As per section 192 of income tax act, employer is required to deduct tax on salary at the time of payment to employee. However, at the time of deductions, employer is required to follow the provisions of income tax act. This means, employer can’t deduct tax on salary arbitrarily.
Employer must calculate TDS on salary, deduct it and pay regularly to the IT department.
In failure to do so, it will attract interest under section 201 and other penal provisions under the act.
In this article, we will be discussing provisions related to TDS on salary i.e. section 192 of the IT act and other provisions.
Nature of Payment and income to be included or excluded
Employer is responsible to deduct tax on salary for a particular financial year on the basis of slab rates applicable to employee.
Apart from salary, employer can consider income from any other head based on the declaration received from employee. However, loss can’t be considered other than loss from house property.
For instance, business loss if any incurred during the financial year can’t be considered by the employer. In such case, assessee in his ITR can set-off with other income and claim refund in case of excess deduction.
No tax is required to be deducted if estimated salary income and other income including losses if any do not exceed the basic exemption limit.
If employee has worked for more than one employer during a particular financial year, then employee can furnish details of income under the head salary due or received from previous employer and tax deducted there from. These details should be collected in a form of declaration verified by the employee.
On the basis of declaration, present employer shall recalculated and deduct tax on salary accordingly.
In case of relief, employer has to obtain declaration in form 10E from employee.
How to calculate TDS on salary
TDS on salary has to be calculated on the estimated income at the average of income tax computed on the basis of slab rates in force for the financial year.
This means, in the first step you need to calculate estimated income of the employee based on the declaration provided at the beginning of the year.
After arriving at the estimated income of assessee, you need to find the slab rates applicable and based on that calculate tax liability for the whole year.
To find out monthly TDS on salary to be deducted, you need to divide total tax liability for the financial year with 12.
If employee will be working for less than 12 months, then divide the whole tax liability as calculate with the actual months to be worked for the financial year. In this way, you will arrive at the monthly TDS on salary.
Every month you need to deduct tax from salary as calculated so that at the end of the year, whole tax liability has been deducted and deposited with department.
Employer has flexibility to decrease or increase TDS on salary amount for a financial year. This means, if employer has deducted lower amount of TDS on salary, then it can be compensated by deducting higher amount in remaining months so that total tax liability for the whole financial year is deducted.
Documents to be collected for calculating tax liability
To calculate estimated income and tax liability thereon, employer should obtain the evidence or proof or particulars in the prescribed form and manner.
For instance, to claim HRA exemption on salary, employor may ask you to produce rent receipts, rent agreement and PAN details of landlord. Similarly, to claim deduction under section 80C, employor will be asking for receipts and certificates.
Employer can allow relief under section 89 on arrear of salary or gratuity on the basis of a declaration received from employee in form 10E.
TDS on non monetary perquisite
Employer can make payment of income tax on the whole or part of perquisite provided by way of non-monetary payments.
In such cases, tax has to be calculated by including the non monetary payments in salaries. Tax payable by employer on behalf of employee should also be considered for the purpose of calculating TDS.
Quarterly TDS return on salary
Tax deducted from employee’s salary is required to be deposited with IT department on or before 7th of the following month in which its deducted. This means, if tax has been deducted for the month of August then it has to be deposited on or before 7th September. You can deposit it online by using net banking.
After making payment for the whole quarter, employer is required to file quarterly TDS return in form 24Q with the IT department.
After filing quarterly TDS returns, tax deducted can be seen in form 26AS online in employee’s account.
While filing TDS return in form 24Q, employer is required mention details which includes PAN of the employee, tax deducted, salary paid on which TDS calculated and name of the employee.
Form 24Q has to be filed for each quarter on or before the due date of filing.
Certificate issued to employee
Employer at the end of the previous year but on or before 31st May of the relevant assessment year issue Form 16 to employees.
It can be authenticated by using employer’s digital signature certificate. However, we suggest you to check the content of the certificate before sending it to employee as after signing with DSC content of the certificate cannot be changed.
In addition to form 16, employer should also issue a statement in Form No.12BA giving correct and complete particulars of perquisite or profit in lieu of salary. Form 12BA is to be issued when salary paid or payable exceeds Rs. 1, 50,000 or else in can be added with form 16.