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TDS on Salary – Section 192 – FAQ & Important Circulars

Article presents Questions and Answers on Section 192 of Income Tax Act, 1961 related to TDS on Salary.

Q.1. Who is responsible to deduct tax on Salary under Section 192 of Income Tax Act, 1961?

A.1. All persons paying salary are responsible to deduct TDS on income chargeable under the head “Salary”. In other words none of the payer of Salary is excluded; Individual, HUF, Partnership firms, companies, cooperative societies, Trust and other artificial judicial persons have to deduct TDS on Salary.

Q.2. Who is the payee?

A.2. Any employee having taxable income under the head “Salary” shall be treated as payee for TDS u/s 192. For application of S. 192, there must exist employer employee relationship between payer and payee. For eg. Director of company is not employee and as such no TDS u/s 192 on any amount paid to director, visiting professors are not employees and therefore no TDS u/s 192 on the amount paid by the institutions to the visiting faculty.

Q.3. Application of TDS on Salary Paid to Non resident Employees?

A.3. Yes, TDS to be deducted by employers on payments made to non resident employee u/s 192.

Q.4. When does the liability to deduct tax at source shall arise u/s 192 on Salary?

A.4. Liability to deduct tax at source shall arise at the time of actual payment of salary and not at the time of accrual.

Q.5. At what amount tax has to be deducted under Section 192 of Income Tax Act, 1961 on Salary?

A.5. TDS u/s 192 has to be deducted on estimated income of the employee under the head “Salaries” for that Financial Year. No tax will however be required to be deducted at source for financial year 2018-19 in any case unless the estimated salary income including the value of perquisites, exceeds –

S.No. Amount Particulars
1. Rs. 500000 For an individual resident in India of the age of 80 years and above
2. Rs. 300000 For an individual resident in India of the age of 60 years of more but less than 80 years
3. Rs. 250,000 Any other individual.

Q.6. At which rate TDS has to be deducted under Section 192 of Income Tax Act, 1961 on Salary?

A.6. TDS U/s 192 has to be deducted at the average of income tax computed on the basis of rates in force during the financial year. The total tax to be deducted on the estimated income of the employee for the relevant financial year is divided the number of months of his employment. The amount so arrived is the monthly deduction of tax at source.

However, if the employee does not have PAN No., TDS shall be deducted 20% without including Education Cess & SHEC, if the normal tax rate in this case is less than 20%. (Please refer section 206AA and Circular No.8 dated 13.12.2010).

Q.7 Whether employer is also liable to deduct TDS on non monitory perquisites?

A.7. Section 192 (1)(A) provides an option to employer to pay tax on behalf of employee on non monitory perquisites however it is not mandatory. For the purpose of paying tax by employer u/s 1(a) tax shall be determined at the average rate of income tax of tax in force on the income chargeable under the head salaries including the value of non monitory perquisites.

Q.8 How to compute TDS on Salary in case of simultaneous employment? What are relevant Forms and Rules?

A.8. Situation1: In case where change of employment made during the year–Where the employee was employed some other person before joining the present employer during the financial year, tax will be deducted by the present employer by taking into account the salary received from the TDS employer, tax deducted at source etc. for this purpose the employee has to submit in writing the full particulars regarding salary received.

Situation 2: Where employee is simultaneously working under more than one employer. In this case tax will be deducted by the employer, the concerned employee so chooses. The employee shall submit the details of salaries due or received by him from other employer(s) the tds there from and such other particulars as may be prescribed in Form No.12 B.

The relevant judicial pronouncements:

1. Employer not liable to deduct tax, if employee not intimate his earning from other employer, it was so held in CIT V/s Marubeni India Pvt. Ltd. (2007) 294 ITR 157 (Del).

2. The assessee is not liable to deduct tax at source on payments received by its employee from any other employer. CIT v/s Woodward Governor India Pvt. Ltd. 295 ITR 1 Del) (See also Kinetics Technology (India) Ltd. v/s Jt. CIT (2006) 94 ITD 63 (Del)Q.9. What are the provisions of section 192[3] of the Act? Can an employer increase or decrease the amount of monthly TDS on Salary?A.9. Yes, the employer is authorized to adjust such excess/deficit in the subsequent months. However the same is permissible in case of same employee. [Please refer CIT v/s Enron Expat Services Inc (2010) 45 DTR 154: 194 Taxman 70 (Uttarakhand)] [ See also Commissioner of Income-tax v. Delhi Public School (2012) 247 CTR 317 (Del)]. The relevant judicial pronouncements:

3. Interest u/s 201 (1A) is not applicable if the exact amount of TDS is not deducted in each month. ITO V/ Asia Hotels Ltd. (1991) 41 TTJ (Del) 28.

4. No interest u/s 201(1A) for non deduction in initial months on grant of ex gratia, increments and DA since there was no default in terms of section 1 92(3).{Executive Engineer, T.L.C. Division, A.P. State Electricity Board v. ITO (1987) 20 ITD 318 (Hyd)].

5. In correct estimate of salary cannot inevitably lead to inference that estimation is not honest and fair. [Lintas Indi Ltd. v. Asst. CIT (206)5 SOT 310 (Mum) ; Gwalior Rayon Silk Co. Ltd. V. CIT (1983) 140 ITR 832 (MP) and Nishith M. Desai v. ITO (206) 9 sot 42 (Mum)] ; CIT v ONGC Ltd. (2002) 254 ITR 121, 124 (Guj).

6. The adjustment either of increasing or decreasing the tax deduction at source is to be made with reference to the estimated income of “the assessee” i.e. an employee and not all of them taken together deducting from some and refunding to others. (Shriram Pistons & Rings Ltd. v. ITO (2000) 16 DTC 331(Del­Trib) (2000) 73 ITD 30 (Del-Trib)].

Q.10. Can the person, responsible for any deduction of tax at source, adjust the excess tax deducted and deposited against the subsequent tax to be deducted in respect of payment to any other person?

A.10. No. In this case the employee, whose tax has been deducted in excess than required, shall be allowed to take back the refund after filing return of income.

Q.11. What are the provision for deduction of tax at source on accumulated balance of recognized provident fund?

A.11 Section 192A (inserted wef June 2015) in respect of Payment of Accumulated Balance Due of Employees’ Provident Fund Scheme,1952 to employees Tax is to be deducted by the trustees of Employees’ Provident Fund Scheme,1952 or any other person authorised under the scheme to make such accumulated payments to employees and the amount of such payment is Rs 50,000 or more. TDS rate In case of Resident Payee-10%(no surcharge or health and education cess)

In case of Non-Resident-10%(will be increased by surcharge and health and education cess)

Q.12. Whether benefit of lower deduction or no deduction of TDS is available u/s 192?

A.12. Yes. However assessee to whom the salary is payable may make an application in Form No. 13 to the Assessing Officer and if the Assessing Officer is satisfied that the total income of the recipient justifies the deduction of income tax at any lower rate or no deduction of income-tax, he my given such certificate as may be appropriate.

W.E.F. 1-4-2010, as per section 206AA(4), no certificate under section 197 shall be granted unless the application made in Form No.13 under that section contains the Permanent Account Number of the applicant.

Q.13. What the provisions of TDS on salary in case where employer undertakes to pay tax free salary?

A.13. Where an employer undertakes to pay tax free income to an employee, what he undertakes to pay is an agreed sum of money plus the tax payable for that amount. Therefore, at the time of making the estimate of salary income for the purpose of making deduction under section 192(1), the employer is under an obligation to take into consideration not only the actual amount that has been paid to the employee but also the tax payable on the salary income . [British Airways v. CIT (1992) 193 ITR 439 (Cal)].

Q.14. Whether the employer is liable to deduct tax at source on amount paid as compensation to employee upon settlement on termination of employment?

A.14. No. please refer Mahindra Singh Dharwal v. Hindustan Motors Ltd. (1985) 152 ITR 68 (SC)], All India Reporter Ltd. v. Ramachandra D. Datar (1961) 41 ITR 446 (SC)].,

Q.15. How the tax to be deducted at source shall be calculated in case employee is earning income, which is taxable under other heads?

A.15. where an employee also has any income (not being a loss other than a loss under the head house property) for the same financial year, chargeable under any other head, he may furnish the statement of such other income and any tax deducted thereon to his employer to take them into consideration while deducting tax from his salary. However the resultant tax deductible u/s 192 cannot be less than the amounts that would have been deductible if such other income and tax deducted there on would not have been taken in to account.

However, any loss incurred under the head “Income from house property” can be taken in to account while determining TDS u/s 192.

Q.16. Whether private arrangement for making tax – free payments can discharge obligation to deduct tax at source?

A.16. No, Whatever the private arrangements between the payer and payee may be, the payer’s liability under the statute is clear. Please refer John Patterson & Co. (India) Ltd. V. ITO (1959) 36 ITR 449 (Cal.)

Q.17. Whether employer should rely upon employees assurance about making of savings by him while determining TDS u/s 192. ?

A.17. No. On mere assurance of petitioner that he will make saving of particular amount without any documentary proof, it is not justifiable to reduce the TDS from salary proportionately. Please refer Major General, Vinay Kumar Singh v. UOI (2000) 18 DTC 19 (MP – HC) see also Koti Enterprises Pvt. Ltd. v. ITO (2000) 74 ITD 437 (Cal.) (SMC).

Q.18. Whether provisions of S. 192 shall also apply to any remuneration in addition to ‘Salary’?

A.18. Yes Remuneration in addition to salary received by employee for work done is chargeable as‘ Salary Income’, therefore the same is liable for tax deduction at source. Please refer CIT v. V.R. Chaphekar (1977) 107 ITR 49 (Bom.) also refer American Express Bank Ltd V ITO (2002) 74 TTJ (Del – Trib) 599.

Q.19. Whether transport facility given to employees from their residence to office and vice versa is a perquisite to attract TDS u/s 192?

A.19. Please refer Transworks information services Ltd. V ITO (2009) 29 SOT 543 (Mum).

Q.20. Whether the employee is liable to once again pay tax where employer duly deducted Tax u/s 192 but not had issued TDS certificate?

A.20. once an employer has deducted tax at source employee assessee cannot be held responsible for payment once again. Please refer Pranab Kumar Chakraborty V DCIT (2008) 115 ITD 113 (Mum), see also J.G. Joseph v JCIT (2008) 303 ITR (AT) 395 (Mum).

Q.21. Whether provisions of s. 192 shall also apply to salary paid by non resident employer to a non resident employee for services rendered in India?

A.21. Yes, Provisions of S. 192 shall apply if the salary was paid for services rendered in India even though the employers as well as employee were nonresident and the payment is made outside India. Please refer Bobcock Power (Overseas Projects) Ltd. v. ACIT (2002) 81 ITD 29 (Del).

Q.22. When nonresident employer is deducting tax, whether the resident employer is also liable to deduct tax at source u/s 192 to whom the services of the employee have been made available?

A.22. No, Please refer Cholamandalam MS General Insurance Co. Ltd., In re (2009) 309 ITR 356 (AAR) (Del).

Q.23. Whether the home salary payment made to expatriated employees by the foreign company in foreign currency abroad can be held to be ‘deemed to accrue or arise in India’, consequently whether tax u/s 192 shall be deductible thereon?

A.23.Whether the home salary payment made to expatriated employees by the foreign company in foreign currency abroad can be held to be ‘deemed to accrue or arise in India’ would depend upon the in-depth examination of the facts in each case. If the home salary/ special allowance payment made by the foreign company abroad is for rendition of services in India and if no work is found to have been performed for foreign company, then such payment would certainly come under section 192 (1), read with section 9(1)( ii ). Please refer CIT v Eli Lilly & Co. (India) (P.) Ltd.*[2009] 312 ITR 225 (SC).

  1. 24 Whether fees paid to consultant doctor are covered by S. 192?

A.24. Fees paid to consultant doctors by assessee-hospital under a contract (FGC) are covered by section 1 94J and not section 192. ITO v. Apollo Hospitals International Ltd.[201 1] 9 taxmann.com 95 (AHD. – ITAT)

However where there is a employer-employee relationship between assessee and consultant doctors and, consequently, remuneration paid to them was chargeable to tax under head ‘Salaries’ and payments in question were subject to deduction of tax as per provisions of section 192 and not section 1 94J. St. Stephen’s Hospital v. Dy. CIT, [2006] 6 SOT 60 (Delhi)

Q.25. Whether the provision of S. 40(a)(iii) shall attract, where deduction of Salary claimed being due but TDS not deducted since the same is not actually paid?

A.25. Where assessee claimed deduction of salary payable to its employee outside India on accrual basis and deducted tax at source under section 192, at time of payment or remittance of salary, assessee’s claim would not be hit by provisions of section 40(a)(iii). Please refer Citigroup Global Markets India (P.) Ltd.* v Dy. CIT [2009] 29 SOT 326 (MUM.)

Q.26. whether shares and stock option plan offered at concessional rate will be treated as perquisite for the purpose of deduction u/s 192?

A.26. No. payer is not liable to deduct TDS under section 192 in respect of issue of its shares under stock option plan to its employees at a concessional rate as it could not be treated as a perquisite (salary). Please refer CIT v Wipro Ltd. [2009] 319 ITR 289 (KAR.)

Q.27. Whether employer responsible for deducting TDS in case of misuse of meal coupons by employee?

A.27. No. where employer had distributed free food/meal coupons to its employees for purchase of meals only at specified eating points; such coupons were not transferable; and value of each coupon did not exceed monetary limit provided by rule 3(7)(iii), merely because some of employees had misused said facility by using coupons for other purposes, employer could not be treated to be in default for non­compliance with requirement of deducting tax at source under section 192, Please refer CIT(TDS) v. Reliance Industries Ltd. [2009] 308 ITR 82 (GUJ.)

Q.28. Whether reimbursement of expenses to parent company on account of expenses of globol manager shall attract TDS u/s 192?

A.28. No, Amount paid by assessee-company to its parent company on account of reimbursement of expenditure incurred in respect of global accounts manager, could not be treated as payment of salary, so as to attract deduction of tax at source. Please refer Expeditors International (India) (P.) Ltd v. ACIT [2008] 118 TTJ 652(Delhi).

However Salaries paid overseas to managing director for services rendered by him in India would fall under head ‘salaries’ as income earned in India and chargeable to tax and, consequently, section 192 would apply. Kinetic Technology (India) Ltd. v. ITO, [2005] 96 ITD 441 (Delhi)

Q.29. Whether tips paid by customers to employees working in a restaurant can be considered as part of their salary liable for deduction of tax at source?

A.29. No, please refer Nehru Place Hotels Ltd. v. ITO [2008] 173 Taxman 88.

Q.30. Whether foreign employer is liable to deduct tax at source on salary paid to expatriate technicians, account of remuneration for services rendered by them in India, irrespective of their residential status.?

A.30. Yes, Payment made to expatriate technicians by foreign employer, having permanent establishment in India, on account of remuneration for services rendered by them in India, is liable to tax in India irrespective of their stay in India. Therefore, foreign employer is liable to deduct tax at source U/s 192 while making such payments to expatriates. Please refer Pride Foramer S.A. v. ACIT, [2005] 97 ITD 86 (Delhi).

Q.31. Where director of a company is receiving commission in addition to Salary, whether TDS will be deducted upon actual payment.?

A.31. No, commission shall become taxable on due basis. Please refer Sanjib Kumar Agarwal V CIT (2009) 310 ITR 295 (Cal).

Q.32. Whether honorarium to part time teacher shall attract deduction u/s 192.?

A.32. Honorarium to part time teacher held as salary, if the employee is under the control of the employer, please refer Max Mueller Bhavan, In re (2004) 268 ITR 31, 32, 35 – 36 (AAR).

Q33. Whether salary paid to MP, MLA. Ministers & Chief Ministers shall attract TDS u/s 192?

A33. MP and MLA are not employed by any body, rather they are elected by the public, their remuneration cannot be said to be salary within the meaning of section 15, such income shall be taxable under the head income from other sources as consequent to election they acquire constitutional position and discharge functions and obligations [CIT v Shiv Charan Mathur (2008) 306 ITR 126 (Raj)]

However pay and allowances received by the Chief Minister of State or a minister is salary. It cannot be taxed under the head income from other source (Please refer Lalu Prasad v CIT (2009) 316 ITR 186 (Patna).

Article 125 & 221 of the constitution deals with the salaries of Supreme Court and High Court Judges respectively and expressly state that what the judges receive are salaries. [Justice Deoki Nandan Agarwala v. Union of India (1999) 237 ITR 872 (SC).

IMPORTANT CIRCULARS

1. Circular: No. 707, dated 11/07/1995 – Where non-residents are deputed to work in India and taxes are borne by employers, in certain cases if an employee to whom refunds are due has already left India and has no bank account here by the time assessment orders are passed, refund can be issued to employer as tax has been borne by it.

2. Circular : No. 761, dated 13-1-1998.- Banks has been advised that as per section 17(1)(ii) of the Income-tax Act, 1961, the term ‘salary’ includes pension, once tax has been deducted under section 192 of the Income-tax Act, 1961, the tax-deductor is bound by section 203 to issue the certificate of tax deducted in Form 16. No employee-employer relationship is necessary for this purpose the certificate in Form No. 16 cannot be denied on the ground that the tax deductor is unaware of the payees’ other income.

3. Circular: No. 285 [F. No. 275/77/79-IT(B)], dated 21-10-1980- Where the tax is deducted at source and paid by the branch office of the assessee and the quarterly statement/annual return (in case of salaries) of tax deduction at source is filed by the branch, such branch office would be treated as a separate unit independent of the head office. After meeting any existing tax liability of such a branch, which would normally be in relation to the deduction of tax at source, the balance amount may be refunded to the said branch office. The Income-tax Officer, who will refund the amount, would be the one who receives the quarterly statement/annual return (in case of salaries) of tax deduction at source from that branch office and keeps record of the payments of tax deduction at source made by that branch.

(Source – Book on Practical Aspects of Tax Audit, TDS, HUF & Capital Gains written by CA Agarwal Sanjay ‘Voice of CA’ & Team}

(Republished With Amendments)

Categories: Income Tax

View Comments (43)

  • I retired from govt. service and getting pension. In the same deptt. I was appointed temporary basis or tenure just say for six months as Consultant and getting remuneration Rs.45000/- no other benefits and tax deducting 10% by the employer. What benefits I will get to calculate the Income Tax 2018-19 on consultantancy fees/remunerations.How much amount 20 or 50% will be deducted straight on consultancy remuneration? Pension comes in salary head & consultantacny in other income.

  • Please clarify, whether Interest under sections 234B & C are applicable on Relief u/s 89 claimed in the IT return when filing the return itself.

  • 1.Whether commission to employees or director attract Tds u/s 192.This question is so important because amount paid to director only which is otherwise chargeble under salaries attracts Tds u/s 194J @ 10% without any threshold.
    2. Equity shares issued to employee s or directors are perquisites u/s 17 so chargeble under salaries so why tds shold not be deducted on it?

  • Does Salary includes the amount received by way of Superannuation scheme by LIC?

    Thanks,
    Regards,
    Milind

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