All You Need to Know About TDS on Salary [Section 192]

25^th March, 2023

Introduction:

TDS on salary is a critical aspect of the Indian taxation system that employees and employers need to understand. It is a tax deduction at source (TDS) mechanism that enables the government to collect taxes from salaried individuals as they earn their income throughout the year so read on to learn more about this crucial aspect of the Indian tax system.

Content:

In this blog post, we’ll explore everything you need to know about TDS on salary in India, including its basics, applicability, rates, and exemptions.

What is TDS on Salary?

TDS (Tax Deducted at Source) on Salary is a tax deduction system that ensures that taxes are collected on time from the salary of an individual. It is a form of direct tax, which is deducted by the employer from the employee’s salary and paid directly to the government. The employer is responsible for deducting and paying TDS on behalf of their employees. It is deducted at the time of payment of salary every month, and the amount is credited to the government’s account as per the Income Tax Act, 1961. The employer also issues a TDS certificate, commonly known as Form 16, to the employee, which shows the amount of tax deducted and deposited with the government.

Applicability of TDS on Salary

TDS on salary is applicable to all salaried individuals whose annual income exceeds the basic exemption limit of INR 2.5 lakh. It is also applicable to those individuals who have multiple sources of income and have not disclosed it to their employer.

How is TDS on Salary calculated?

The tax is calculated based on the rates in force for the relevant financial year at the time of payment. If an employee chooses to opt for a concessional rate of tax, the employer will compute the total income and deduct tax accordingly. The employer calculates TDS on Salary as per the following formula:

TDS on Salary = (Total Income*Tax Rate) / 12

In this formula, the Total Income refers to the total income earned by the employee during the financial year, including basic salary, allowances, perquisites, and bonuses. The Tax Rate is the income tax slab rate applicable to the employee, based on their income.

Let’s understand this with an example: Suppose Mr. A has a monthly salary of INR 50,000, and his employer deducts INR 10,000 as TDS on Salary. The employer will deposit the INR 10,000 with the government on behalf of Mr. A, and Mr. A will receive INR 40,000 as his net salary.

Rates of TDS on Salary

The rate of TDS on salary depends on the employee’s annual income and the applicable tax slab. The current TDS rates on salary for the financial year 2022-23 are as follows:

New Tax Regime		Old Tax Regime
Annual Income	TDS Rate	Annual Income	TDS Rate
Up to INR 2.5 lakh	Nil	Up to INR 2.5 lakh	Nil
INR 2,50,001 – INR 5,00,000	5%	INR 2,50,001 – INR 5,00,000	5%
INR 5,00,001 – INR 7,50,000	10%	INR 5,00,001 – INR 10,00,000	20%
INR 7,50,001 – INR 10,00,000	15%
INR 10,00,001 – INR 12,50,000	20%	Above INR 10,00,000	30%
INR 12,50,001 – INR 15,00,000	25%
Above INR 15,00,000	30%

Exemptions and Deductions

Under the Old Tax Regime, an individual can claim various deductions and exemptions to reduce their taxable income, such as deductions under Section 80C, 80D, and 80G, among others. In the New Tax Regime, individuals cannot claim most of these deductions and exemptions, and they pay tax at lower rates. However, they need to forego the deductions and exemptions to avail the lower tax rates.

Certain exemptions and deductions are available under Old tax regime under the Income Tax Act, 1961, which can reduce the taxable income and, in turn, the TDS amount. Some of the common exemptions and deductions available to salaried individuals are:

• Standard Deduction: A standard deduction of INR 50,000 is available to salaried individuals, which reduces their taxable income.
• House Rent Allowance (HRA): HRA is exempt from tax to a certain extent, depending on the employee’s salary, rent paid, and the city of residence.
• Leave Travel Allowance (LTA): LTA is exempt from tax twice in a block of four years, subject to certain conditions.
• Medical Reimbursement: Medical reimbursement up to INR 15,000 is exempt from tax.

It is important to note that individuals can choose between the Old and New Tax Regime at the time of filing their Income Tax Return. The choice should be made based on the individual’s tax-saving requirements, financial goals, and overall tax liability.

Why is TDS on Salary important?

TDS on Salary is an important component of the Indian taxation system, as it ensures timely collection of taxes and reduces the burden on taxpayers to pay the entire amount of tax in a lump sum at the end of the financial year. TDS on Salary also helps to prevent tax evasion by ensuring that taxes are deducted at the source.

Q&A

Q: Who is responsible for deducting TDS on Salary?

A: The employer is responsible for deducting TDS on Salary from the employee’s salary.

Q: Is TDS on Salary applicable to all employees?

A: TDS on Salary is applicable to all employees who earn a salary income in India and which exceeds the basic exemption limit of INR 2.5 lakh.

Q: What happens if TDS on Salary is not deducted or paid?

A: If TDS on Salary is not deducted or paid, the employer may face penalties and legal consequences.

Q: Can an employee claim a refund of TDS on Salary?

A: Yes, an employee can claim a refund of TDS on Salary if they have paid more tax than their actual tax liability by filling their Income tax return on time.

Q: Can an individual furnish details of their income from multiple employers to their current employer?

A: Yes, an individual who is simultaneously employed under more than one employer or takes up a job with another employer during the financial year after resigning or retiring from the services of the former employer can furnish the details of the income under the head “Salaries” to their current employer.

Q: What should the subsequent employer do with the information provided by the employee?

A: The subsequent employer should take this information into consideration and deduct the tax remaining payable in respect of the employee’s remuneration from both the employers put together for the relevant financial year.

Conclusion

TDS on salary is a critical aspect of the Indian taxation system that employees and employers must understand. It is a simple and convenient way to pay taxes and ensures that salaried individuals pay their taxes on time. It is calculated based on the employee’s income tax slab rate, and employees can claim a refund of TDS on Salary if they have paid more tax than their actual tax liability. Understanding the basics of TDS on salary, its applicability, rates, and exemptions can help individuals plan their finances better and avoid any tax-related hassles.

That’s all for this issue of TDS Insider. We hope you found the information in this newsletter helpful & helps you understand TDS better. If you have any questions or feedback, please don’t hesitate to get in touch. And be sure to subscribe to ………. to stay up-to-date on the latest news and insights on TDS. See you in the next issue!

*** Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Every effort has been made to keep the information cited in this article error-free. Suggestions and feedback to improve the task are welcome. The above comments do not constitute professional advice. The Author can be reached at camohitjain66@gmail.com