TDS on Salary | Income Tax Deduction on Salary

TDS on Salary | Income Tax Deduction on Salary

TDS on Salary | Income Tax Deduction on Salary | TDS on Salary | Income Tax Deduction on Salary

What is Salary?

Once a unit hires an employee to work in the unit, the unit is liable to pay the consideration to the employee which is traditionally referred to as “Salary” and in a modernized manner it is named as CTC i.e. Cost To Company. In addition to the salary, many a times employers pay certain monetary and non- monetary perquisites to motivate the employees. Such salary and perquisite are taxable under the head “Income from Salary”.

There are certain exemptions where salary is not taxable under the head “Income from Salary”. Such exemptions are:

-   Payment made to professionals as professional fees for example Remuneration to Chartered Accountant. Such fees are taxable under the head “Income from Business & Profession” in his hands.

-  Salary received by partners from his partnership firm is also chargeable to tax under the head “Income from Business & Profession”

-   Salary received by a person as an MP or MLA or other such authority is taxable under the head “Income from Other Sources”

So the salary taxable under the head “Income from Salary” is chargeable to tax at the rates prescribed in the Finance Act every year. But the thing is, the responsibility of paying such tax on salary is transferred to the employer. It means the employer is supposed to deduct such tax from the salary and has to pay it to the government in the manner prescribe. Let us understand the calculation and deduction of such tax in the lights of section 192. The section states that:

Example of Income Tax Deduction on Salary 

Section 192

Subsection (1) Any person responsible for paying any income chargeable under the head “Salaries” shall, at the time of payment, deduct income – tax on the amount payable at the average rate of income – tax computed on the basis of the [rates in force] for the financial year in which the payment is made, on the estimated income of the assessee under this head for that financial year.

Point-wise understanding of the provision

-       Salary here will have meaning as provided in Section 17.

-       The person responsible for paying any income is generally an employer.

-    So the employer is supposed to deduct the tax and has to pay the salary after such deduction.

-     Tax is to be deducted on the basis of rates prescribed by the Finance Act of respective year.

-       Rates for the Financial Year 2012-13 i.e. Assessment Year 2013-14 are :

NORMAL RATES OF TAX
Total Income from 0 to 2,00,000	NIL
Total Income from 2,00,000 to 5,00,000	10% of the income exceeding Rs.2,00,000
Total Income from 5,00,000 to 10,00,000	Rs.30,000 (for income from 2,00,000 to 5,00,000 i.e. 10% of Rs. 3,00,000) Plus 20% of the Amount exceeding Rs. 5,00,000
Total Income more than 10,00,000	Rs.  30,000 (as calculated above) Add: Rs. 1,00,000 (for income from 5,00,000 to  10,00,000 i.e. 20% of Rs. 5,00,000) Add: 30%  of the income exceeding Rs. 10,00,000.
RATES FOR INDIVIDUAL RESIDENT FROM FOR AGE GREATER THAN 60 BUT LESS THAN 80
Total Income from 0 to 2,50,000	NIL
Total Income from 2,50,000 to 5,00,000	10% of the income exceeding Rs.2,50,000
Total Income from 5,00,000 to 10,00,000	Rs.25,000 (for income from 2,5,000 to 5,00,000 i.e. 10% of Rs. 2,50,000) Plus 20% of the Amount exceeding Rs. 5,00,000
Total Income more than 10,00,000	Rs.  25,000 (as calculated above) Add: Rs. 1,00,000 (for income from 5,00,000 to  10,00,000 i.e. 20% of Rs. 5,00,000) Add: 30%  of the income exceeding Rs. 10,00,000.
RATES FOR INDIVIDUAL RESIDENT FROM FOR AGE 80 OR MORE
Total Income from 0 to 5,00,000	NIL
Total Income from 5,00,000 to 10,00,000	20% of the income exceeding Rs.5,00,000
Total Income more than 10,00,000	Rs.1,00,000 (for income from 5,00,000 to  10,00,000 i.e. 20% of Rs. 5,00,000) Add: 30%  of the income exceeding Rs. 10,00,000.

-   The employer is supposed to deduct Tax at average rate only when expected salary of an individual exceeds the basic exemption limit as above. We will understand the concept with the help of an example at the end.

Example of Income Tax Deduction on Salary 

Certain Important points while calculating and deducting Tax on Salary:

 Ø  When an employer provides perquisite in Non-Monetary terms, he has the option to pay such tax as if he was supposed to pay the tax deducted under the dead “Income from Salary”. It is at the option of the assessee to deduct tax or not on such non-monetary perquisite. If the employer chooses not to deduct tax it becomes the responsibility of the employer to pay such tax.

 Ø  At the time when assessee is working under two employers simultaneously, he had an option to choose any one employer to deduct his tax from salary and has to provide the details of either employer so that the employer responsible to deduct such tax can give the effect of salary received from another employer while deducting the tax.

 Ø  Where the employee is receiving income other than that is taxable under the head “Salaries”, he has to provide all the details regarding such income and the tax deducted on such income to the employer who is responsible to deduct tax on salary along with details of the loss on “Income from House Property”.

 Ø  Loss on “Income from House Property” can help reduce tax deductions because only this loss can be set off against such salary income.

 Ø  The employer is responsible to make the employee provided with the Statement showing the payments made to him that are chargeable under the head “Salaries”, viz. Perquisites, Allowances, etc. in Form 12BA (Annexure II) and also Form 16. It is the requirement under section 192 (2C).

Example of Income Tax Deduction on Salary