employer. After receiving Form 12B chosen employer shall compute taxes and deduct TDS accordingly.
  • For Eg: Mr. Rajesh works for Financial Tree Company (FTC) as well as Divya Agrawal & Associates. He receives 15Lacs from FTC and 10Lacs from Divya Agrawal & Associates. Suppose Mr. Rajesh choose FTC, than he has to give details of salary received from Divya Agrawal & Associates in Form 12B to FTC. Than FTC will deduct TDS as follows-
Particulars Amount (In Rs.)
Total Salary 25,00,000
Tax on 25lacs 5,69,400
Less: Tax deducted by Divya Agrawal & Associates on 10lacs 1,06,600
Tax to be deducted by FTC 4,62,800

9. How TDS is deducted if non-monetary benefit(Perquisite) is received

♣ Perks is non-monetary benefit given by employer to employee like rent free accommodation, motor car, free/concessional educational facility, etc. Employer has two options-

(a)  He can deduct TDS from salary

(b) He himself can make payment without deducting any TDS from salary of employee.

♣ But employer has to pay tax at the same time when TDS was required to be deducted. For Eg: Mr. Rajesh works for FTC and receives salary of Rs.6,00,000/- which includes value of perks of Rs.50,000/-. If employer opts to pay tax on perks, then TDS shall be calculated as follows-

Particulars Amount (In Rs.)
Income chargeable under head Salary 6,00,000
Tax on salary 33,800
Avg. rate of tax 5.63%
Tax payable on Perks (50000*5.63%) 2,815
Amt. required to be deposited each month(Rs.2815/12) 235
  • Tax so paid by employer shall be deemed to be TDS made from salary of employer.

10. Whether you should give details of Other Income earned by you apart from salary to Employer

If employees earn income from other sources apart from salary the he may give details of income to employer for deduction of TDS. But detail of loss is not allowed to be given except loss under the head House Property. Other sources of income included while computing TDS to be deducted should not have effect of reducing TDS. Employer should obtain evidence of claims made by assessee.

11. How TDS is deducted in case Salary is payable in Foreign Currency

If salary is payable in FC, then salary shall be converted into Indian rupees and then TDS shall be deducted. Rate of exchange shall be telegraphic transfer buying rate adopted by SBI on date of deduction of TDS.

12. How to deduct TDS in case of relief u/s 89

In respect of salary payments of employees of Govt., public sector undertakings, company, co-operative society, local authority, university, institution, TDS is to be computed after allowing relief u/s 89. To avail this benefit, the concerned employee should furnish information in Form No.10E to employer.

13. Deferment of TDS in case of ESOP of Start-ups

Employer is required to deduct TDS at the time when employee exercises the option and shares are allotted. In case of start-ups deduction of TDS has been extended to certain happening of events. For details you can click here.

14. Our Comments

Deduction of TDS is statutory obligation of every employer whether it is Govt. or Non-Govt. employer. Filing of TDS returns is expeditious task and requires good amount of knowledge and effort. I have received various comments and emails that we want to file TDS returns ourselves and wanted to know procedure of filing TDS returns. Here I want to clear one thing that being layman you should always take help of expert. For saving few amount of money you should never take risk of doing things yourself. Also every person who is required to file return should always take help of expert. There are many videos and content which guides to do these things yourself but you should always take help of expert. Otherwise you will invite unnecessary income tax notice in your life and put yourself in trouble for long run.

Author Bio

Qualification: CA in Practice
Company: www.financialtreecompany.com
Location: Bhilai, Chhattisgarh, IN
Member Since: 30 May 2019 | Total Posts: 27
FOUNDER AND CEO OF FINANCIAL TREE COMPANY website-www.financialtreecompany.com Contact No. 9111872247 Email ID- companyfinancialtree@gmail.com (AN ONLINE RETURN FILING AND TAX CONSULTANCY COMPANY) View Full Profile

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