Who are eligible for the deduction of TDS ON Salary u/s 192 of the Income Tax Act?
Any employer willing to pay salary to an employee (Resident or non-resident) must deduct TDS every month under section 192.
The employer here means:
- HUF (Hindu Undivided Family)
- AOP (Association of Person), BOI (Body of Individuals)
- Every Artificial judicial person
- Local Authority
The essential condition for TDS deduction under section 192 is the Employer-Employee relationship irrespective of the government employee, private or other.
When is the TDS on salary deducted u/s 192?
TDS that needed to be mainly deducted by the employer at the time of payment of salary when income which is considered as taxable (i.e., Gross Total Income fewer Deductions under Chapter VIA) of an employee exceeds the basic exemption limit, which is
- 2, 50,000 INR in case age is below 60 years
- 3, 00,000 INR in case age is 60 years or more but below 80 years
- 5, 00,000 INR in case age is 80 or above
In a advance salary and a arrear of a compensation, TDS must have been deducted by the employer at the time of making payment.
TDS on salary must be deducted even if the employee doesn’t have PAN if the pay is exceeding the basic exemption limit.
Rate of Tax Deduction at Source under section 192.
TDS under this section can be calculated on the estimated income earned during the year at an average tax rate. Unlike other areas of Tax Deduction at Source under Income Tax, there is no special fixed rate of TDS under section 192. For computing the TDS rate, the estimated total tax liability on such estimated income is divided throughout employment, i.e., months.
TDS OF SALARY = Estimate Total Tax Liability / Period of Employment
Calculate tax deduction under section 192?
For calculation of TDS on salary, the following are points that shall be considered:
- Income other than salary like rental income etc., shall also be considered by the employer for calculating TDS on salary if the employee submits such payment details.
- Home loan interest (if any) up to 2,00,000 INR will be set off from salary income to arrive at estimated revenue for TDS calculation if the evidence is given in Form 12BB by the employee.
- It also happens when many employees make investments to enjoy the tax benefits, i.e., for reducing their tax liabilities. But, as the employer doesn’t know about such investments, then the TDS amount is increased than the actual tax liability. In such cases, you can also declare information about all your tax-saving assets to the employer using Form 12BB. When an employer sees this, they will consider these investments and calculate your TDS amount accordingly.
Example to explain section 192 deduction:
|Income from Salary||4,00,000|
|Interest on home loan||2,15,000|
|Taxable Income (Interest up to 2 lakh INR will be set off from salary income)||2,20,000|
According to the above case, there is no requirement of TDS which is to be deducted by the employer, as the income below is the basic exemption limit.
We will understand TDS calculation on salary with one example,
|Estimated Salary Income||9,50,000|
|Less :- Standard Deduction||50,000|
|Estimated Gross Total Income||9,00,000|
|Less : Deduction under Chapter VI-A|
|Estimated Total Income||7,50,000|
|Estimated Tax Liability||65,000|
|Add : Health & education cess @ 4% on 64,500 INR||2,600|
|Estimated Total Tax Liability (A)||67, 600|
|TDS per month (A/12)||5, 633|
|Monthly in hand salary of Mr Tin|
|Salary per month||90,000|
|Less :- TDS per month||5, 633|
|Net salary in hand||84, 367|
In the case of multiple employers, how is TDS deducted?
There might be two situations:
- Changing job during the year
- Engaging with two or more employers simultaneously
Changing job during the year
There might be a situation wherein one particular year; there is more than one employer. Suppose the employee is resigning and joins another employer during the FY. In that case, the details of his previous employment are needed to be given in Form 12B to his new employer for deducting TDS properly. Accordingly, the next employer will consider his last salary and TDS deducted while calculating TDS for the remaining months of the financial year.
Engaged with two or more employers simultaneously
Similarly, when an employee is involved with more than one employer simultaneously. He should also provide details about his salary and TDS in Form 12B to any employers in such a case. And one of the employers is required to deduct TDS on aggregate wage.
E.g., A is employed simultaneously by X Ltd and Y Ltd on a part-time basis. Salary income from X Ltd. is 65,000 INR per month and 60,000 INR per month from Y Ltd. X may select two companies for TDS deduction on aggregate salary.
Let’s assume X selected Y Ltd for TDS calculation on aggregate salary income
|Particulars (A Ltd)||Amount (INR)|
|Taxable salary from A Ltd after standard deduction (65,000*12 – 60,000)||7,20,000|
|TDS deducted by X Ltd||42,353|
|Particulars (B Ltd)||Amount (INR)|
|Aggregate taxable salary after standard deduction (65,000*12 + 60,000*12) – 50,000||14,50,000|
|Tax on total income||2,18,703|
|Less : TDS deducted by A Ltd||42,353|
|TDS to be deducted by B Ltd||1,76,350|
Calculation of TDS in case of salary, which is payable in foreign currency?
In this case, first of all, the salary should be converted into Indian currency. The last day of the month is the exchange rate which is immediately preceding the month in which the compensation is due or is paid in advance or arrears.
After conversion, calculate TDS as per standard provisions of TDS deduction.
For example, if the salary is paid in October in foreign currency, the exchange rate shall be taken, which prevails on September 30.
What is the limit of time for depositing TDS under Section 192?
Deduction of TDS from salary by the employer is required to be deposited to the government within given below timeline to avoid interest:
TDS deducted for April-Feb: 7th day of the subsequent month
TDS deducted for March: April 30
When the TDS Statement is issued, and by whom?
When the employer deducts TDS, he is responsible for providing a certificate of TDS to the employee. Form 16 is given to the employee, which includes Part-A & Part-B. Form 16 also contains the information related to the tax deducted by the employer, details of salary & deductions.
Consequences of non-compliance under section 192 result:
- Levy of Interest: If the employer is not deducting the TDS on salary or deduct the TDS but is not deposited to the government, interest must be paid on such amount.
- Disallowance of expenses: If there is no employer’s eligibility to claim the deduction of salary costs from PGBP income if TDS is not deducted on time.
The number of disallowed salary expenses shall be
- Paying 30% of salary to the Resident.
- Paying 100% of salary to the Non-Resident.
Some Important Points to be remember for TDS on Salary
- If any tip is paid to the waiter directly or through the employer (which may be paid by the customers in the form of service charge), in that case, the employer is not responsible for deducting TDS on the tip amount since it does not become part of salary income.
- Remuneration paid to directors by the company is not covered under section 192. Generally, TDS on compensation paid to the director shall be deducted under section 194J provided there is no employee-employer relationship.
- Payment made to doctors by the hospital is considered professional fees; hence TDS u/s 192 shall not be deducted. But, if it is a contract of service, then TDS u/s 192 shall be removed.
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