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TDS refers to tax deducted at source of income itself. In the case of TDS on salary, it relates to the tax deduction made by an employer on your salaried income. TDS on salary helps the government in collecting income tax accruing from an individual’s salary at the source. Herein, we would be discussing the TDS deducted on salary along with other aspects.
Under Section 192 of the Income Tax Act, 1961, it is used for preparing eTDS returns for a deduction on salaries. It needs to be submitted quarterly by the deductor and contains details like salaries paid and the TDS deducted.
It contains 2 annexures:
a) Annexure-I comprises of the details of the deductor, deductees and challans
b) Annexure-II comprises of the salary details of the deductees
Tax Sajivani The TDS rate on salary depends on the income you receive from your employer, based on which you fall into different tax slab rates. According to the tax slab, the rate for your TDS deduction on salary will range from 10% to 30%.
The calculation for TDS on salary is done by reducing the amount of exemption from the total annual salaried income of the employee. The Income Tax Department specifies the exemption limit. At the time of calculating TDS on salary; the employer needs to obtain proof and declaration from the employee before approving the exemption amount.
The following allowances are considered for tax exemption:
1. House Rent Allowance
An employee can claim House Rent Allowance (HRA) from the employer if he/she is paying rent towards accommodation.
2. Standard Deduction
Standard Deduction Instead of conveyance and medical allowance government has provided blanket deduction of Rs 50,000/-.
3. Children Education Allowance
Children Education Allowance is allowed Rs.100 per month per child upto 2 child
4. Leave Travel Allowance
Leave Travel Allowance (LTA) is a type of allowance provided by the employer/organisation to the employees. Using LTA, employees can travel on leave from work and cover his travel expenses and claim the same from the organisation. For this LTA should be a component of your salary. Also, as per Section 10 (5) of the Income Tax Act, 1961, the LTA received by the employee is not included in the net taxable income of the employee. Leave Travel allowance can only be claimed on either actual travel cost or component amount in your salary breakup, whichever is less. But, employees can avail LTA for 2 journeys in a block of 4 years
The employer is liable to deduct TDS on salary at the time of making the payment to the employee. The TDS deduction on salary can only be made at the time when actual payment is made. Also, it will be deducted when the employee’s salaried income is taxable. However, if the pay is equal to or less than Rs.2,50,000, then TDS on salary will not be deducted.
According to Section 192, there must be a relationship of employer-employee for making the TDS deduction on salary. Also, the following employers are liable to make TDS on salary deduction:
1.Individuals
2.Companies (Private or Public)
3.HUF (Hindu Undivided Family)
4.Trusts
5.Partnership firms
6.Co-operative societies
However, the employer’s status, such as company, HUF, or trust is irrelevant for TDS on salary deduction. Also, while making TDS on salary calculation, the number of employees employed by the employer has no bearing. You can check the TDS deducted on salary by downloading your salary slip.
Yes, TDS on salary is deducted every month. As per Section 192, the employer will deduct TDS on salary at the time of making the payment to the employee. Since the employee gets a salary every month, the employer will make a deduction for TDS on salary every month. In case, the employer fails to deduct the same, he will be liable to pay the penalty and interest.
Yes, the deduction for TDS on salary is mandatory under Section 192 of the Income Tax Act. Every employer who pays a salaried income to his employees needs to deduct TDS on salary if the income amount is over the basic exemption limit.
There is no form or specific process to claim TDS refunds. The deductee needs to file the income tax returns usually only. However, if there is any excess of TDS on salary charged, what the employee is supposed to pay in the given year, then the refund amount will be due and will need to be shown in the returns filed.
An employee can only be exempt from deduction of TDS on salary in case his/her estimated salary falls below the basic exemption limit. Otherwise, TDS on salary is a mandatory deduction for every employer. This rule shall also apply to employees who do not have a PAN
TDS on salary is refundable when the amount deducted is higher than what the employee’s actual tax liability is. Many times, the investment details declared at the start of the financial year do not seem to match with the actual investments made at the year-end. In case of such a mismatch, TDS on salary will be refundable w.r.t excess paid.
Upon filing the TDS return, if you identify any error, such as PAN not provided or incorrect challan details, the Form16/ Form 16A/ Form 26AS will not show the correct tax amount credited with the government. To ensure that the exact tax amount is credited and reflected in all the Forms, a revised TDS return needs to be filed.
Here are the different types of revisions that you can make to submit an error-free TDS return:
| Type of Correction | Particulars that can be Corrected |
|---|---|
| C1 | Details of the deductor (employer) like their name and address |
| c2 | Challan details such as challan amount, serial number, BSR code, and tender date |
| c3 | Details of the Deductee (Employee) |
| C4 | Salary Details erstwhile mentioned |
| C5 | PAN number of deductee (Employee) |
| C6 | Insert new challan and underlying deductee |
The deductor (employer in case of TDS on salary) will pay the charge again for revised return. Revised Return can be filed several times for incorporating any changes.
1) By Government
In case the TDS on salary is not deposited to the IT department of the Government, then the employee’s TDS would not be reflected against his/her PAN in the Form 26AS. In such a case, the employee cannot get a tax credit of the TDS on salary while filing their income tax return. [1] If they take the tax credit for this amount, they will be notified about the mismatch in the TDS claimed and paid from the IT department.
In such a situation, the taxpayer (employee in case of TDS on salary) will be caught between the employer and government’s income tax department.
In such a situation, the taxpayer (employee in case of TDS on salary) will be caught between the employer and government’s income tax department.
In case the employer fails to deduct or deposit TDS on salary, then they will have to pay the penalty in the form of interest on the same. The table below explains the interest the employer will need to pay under two different cases:
| Section | Nature of Deduction Default | Interest | Interest Payment Period |
|---|---|---|---|
| 201A | Non-deduction of TDS on salary, either in whole or part | 1% per month | From the date on which the TDS deduction was to be made to the actual date of deduction |
| Non-payment of TDS on salary (after deduction) | 1.5% per month | From the date of TDS deduction to the time of actual payment |
The employee can minimize TDS on salary by investing in specific tax saving instruments. The deduction benefits on TDS on salary can be enjoyed under the provisions of different sections. Here are a few important ones below:
1) Under 80C
Under Section 80C of Income Tax Act, 1961 [2], the employee can claim a maximum deduction benefits at the time of TDS on salary up to the limit of Rs. 1.5 lakh. There are many tax-saving instruments covered under this Section, such as:
1. PPF (Public Provident Fund)
2.Sukanya Samriddhi Account
3.ULIP (Unit linked investment plan)
4.ELSS (Equity linked savings scheme)
This Section also covers house loan repayment (principal amount) subject to the limit of Rs. 1.5 lakh.
2) Under 80 EE
Under this Section, employees can minimize TDS on salary if they are first-time homebuyers and have taken a loan. They will be able to claim tax benefits on home loan interest amounts. This deduction will be over and above the limit of Rs.2 lakh under Section 24 of the Income Tax Act, 1961.
FAQ’s
A. As per rules of Income Tax Act, the employee can claim credit for TDS on salary that is either paid or accrued in the same financial year in which the TDS on salary is deducted. However, when income is paid in advance (such as advance rent), it will not belong to one FY, and credits for such income shall be carried forward to the next financial year.
A. There are two kinds of TDS certificates that the deductor can issue. Form 16: Certificate that employer issues to employees. It lists down TDS on salary details made throughout the year. Form 16A: This lists down TDS deductions other than that on salary.
A. PAN stands for Permanent Account Number while TAN refers to the Tax Deduction Account Number. TAN is required to be obtained by a person who is a deductor. In the case of TDS on salary, the employer needs to have a TAN number.
A. As per Income Tax rules, there is no specific rate for TDS on salary deduction. The deduction is based on the TDS on salary slab. Use TDS on salary or income tax calculator for getting an estimate when doing TDS calculation on salary for FY 2019-20. You can also use the calculator for your TDS calculation on salary for FY 2018-19 or the previous financial years.
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