Employees are liable to tax only if their gross salary after all exemptions and tax deductions are exceeding the basic exemption limit of tax. For the financial year ending 31st march 2013 and 31st march 2014 basic exemption limit for the purpose of income tax is Rs. 200000 for an assessee who is below 60 years of age.
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Based on your slab rates of the financial year, tax is calculated and TDS is deducted at an average rate every month till the tax liability is deducted and paid to the IT department.
If an employee thinks that because of some losses or for any other reason he is not liable to tax or liable to tax at a lower rate then, TDS can get deducted at such lower rate provided such employee produce a certificate from the assessing officer to do so.
Self declaration by stating that the employee is not liable to tax or liable at a lower rate will not work. For lower deduction of TDS you need to apply in Form no 13 to your assessing officer with your PAN number mentioned on it. If your assessing officer is satisfied then a certificate for lower deduction of TDS will be issued to you. Such certificate of lower deduction will be issued only if you justify it to the assessing officer.
Such certificates are issued directly to the employer with a copy to the applicant i.e. employee. After receiving such copy, employer will deduct TDS at a rate mentioned in the certificate. Such certificate will be valid for one financial year i.e. the financial year mentioned in the certificate. On expiry of the validity period, you have to again make a fresh application to the assessing officer in Form No 13. In absence of such certificate the employer should deduct tax at a normal rate that is applicable to him.