How TDS on Salary is calculated – Section 192

As per Section 192 of the Income Tax Act 1961, any person responsible for paying the income chargeable under the head ‘Salary’ to his employee is required to deduct TDS.

Following points to be noted in this regard:-

1. There should be an employer-employee relationship between the payer and payee.
2. The payment is made to the employee in respect of “salary”
3. The TDS is deducted by the employer which can be an individual, HUF, Companies, Partnership Firm, Cooperative societies etc.
4. TDS shall be deducted only at the time of payment and not when salary is accrued to the employee.

The tax shall be deducted even at the time of payment of advance salary. Tax at source shall only be deducted only when the income exceeds the exemption limit, which is currently Rs. 2, 50,000 per annum

WHEN TDS IS DEDUCTED U/S 192

The tax shall be deducted only when the estimated income from salary including perquisites exceeds the limit not chargeable to tax.

Therefore, no TDS shall be deducted if the income from the salary is as per the table below:

HOW TDS RATE IS CALCULATED?

There is no fixed rate of TDS specified in section 192 unlike other sections of TDS.

It is calculated on Average Rate of Income Tax computed on the basis of the rates in force for the relevant financial year in which the payment is made.

What is Average Rate of Income Tax?

It is arrived by dividing the amount of income tax (calculated on total income) by total income

Income Tax on Total Income/ Total Income *100

Example

Mr Arjun of 32 years work with MCP Technologies, his estimated salary for the FY 2019-20 is Rs. 8,50,000.

He also made following investments for which he claims deduction u/s 80C

What shall be the Average Rate of Income tax and TDS to be deducted from his salary?

Computation of the Total Income of Mr. Arjun for the A.Y. 2020-2021

Calculation of Average rate of Income tax

Therefore, in the above example TDS for every month shall be Rs. 850000/12*6.42%=4547

SALARY RECEIVED FROM MORE THAN ONE EMPLOYER

Where a person is working in two or more jobs and receiving salary from more than one employer, he will give his salary and TDS details by other employer in writing and which has to be duly verified by that employer and vice versa.

Where a person was previously working with other employer and after resigning he joins another employer. He can submit Form 12B to the new employer which shows his previous salary, any deduction made, and TDS deducted from his salary.

The employer will after taking into consideration the previous salary shall deduct tax for the remaining part of the FY

RELIEF TO CLAIM IN RESPECT OF ARREARS OF SALARY

If during the FY an employee receives any arrear salary or salary is entitled to the relief under Section 89 to reduce his taxable income.

He may furnish to the employer Form No. 10E duly verified by him, and thereupon the employer shall compute the relief on the basis of such particulars and take the same into account in making the deduction under of TDS.

Form 10E should be submitted electronically along with Income tax return to claim rebate u/s 89 of the income tax act.

DUE DATE FOR DEPOSIT OF TDS

PENALTY FOR NON DEDUCTION/NON DEPOSIT OF TDS ON SALARY

DUE DATE FOR TDS RETURN

The deductor furnish the return in Form 24Q

TDS CERTIFICATE

After deducting and depositing and filing the TDS Return, deductor or employer shall issue a TDS Certificate in Form 16 or it may be available to the employee in Form 26 AS on the income tax website.

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