TDS on Salaries – Procedure to deduct TDS – Compliances

TDS on Salaries – Section 192- Procedure to deduct TDS – Compliance with Income Tax Act and rules there under

Under Section 192, the employer is required to deduct Tax at Source while making the payment of salary during financial year to the employees, at the rate of applicable to the individuals. For deduction of Tax at source (TDS), the tax has to be calculated according to slab wise rate. The applicable slab wise rate for deduction of tax at source will be notified through the Finance Act.

Applicable rate of Tax on income chargeable under the head “Salaries” for the Financial year 2019-20 (i.e., Assessment Year 2020-21) is as follows:

TDS should be deducted at applicable rates as above along with surcharge and Education Cess.

Surcharge at 10% of income tax, where total income exceeds INR 50 lakh up to INR 1 crore. 15% of income tax, where the total income exceeds INR 1 crore up to INR 2 crore. 25% of income tax, where total income exceeds Rs 2 crore upto Rs 5 crore and 37% of income tax, where total income exceeds Rs 5 crore.

Health and Education Cess at the rate of 4% (without any limit in taxable income) on income tax plus surcharge will be levied.

Every person who is paying salary has to comply with the provisions of the Income tax Act and the rules made there under. The following are the steps / Points that may be followed in complying with the same:

1. Declaration from Employees:

Take a declaration from the employees with regard to their savings, investments or sums qualified for deduction or exemption under salaries.

Points to be considered by the employer at the time of taking declarations from employees for TDS purpose:

a. Salary from more than one employer:

• Section 192(2) deals with situations where an individual is working under more than one employer or has changed from one employer to another.
• In Such circumstances it provides for deduction of tax at source by such employer (as the taxpayer may choose) from the aggregate salary of the employee who is or has been in receipt of salary from more than one employer.
• The employee is now required to furnish to the present/chosen employer details of the income under the head “Salaries” due or received from the former/other employer and also tax deducted at source therefrom, in writing and duly verified by him and by the former/other employer
• The present/ chosen employer will be required to deduct tax at source on the aggregate amount of salary (including salary received from the former or other employer).

b. Income under any other Heads:

• Section 192(2B) enables a taxpayer to furnish particulars of income under any head other than “Salaries”. If the employee furnishes the details of any other income, then the same need to be considered at the time of deduction of TDS under salaries.
• The employer shall not consider any other loss other than the loss under the head “income from house property” received by the assessee for the same financial year and of any tax deducted at source thereon.
• Employee has to declare if he has gained any other income should be intimated to employee through declaration form.

2. Calculation of Taxable Salary:

Calculate the taxable salary by giving the effect of the following:

A. Allowable Exemptions under Salaries:

i. House Rent allowance:

If the employee is receiving the House Rent allowance (HRA) and paying the Rent, then least of the following amount is to be allowed as exemption under HRA.

The lower of the above three will be allowable as exemption from HRA allowance.

Note: The Employer has to take the lease deed / rental agreement or rent paid receipt from the employee for giving the above exemption.

ii. Uniform Allowance:

When the employee is receiving the uniform allowance to meet the terms and conditions of the working culture, then the actual allowance amount or expenditure incurred on buying of the Uniform whichever is lower is exempted.

The above allowances are illustrative only. The allowances would be based on the HR policy on providing the allowances to the employees as part of salary and the exemption would be based on the provisions of the Income Tax Act and the rules made there under.

B. Deduction under Section 24(a) for Self occupied House Property –

Interest on Housing Loan: Section 24(b) of the Act allows deduction from income from house property on interest on borrowed capital as under:-

• The deduction is allowed only in case of house property which is owned and in the occupation of the employee for his own residence.
• However, if it is not actually occupied by the employee in view of his place of the employment being at other place, his residence in that other place should not be in a building belonging to him
• The quantum of deduction allowed as per table below:

• The house so acquired or constructed should be completed within3 years from the end of the Fin.year in which the capital was borrowed. Hence it is necessary to acquire completion certificate of the house property against which deduction is claimed either from the builder or through self-declaration from the employee.
• Further any prior period interest for the fin.years, up to the fin.year in which the property was acquired and constructed shall be deducted in equal installments for the fin.year in which it was completed and subsequent four fin.years.
• The employee has to furnish to the Employer a certificate from the person to whom any interest is payable on the borrowed capital specifying the amount of interest payable. In case a new loan is taken to repay the earlier loan, then the certificate should also show the comprehensive picture of Principal and Interest of the loan so repaid.

3. Calculation of Tax deducted at Source:

After calculating the Taxable Salary as mentioned in previous steps, give the allowable deduction as given below:

Allowable Deductions under Sec. 80C to 80 U:

1. Deduction u/s 80C:

By investment in following tax saving schemes upto a maximum limit of Rs.1,50,000/- an individual can save taxes

• PPF (Public Provident Fund)
• EPF (Employees’ Provident Fund)
• Five year Bank or Post office Tax saving Deposits
• NSC (National Savings Certificates)
• ELSS Mutual Funds (Equity Linked Saving Schemes)
• Kid’s Tuition Fees
• SCSS (Post office Senior Citizen Savings Scheme)
• Principal repayment of Home Loan
• NPS (National Pension System)
• Life Insurance Premium (Read : ‘Best Term insurance plans‘)
• Sukanya Samriddhi Account Deposit Scheme

2. 80CCC: Contribution to Pension Fund:

The deduction under Sec.80CCC towards amount paid or deposited to keep in force a contract for any annuity plan of LIC of India or any other insurer for receiving pension from the fund. The amount deposited or Rs.1,00,000 whichever is lowers is deductible. [subject to the maximum deduction under 80CCC and 80CCCD(1) Rs.1,50,000.].

3. 80CCD: Contribution to National Pension System:

The deduction under Sec.80CCD available to only An individual employed by the Central Government on or after 1.1.2004 or any other employer as well as self employed Individual who has paid or deposited any amount in his account under a notified pension scheme .

The deduction available, in case of a salaried individual, deduction of own contribution under section 80CCD(1) is restricted to 10% of his salary. In any other case, deduction under section 80CCD(1) is restricted to 10% of gross total income. Further, the deduction under section 80CCD(1) cannot exceed Rs. 1 lakh.

The entire employer’s contribution would be included in the salary of the employee. The deduction of employer’s contribution under section 80CCD(2) would be restricted to 10% of salary. However, the limit of Rs.1 lakh under section 80CCD(1) and Rs.1.50 lakh under section 80CCE does not apply to deduction under section 80CCD(2 ).

4. Deduction u/s 80D:

• In case of the individual, Rs. 25,000 for himself and his family
• If individual or spouse is 60 years old or more the deduction available is Rs 50,000
• An additional deduction for insurance of parents (father or mother or both, whether dependent or not) is available to the extent of Rs. 25,000 if less than 60 years old and Rs 50,000 if parents are 60 years old or more.
• For uninsured super senior citizens (80 years old or more) medical expenditure incurred up to Rs 50,000 shall be allowed
• A deduction of Rs. 5000 will be allowed under this section for payment of preventive health check-up of either the individual himself or his family members which includes spouse, parents and dependent children.This deduction is NOT in addition to the deduction of Rs.25000/50000 stated above, but is included in the above deduction

5. Sec.80DD: Maintenance including medical treatment of a dependent disabled:

You can claim up to Rs 75,000 for spending on medical treatments of your dependents (spouse, parents, kids or siblings) who have 40% disability. The tax deduction limit of upto Rs 1.25 lakh in case of severe disability (i.e. disability of 80% or above) can be availed.

To claim this deduction, you have to submit Form no 10-IA.

6. Sec.80DDB: Deduction for medical treatment of specified diseases or ailments:

Amount paid for specified diseases or ailment as prescribed under Rule DD of the Income Tax Rules. The deduction available to Individual for himself or his dependent spouse, children, parents, brothers or sisters. In the case of HUF, any member of his family

The deduction available is actual sum paid or Rs.40,000 (Rs.60,000, if the payment is for medical treatment of a senior citizen. Rs.80,000, if the payment is for medical treatment of a super senior citizen – resident who is at least 80 years of age at any time during the previous year), whichever is less, minus the amount reimbursed from the insurance company or the employer. Any amount incurred for the medical treatment, training and rehabilitation of a dependent disabled

7. Sec.80E: Deduction in respect of Interest on Loan taken for higher studies:

Interest on loan should be taken from any financial institution or approved charitable institution. Such loan is taken for pursuing his higher education or higher education of his or her relative i.e., spouse or children of the individual.

The deduction is available for interest payment in the initial assessment year (year of commencement of interest payment) and seven assessment years immediately succeeding the initial assessment year or until the interest is paid in full by the assessee, whichever is earlier.

8. Section 80TTA:

This deduction in respect of interest on deposits in the savings which is available for Resident Individual or HUF (other than those assessee who has covered in Section 80TTB) and Maximum deduction of Rs. 10,000/- will be allowed under this section

9. Section 80TTB:

This deduction in respect of interest on deposits in case of senior citizens (a resident individual who is of the age of sixty years or more at any time during the relevant previous year) and Maximum deduction of Rs. 50,000/- will be allowed under this section

4. Arriving of Total Income:

After giving the deduction under Section 80C to 80U from the taxable salary, then arrived amount would be treated as Total Income on which the TDS need to be deducted.

5. Calculation of Tax:

After giving the deduction under Section 80C to 80U, as mentioned above, calculate the tax according to slab wise.

6. Deduction of TDS from Salaries:

The TDS as calculated according to the previous steps, deduct the TDS by calculating average for 12 months, then deduct TDS on monthly basis. If short deduct in the previous months, the balance need to be deducted from available months.

7. Obtain Confirmations / Proofs for investments or Savings:

The employer has to obtain the proofs for the savings or investments made by the employee. If the employee has not submitted or not invested as given in his declaration, then calculate the Tax assuming the employee has not invested or done any savings and accordingly deduct the balance TDS from his salary before the payment of Salary.

8. Depositing of TDS deducted:

The employer has deposit the TDS which was deducted from the Salaries. The due date for the same are, for the month of April to Feb of the Financial year the due date is 7^th of the subsequent month in which the TDS was deducted.

9. Filing of E-TDS Returns:

The Employer has to file the E-TDS return in Form-24Q for each quarter. The following are the due dates for filing of the online E-TDS returns.

10. Issue of Form-16 to the Employees:

The Employer has to issue the Form-16 along with Form – 12BA to the respective employees on or before 31^st May (after ending of the financial year).

(Republished with Amendments)