Tax Deducted at Source (TDS) is a system introduced by the Indian government to collect taxes at the source of income. Under Section 192 of the Income Tax Act, TDS is deducted by an employer from the salary of an employee. This system ensures that employees pay taxes in a timely manner and helps the government maintain a steady flow of revenue.
In this article, we will answer common questions related to when and how TDS is deducted under Section 192 from an employee’s salary.
What is TDS under Section 192?
Section 192 of the Income Tax Act mandates that an employer must deduct tax at source from the salary paid to an employee. The employer is responsible for calculating the tax payable based on the income earned by the employee and the applicable tax rates. The deducted tax is then remitted to the government.
When is TDS deducted from salary?
TDS is deducted from an employee’s salary every month based on their estimated annual income. It is typically deducted at the time the salary is paid, i.e., monthly. If the total income of the employee exceeds the basic exemption limit, TDS will be applicable.
What are the thresholds for TDS deduction?
TDS is applicable only if the total annual income of the employee exceeds the basic exemption limit, which depends on the employee’s age. The exemption limits for the financial year 2024-25 are:
- For individuals below 60 years: Rs. 2,50,000
- For senior citizens (aged 60 years or above): Rs. 3,00,000
- For super senior citizens (aged 80 years or above): Rs. 5,00,000
If the estimated income exceeds these limits, TDS will be deducted on the taxable income.
How is the TDS amount determined?
The TDS amount is calculated by considering various factors such as:
- Basic Salary: The total salary before deductions.
- Allowances: House Rent Allowance (HRA), Special Allowance, etc.
- Bonuses: Any performance-related bonuses or incentives.
- Deductions under Section 80C to 80U: Deductions like investments in Provident Fund (PF), Life Insurance Premium (LIP), tax-saving Fixed Deposits, etc.
- Other Income: Any income from sources like interest, dividends, etc., which must be disclosed.
The employer calculates the expected total income for the year based on the salary and deductions and determines the TDS accordingly.
Is the TDS deduction based on actual or estimated income?
TDS is based on the estimated total income of the employee for the financial year. The employer makes an estimate of the employee’s total income, considering salary, allowances, bonuses, and any other income that may be earned. The employee must inform the employer about any additional income or deductions to ensure that the correct amount of TDS is deducted.
What if an employee has multiple jobs or income sources?
If an employee has multiple employers or additional income sources, they are required to disclose this information to each employer. The employer calculates TDS based on the total income estimated from all sources. Failure to disclose all sources of income can result in inadequate TDS deduction and may lead to penalties or interest charges during assessment.
What happens if the TDS deducted is more than the actual tax liability?
If the employer deducts more TDS than required, the employee can claim a refund while filing their Income Tax Return (ITR) for the financial year. The excess tax deducted will be refunded by the Income Tax Department after processing the return.
How does an employee know how much TDS has been deducted?
Employees receive a Form 16 from their employer, which is a certificate that details the TDS deducted from their salary. Form 16 contains a breakdown of the salary, allowances, deductions, and the TDS amount deducted during the financial year. It is typically issued at the end of the financial year or after the completion of the assessment period.
What are the consequences of non-deduction of TDS by the employer?
If an employer fails to deduct TDS as required under Section 192, the employer can be held liable for the non-deduction. The employee, however, remains responsible for paying the tax directly to the government, along with any applicable penalties or interest. In case of non-compliance by the employer, the employee may need to file their tax returns and pay the tax directly.
TDS under Section 192 is an essential process for ensuring that employees pay taxes in a timely and efficient manner. It helps in maintaining a regular flow of revenue to the government and reduces the burden of a lump sum tax payment at the end of the year. Employees should be proactive in providing accurate information regarding their income, exemptions, and deductions to their employers to ensure proper TDS deductions. Regular monitoring of Form 16 and annual tax filing is also crucial to avoid any discrepancies.
