Section 192 of the Income Tax Act, 1961

TDS on Salary – An Employer Approach

This article might be useful for employers by guiding them regarding deducting TDS on salary income payable to their employees in all aspects. I am hereby addressing frequently arising doubts among the employers with respect to salary TDS. Here we, go.

1. Conditions for Deducting TDS section 192

There are 3 major conditions required by the statue to deduct TDS under section 192 under Income tax Act, 1961. Those conditions are as follows:

1. Payment is made by the employer to the employee – it means that there must be an existence of employer – employee relationship.

2. Such payment is in the nature of salary only – salary includes all monetary & non-monetary perquisites as stated by income tax laws

3. Such salary payment should be above the minimum amount not chargeable to income tax act.

TDS on Salary - Employer Approach

2. Who Is Responsible For Deducting TDS under Section 192?

For various categories of employers, the persons responsible for making payment under the head salaries & deducting TDS are as follows:

Cases Persons responsible
Central / State Govt. / PSU The designated drawing & disbursing officers
Firm The Managing partners / partner of the firm
HUF Karta of the HUF
Proprietorship concern Proprietor
Trusts Managing turstees
Private & Public limited companies Company & Principal officer1 thereof

(a) Secretary, Treasurer, Manager or agent of the company

(b) Any person connected with the management or administration of the company or upon whom the assessing officer has served the notice of his intention to treat him as a principal officer.

3. Cases Where Change In Employment / Multiple Employment

Employer must obtain the information regarding the particulars of salary & TDS of previous / earlier employment from the employee in Form 12B prescribed under Rule 26 of Income tax rules. On receipt of such information, current employer shall deduct TDS considering the aggregate salary from all sources.

If employee is engaged in multiple employment (different organizations), employee on his choice can chose the employer and furnish the details in Form 12B as already discussed above. Such employer (chosen by the employee) shall deduct TDS considering the aggregate salary from all sources.

If employee fails / not furnished such other salary income to any of the one employer, all employers shall deduct TDS based on their employment arrangements.

4. When Tax Has To Be Deducted & What Rate?

Unlike the provisions of TDS, pertaining to payments other than salary where the obligation to deduct tax arises at the time of credit or payment, whichever is earlier, the responsibility to deduct tax from salaries arises only at the time of payment.

Since the responsibility to deduct tax arises only at the time of payment, it covers the advance salary (which means salary paid before the service is rendered to the entity) and arrear salary payments (salary pertains to earlier periods), but liable for taxation only at the time of payment.

The employer is required to deduct tax at source on the amount payable at the average rate of income tax. This is to be computed on the basis of rates in force for the financial year in which payment is made. Thus, the employer is required to compute at the beginning of the financial year, the total salary income payable to an employee during the financial year. Further, the employer should also take into account any other income as reported by the employee. After considering the incomes exempt, deductions and relief, the tax liability of the employee should be determined on the basis of the rates in force for the financial year. Every month, 1/12 of this net tax liability as computed above is required to be deducted.

5. Revision of Estimate of Tax Liability

As per Sub-Section 3 of Section 192, a deductor can make adjustments for any excess or shortfall in the deduction of tax already made during the financial year, in the subsequent deductions. For instance, in the case where payment of advance salary, arrears of salary, or increase of salary, commission, bonus, etc. has taken place, the tax liability of the employee will increase. Deduction of tax at source is accordingly required to be increased.

Similarly, if the employee makes certain investments which qualify for deduction or rebate and furnishes the required proof under Form 12BB which reduces the tax liability, then the employer can accordingly reduce the quantum of TDS.

6. Payment of Tax by Employer on Non-Monetary Perquisite

Tax paid by the employer on behalf of the employee is a perquisite under Section 17(2)(iv) i.e., a non-monetary perquisite. Non-monetary perquisite forms part of the salary as per Section 17(1)(iv) and the same will be taxable in the hands of the employee as income under the head salaries and it will be an allowable as business expenditure in the hands of the employer. Hence, in case of any taxes paid on such non-monetary perquisites will also considered as perquisites and the same will be exempted in the hands of the employee u/s. 10(10CC). However, such taxes will not be deductible as business expenditure u/s. 40(a)(v).

7. TDS Where the Salary Paid Is Net of Tax

Where the employee enters into an agreement or an arrangement as per which the tax chargeable on the income is borne by the employer then for the purpose of deduction of tax, the income is to be increased to such an amount as would, after deduction of tax thereon be equal to the net amount payable as per the agreement or arrangement (Section 195A).

8. TDS on Salary Payments to Non-Residents & Expatriates

Unlike some other provisions, does not distinguish between payment of salary, to a resident, non-resident or expatriate. Thus, all payments which are taxable under the head salaries, are also covered by the provisions of TDS, irrespective of residential status of the recipient. However, the residential status of an individual is pertinent in determining whether the receipt itself is taxable in India or not.

In case of a foreign expatriate working in India, the remuneration received by him, assessable under the head ‘Salaries’, is deemed to be earned in India if it is payable to him for services rendered in India as provided in Section 9(1)(ii) of the Income Tax Act. The explanation to the aforesaid law clarifies that income in the nature of salaries payable for services rendered in India shall be regarded as income earned in India. Further the income payable for the leave period which is preceded and succeeded by services rendered in India and forms part of the service contract shall also be regarded as income earned in India.

Thus, irrespective of the residential status of the expatriate employee, the amount received by him as salary, for services rendered in India shall be liable to tax in India being income accruing or arising in India, and also be subject to TDS regardless of the place where the salary is actually received.

9. TDS In Case Of Salary Payments in Foreign Currency

Where salary is payable in foreign currency, the amount of tax deducted is to be calculated after converting the salary payable into Indian currency at the telegraphic transfer buying rate as adopted by State Bank of India on the date of deduction of tax (Rule 26) read with Section 192(6).

It may be noted that this rule is applicable only for determination of TDS. However, in computing the salary income, the rate of conversion to be applied is the telegraphic transfer buying rate on the last day of month immediately preceding the month in which the salary is due or is paid in advance or arrears (Rule 115).

10. Time Limit for Deduction, Returns & Certificate

Tax Deposit

TDS deducted u/s.192 shall be deposited in the challan no. ITNS281 and under the nature of payment 92A / 92B / 92C (i.e., Govt. employees other than union government or employees other than govt. employees or union govt. employees respectively) within 7 days from the end of the month in which the deduction was made whereas in case of March month deduction, 7th April (for govt. deductors) or 30th April (for other deductors).

Return

The employer has to file salary TDS return in Form 24Q. Form 24Q is to be submitted on a quarterly basis. Details of salary paid to the employees and TDS deducted on such payment is to be reported in 24Q. Form 24Q consists of two Annexures, Annexure I have to be submitted for all four quarters whereas Annexure II has to be submitted in the last quarter.

Quarter Due Date
April to June 31st July
July to September 31st Oct
October to December 31st Jan
January to March 31st May

Certificate

Form 16 is a certificate, where the employer is certifying details regarding the salary you have earned during the year and how much TDS has been deducted. It has two parts – Part A and Part B.

  • Part A has information of the employer & employee, like name & address, PAN and TAN details, the period of employment, details of TDS deducted & deposited with the government.
  • Part B includes details of salary paid, other incomes, deductions allowed, tax payable etc.

Form 16 is a certificate issued to salaried individuals by the employer when he deducts tax from the employee salary. In simple words, it is an acknowledgement which states your

deducted tax has been deposited with the Income Tax department. It must be issued by 15th June of every year from the end of the financial year.

11. Interest, Penalties & Prosecutions

Interest

  • In case of any non-deduction of TDS either in whole or in part – interest shall be attracted @ 1% p.m. under section 201(1A) from the date on which tax deductible to the date on which tax is actually deducted; and
  • In case of non-payment of deducted TDS either in whole or in part – interest shall be attracted @ 1.5% p.m. under section 201(1A) from the date of deduction to the date of payment.

Penalty / Late filing fees

  • The deductor will be liable to pay by way of fees Rs.200 per day till the failure to pay TDS continues. However, the penalty should not exceed the amount of TDS for which the statement was required to be filed. (Section 234E)
  • The Assessing Officer may direct a person who fails to file the statement of TDS within the due date to pay a minimum penalty of Rs.10,000 which may be extended to Rs.1,00,000. The penalty under this section is in addition to the late filing fee u/s 234E. This section will also cover the cases of incorrect filing of TDS returns.2
  • A penalty equal to the amount that was failed to be deducted/collected or remitted may be imposed.

Prosecution (Section 276B)

  • If a person fails to pay to the credit of the Central Government —

The tax deducted at source by him as required by or under the provisions of Chapter XVII-B, he shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with a fine.

Note:

1. Principal officer to mean as per IT act u/s. 2(35) –

(a) Secretary, Treasurer, Manager or agent of the company

(b) Any person connected with the management or administration of the company or upon whom the assessing officer has served the notice of his intention to treat him as a principal officer.

2. No penalty under section 271H will be levied in case of delay in filing the TDS/TCS return if the following conditions are satisfied:

  • The tax deducted/collected at source is paid to the credit of the Government.
  • Late filing fees and interest (if any) is paid to the credit of the Government.
  • The TDS/TCS return is filed before the expiry of a period of one year from the due date specified on this behalf.

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Author Bio

Qualification: CA in Practice
Company: Mohan & Venkataraman, Chartered Accountants
Location: Coimbatore, Tamil Nadu, India
Member Since: 23 May 2018 | Total Posts: 1

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