CMA Ramesh Krishnan
Introduction: Taxation on salary is the vital area which should be known not only by the employer but also the employee should be aware about this area. Section.192 of the Income tax act is crucial section under TDS which deals with the TDS deduction on Salary. This section describes the complete process of tax deduction from salary of employees. In this article, I will try to highlight some major points which a person as an employee should know and cooperate with employer to comply with the requirement of section 192 and ensure the correct deduction of tax from his/her salary.
1. Declaration of the Income details: Every employer need to collect the declaration from each employee about the income other than his/her salary income from their organization. This declaration needs to be given by the employee either beginning of the every financial year (April) or at the time of joining with new employer whichever is earlier. This declaration should be in the form 12C as per rule 26B and it should contain
a. Employee name/PAN/Residential status
b. Income other than Salary like House property/Business/Capital gain/ Other sources
c. TDS or advance tax payment paid or deducted if any
2. Declaration of Investments and other deduction: Apart from the income details the employee has to declare his/her investment/savings details which eligible under chapter VI-A , such as various section like 80C/80D/80DD/80DDB/80E/80G/80U/80TTA etc. This will be declared in the form 12BB, In this form employee has to declare the following details
a. Income from his/her previous employment (if he joins in the middle of the financial year)
b. Projected investment which eligible for chapter VI-A for the financial year
c. House property interest details (self occupied/let out)
d. Rent payment in case of claiming HRA exemption u/s.10(13A)
e. Children with education details for claiming Children education & hostel expenses allowance u/s.10(14)
This declaration also needs to submit with employer in the beginning of the financial year or at the time of joining whichever is earlier.
This above 2 declarations is the responsibility of the employee to give without fail with the employer to ensure proper & correct TDS deduction from the salary of an employee.
After receiving those declarations, responsibility starts with employer. from here I will continue the article in Frequently asked questions (FAQ) mode
Q.1 How the employers calculate the tax of employee?
Ans: Employer will follow the steps like
a. Employer will first arrive the Salary income of the employee in working organization with considering the eligible deductions/exemptions/allowance under the head Salaries.
b. Second step, in case employee joined mid of the financial year, employer adds the salary income of the employee from their previous employment.
c. After that employer will add the Income other than salary declared by the employee in form 12C with considering the deductions mentioned in the form.
d. Then they will arrive the eligible deduction under chapter VI-A as per employee declaration
e. Finally employer need to calculate the employee`s total tax liability for the year. During final liability, employer need to consider the any tax deducted from his income already during the financial year from any source and any advance tax paid by employee on his/her own. This TDS/advance tax only consider based on the payment proof or certificate from the deductor.
f. Based on the arrived tax liability, employer starts to deduct the TDS from the employee`s salary in the equal monthly installment for the year or remaining period incase joined during mid of the year.
Q.2 What will happen if the employee fails to declare these forms?
Ans: If employee fails to declare these forms, employer will consider the Salary income for the present employment without giving the exemptions/deductions to arrive the tax liability. It will lead the more or excess TDS deduction from the employee`s salary.
Q.3 What will be the consequences if the employee does not declare the Other Incomes and previous employment income to the employer?
Ans: If the employee does not declare the other income details and previous employment details, there will not be any problem for the employer because employer has responsibility to ensure the TDS deduction from the salary paid from their company only. However, employee may get the huge tax burden and interest liability u/s.234B & 234C in the year end or at the time of filling the income tax return. If the employee fails to declare the previous employment income details, there may be chance of considering deduction under Chapter VI-A and basic exemption and house property interest deduction double time by the both employer and finally while consolidating salary from the both employer, it will be allowed one time and end up the employee with huge tax liability.
Q.4 What is the consequence if employee declares wrong details in the declaration?
Ans: Giving incorrect or wrong information in the declaration will lead the excess or short deduction of tax and put the employee in to trouble during year end or income tax filling stage.
Q.5 What are the documents need to be submitted with employer along with declaration?
Ans: Declarations need to be submitted first however supporting documents for other incomes and deductions during the year end to finalize the tax workings mostly by Jan/Feb/Mar, because employer responsibility to ensure to collect the proper documents for any deductions/exemptions. In case employee declared the details and not produce the documents with the employer also will lead the huge tax liability at the year end and gives the burden to employee.
Q.6 Whether employee needs to produce the Original proof with employer?
Ans: Yes. Employee needs to submit the original proof of documents with employer for his all exemption and deductions claim to avoid the double deductions in multiple time.
Q.7 Whether rent receipts & agreement is mandatory to claim the HRA exemption?
Ans: Yes. Original rent receipts are mandatory to claim the HRA exemption, rental agreement can be provided as optional but receipts are the base for claiming the exemption
Q.8 What will deduction for rent if salary structure not having HRA portion?
Ans: In case salary structure does not HRA component, then employee can opt the deduction u/s.80GG of rent paid subject to maximum of Rs.5000 per month deduction.
Q.9 Whether original medical bills required claiming the medical reimbursement?
Ans: Yes. Medical reimbursement of Rs.15000 per annum maximum exemption allowed, to avail this employee has to submit original medical bills with employer .However fixed medical allowance is fully taxable. The medical reimbursement has been withdrawn wef from A.Y 2019-20 and in lieu of it a standard deduction of Rs 40,000 is allowed u/s 16
Q.10 Whether proofs are require for claiming Leave Travel Allowance?
Ans: Previously it is mandatory to submit the document proofs but after the Supreme Court judgment in case of CIT vs Larsen & Toubro Ltd in 2009, for claiming LTA, proofs are not required only declaration if enough to claim the same.However Finance Act 2015 introduced a new section 192(2D) which came after Supreme Court decision, by virtue of which the person responsible for making the payment of salary are obliged to collect the necessary evidence or proof in the prescribed form and manner to allow any claim for any deduction and/or tax. The Central Board of Direct Taxes (CBDT) has prescribed the form i.e. Form 12BB, in which salaried employees would now required to furnish evidence of claims and tax saving investments to the employer
Q.11 What is the solution if after submitting the proofs also employer missed to consider or fail to submit the proofs but employee has the original documents?
Ans: In case employee submitted all the documents but employer did not consider or missed to consider the deductions and exemptions or employee fail to submit the documents before employer deduct the tax, then employee can claim the exemption and deductions based on the proof available with him/her in their Income tax return. However Leave Travel Concession or Allowance cannot claim by employee on their own in the income tax return since that need employer confirmation about the leave details etc.
Q.12 Whether the employer can allow the 80G deduction during tax calculation?
Ans: Employer can allow the donations which are eligible for 100% deduction such as Government scheme like National defence fund, Prime Minister relief fund, Earth quake relief fund etc. but other donations which are comes under 50% eligibility need to be claimed by the employee in the income tax return directly.
Q.13 How employee can ensure the TDS deducted from the employer has been deposited?
Ans: In the normal course the employer has to deposit the TDS deducted from the employee`s salary within 7th of the following month except March deduction (March deduction can be paid within 30th of April) every month employee cannot check whether paid or not however quarterly once employer has to submit the TDS return the same will be reflect in to employee`s form 26AS, So employees can login in their form 26AS and check whether TDS deducted from their salary has been deposited or not. If not, they can check with their employer accordingly.
Conclusion: The above points and information are very basic information to know as an employee to ensure their TDS from salaries. Basically the cooperation between the employer and employee in the TDS deduction will make more effective to minimize the error and ensure the proper deduction.
(Republished with Amendments)