If you’re unfamiliar with the term TDS (Tax Deducted at Source), it might sound a bit confusing. But don’t worry—this guide will explain everything about TDS on salary, how it’s calculated, and how it affects you. Whether you’re employed, a business owner, or just interested in taxes, this article will break down the details in a simple and easy-to-understand way.
What is TDS?
TDS, or Tax Deducted at Source, is a tax collection method where the person making a payment (like your employer, a bank, or a company) deducts tax before paying you. For instance, if you receive a salary, your employer will deduct tax from your salary and send it directly to the government. This ensures that tax is collected regularly and not in one big payment at the end of the year.
How Does TDS on Salary Work?
When you earn a salary, your employer is responsible for deducting TDS on salary before paying you. This is a system used to make sure that income tax is paid on time and in smaller amounts throughout the year, rather than all at once.
Under Section 192 of the Income Tax Act, employers must deduct TDS on salary payments based on the applicable tax rates for the financial year. This deduction is calculated on the employee’s estimated total salary income (including perquisites) for the year, if it exceeds the basic exemption limit.
Tax is calculated based on the rates prescribed for the financial year, along with applicable surcharge and education cess, at the time of payment to employees.
Who is Affected by TDS?
Both individuals and businesses are affected by TDS on salary. As an employee, your employer is responsible for deducting this tax from your salary before they pay you. This system ensures that taxes are paid regularly and on time.
What is the TDS Rate Under Section 192?
The TDS rate on salary can vary depending on how much you earn. It follows income tax slabs set by the government each year. Typically, the rate ranges from 10% to 30% of your taxable income, and the more you earn, the higher the tax rate.
Key Points:
- TDS is not fixed: It depends on the income tax slabs that apply to your earnings.
- Tax brackets: Your employer calculates the amount of TDS based on the tax you owe for the year and divides it by the number of months you are employed.
- If you don’t have a PAN: TDS will be deducted at a higher rate of 20% even if the normal tax rate for you would be lower.
How is TDS Calculated on Salary?
The calculation of TDS on salary can be a bit tricky at first, but it’s not difficult once you understand the basic steps. Here’s a simple guide to help you:
Steps to Calculate TDS on Salary
- Know Your Salary Components: Your salary is made up of different parts, such as: Basic Salary, House Rent Allowance (HRA), Medical Allowance, Travel Allowance (TA) or Leave Travel Allowance (LTA), Dearness Allowance (DA) and Special Allowances
- Calculate Your Total Salary: Add up all your monthly earnings and allowances to get your total annual salary.
- Account for Exemptions: Some parts of your salary, like HRA and LTA, may be exempt from tax. Add these exemptions and multiply by 12 to get the annual exempt amount.
- Calculate Your Taxable Income: Subtract the exempt amount from your total salary to determine your taxable income.
- Apply the Standard Deduction: Subtract ₹50,000 (or ₹75,000 if you choose the new tax regime) from your taxable income to calculate your net taxable income.
- Use the Tax Slabs: Once you have the net taxable income, apply the appropriate tax slabs to determine how much tax you owe.
Example of TDS Calculation on Salary
Let’s break it down with an example. Here’s a simplified version of the TDS calculation on salary:
| Component | Amount (₹) | Description |
| Total Gross Salary | ₹13,25,000 | Total income before any deductions |
| Basic Salary | ₹7,25,000 | The basic amount of salary |
| Dearness Allowance (DA) | ₹2,00,000 | Allowance given to offset inflation |
| House Rent Allowance (HRA) | ₹1,00,000 | Allowance for rent expenses |
| Leave Travel Allowance (LTA) | ₹1,00,000 | Allowance for travel expenses |
| Performance Bonus | ₹2,00,000 | Bonus paid based on performance |
Deductions
| Deduction Type | Amount (₹) | Description |
| Tax-exempt HRA | ₹1,00,000 | HRA that is exempt from tax |
| Tax-exempt LTA | ₹1,00,000 | LTA that is exempt from tax |
| Standard Deduction | ₹50,000 | A deduction that is automatically applied |
Net Salary After Deductions = ₹10,50,000 (Total salary after exemptions and standard deduction)
Further Deductions Under Sections 80C and 80D
| Deduction Type | Amount (₹) | Description |
| Section 80C Deduction | ₹1,50,000 | Deduction for investments like PPF |
| Section 80D Deduction | ₹50,000 | Deduction for health insurance premiums |
Net Taxable Salary = ₹8,50,000 (Salary after all deductions and exemptions)
Tax Calculation on Net Taxable Salary
| Tax Slab | Tax Rate | Amount |
| Up to ₹5,00,000 | 5% | ₹5,00,000 × 5% = ₹12,500 |
| From ₹5,00,001 to ₹8,50,000 | 20% | ₹3,50,000 × 20% = ₹70,000 |
Total Tax Payable = ₹12,500 + ₹70,000 = ₹82,500
TDS Deduction Rate
| Component | Amount (₹) | Description |
| Tax Liability | ₹82,500 | The total tax payable |
| Gross Total Income | ₹13,25,000 | The total income before deductions |
| TDS Deduction Rate | 6.23% | (₹82,500 / ₹13,25,000) × 100 = 6.23% |
What Happens if You Opt for the New Tax Regime?
If you choose the new tax regime, the tax rates are lower, but you cannot claim exemptions or deductions. Here’s what you need to know:
| Aspect | Details |
| Exemptions and Deductions | Not allowed in the new tax regime |
| Tax Rates | Lower tax rates apply |
| Standard Deduction | ₹75,000 instead of ₹50,000 |
If you don’t have many exemptions or deductions to claim, the new tax regime might be a better option for you.
Understanding TDS on salary may seem complicated at first, but breaking it down into clear steps makes it easier to understand. By knowing your salary components, exemptions, deductions, and the tax slabs, you can easily calculate your TDS. Additionally, understanding whether the old tax regime or new tax regime is better for you will help you save taxes effectively.
By following this guide, you’ll have a clearer picture of how TDS works and how it affects your salary. Always remember to check the current income tax slabs and exemptions for the specific financial year to ensure accurate calculations.
Who Must Deduct TDS Under Section 192 of the Income Tax Act?
Anyone who pays a salary must deduct TDS on that salary. This includes:
- Individuals
- Hindu Undivided Families (HUFs)
- Partnership firms
- Companies
- Cooperative societies
- Trusts and other legal entities
If you are an employer or in charge of paying salaries, you must ensure that the appropriate TDS on salary is deducted.
Who is the Payee for TDS Under Section 192?
A payee in this context is any employee who receives taxable income from their salary. TDS under Section 192 applies only if there is an employer-employee relationship. This means that the employer is responsible for deducting tax from your salary and sending it to the government on your behalf.
However, if there is no employer-employee relationship, TDS will not be deducted under this section. Let’s take a look at some examples:
- Directors: If you’re a company director, you’re generally not considered an employee. Therefore, no TDS will be deducted under Section 192 for payments made to you. However, if you’re a full-time director, you may be considered an employee, and TDS will apply.
- Part-Time Roles: For people in part-time roles like visiting professors or visiting doctors, TDS is deducted under Section 194J (which deals with professional fees), not Section 192.
Note: If you’re a full-time employee, TDS under Section 192 will apply to your salary.
Is TDS Deducted on Salary Paid to Non-Resident Employees?
Yes, TDS on salary paid to non-resident employees is also required under Section 192. This means that if you are working in India for an Indian employer but are not a resident of India, your salary will still be subject to TDS deductions.
So, whether you are a resident or a non-resident, as long as you’re employed by an Indian company, your salary will have TDS deducted as per Section 192.
When Should TDS Be Deducted?
TDS must be deducted when the salary is actually paid to you, not when it is simply credited to your account. This is an important point to remember—if your salary is not physically paid, TDS doesn’t need to be deducted at that time.
However, the salary becomes taxable when it is either received or accrued, whichever happens first. In other words, even if the salary is credited to your account, it is considered taxable at that point.
Note: TDS is deducted when the salary is paid, not when it’s just credited to your bank account.
What is the Threshold Limit for TDS Under Section 192?
TDS is only deducted if your salary exceeds the basic exemption limit. This limit is the income level below which you don’t need to pay any tax.
For the financial year 2023-24 (Assessment Year 2024-25), here’s what the basic exemption limits are:
- Individuals under 60 years: ₹2,50,000
- Senior Citizens (60-79 years): ₹3,00,000
- Super Senior Citizens (80 years and above): ₹5,00,000
If you choose the new tax regime, the basic exemption limit is ₹3,00,000 for everyone, no matter their age.
If your salary is less than the basic exemption limit, no TDS will be deducted.
Note: TDS is not deducted unless your salary exceeds the basic exemption limit set by the government.
When is TDS Deducted from Salary?
TDS from your salary is deducted monthly by your employer. This deduction includes any advance payments or salary arrears you may receive. It’s important to remember that TDS is deducted throughout the year, not just at the end of the financial year.
TDS is deducted monthly from your salary.
What Are Non-Monetary Perquisites?
Non-monetary perquisites are benefits or perks provided by an employer to an employee that are not in the form of money. These could include items like:
- Company-provided cars or phones
- Housing or accommodation facilities
- Health insurance
- Any other benefit that is not paid in cash but holds value
Is the Employer Required to Deduct TDS on Non-Monetary Perquisites?
The short answer is yes, an employer can choose to deduct TDS on non-monetary perquisites. However, it is not mandatory for them to do so.
- If the employer decides to deduct tax on these perks, they calculate the tax based on the employee’s total salary, including the value of the non-monetary perks.
- The tax is deducted at the same rate as the employee’s average income tax rate for the total salary.
Let’s look at an example to make this clearer.
Example of TDS Calculation on Non-Monetary Perquisites
Suppose an employee earns ₹9 lakh annually, and ₹50,000 of that comes from non-monetary perks. Let’s assume the total tax payable (including health and education cess) is ₹75,000. Here’s how the employer would calculate the TDS on those perks:
- Total Salary (including perks): ₹9,00,000
- Total Tax: ₹75,000 (including cess)
- Average Tax Rate: (₹75,000 / ₹9,00,000) * 100 = 8.33%
- Tax on Non-Monetary Perks: 8.33% of ₹50,000 = ₹4,165
- Monthly Tax Deduction: ₹4,165 / 12 = ₹347.08
This means that the employer will deduct ₹347.08 per month from the employee’s salary for the non-monetary perks.
The key point is that this TDS is considered paid on behalf of the employee, and the employee doesn’t have to pay it separately.
What Happens if TDS Is Too Much or Too Little?
Sometimes, an employer might overestimate or underestimate the TDS deductions for the year. Here’s what happens in either case:
- Excess TDS: If more TDS is deducted than necessary, the employee can claim a tax refund when they file their income tax return.
- Shortfall in TDS: If the employer deducts less tax, they can adjust the shortfall later, but it must be done in the current financial year.
When TDS Is Deducted Late
If an employer doesn’t deduct TDS every month but decides to deduct it all at once towards the end of the financial year, they won’t face penalties for late deduction, as long as the tax is paid by the end of the year. However, if the employer intentionally delays TDS deductions and compensates for it in the final months, they could face penalties in the form of interest charges for late payment.
How can relief be claimed for salary paid in arrears or advance under Section 89(1)?
Sometimes, employees receive salary in arrears (for past periods) or in advance (for future periods). This can affect the way TDS is calculated.
- Relief Under Section 89(1): If you get salary in arrears or advance, you might be able to claim some relief to reduce the extra tax burden.
- To claim this relief, you’ll need to submit Form 10E to your employer and also file it electronically on the e-filing portal of the Income Tax Department.
However, keep in mind that if you receive a voluntary retirement or separation payment under a special scheme (Section 10(10C)), you cannot claim this relief.
What Incomes Are Exempt from Salary for TDS?
While calculating TDS, some incomes are exempt from being included in the salary computation. For instance:
- Any income under Section 10 (exempt income like HRA, etc.)
- Certain allowances, reimbursements, or benefits that are exempt from tax
These incomes should not be included when calculating salary for TDS purposes under Section 192.
How Does Section 89(1) Affect TDS?
Relief under Section 89(1) applies when employees receive salary in arrears or advance. Employers should ensure that TDS is calculated correctly by factoring in this relief, along with any tax on non-monetary perquisites that they agree to pay.
What Proof Must Employees Provide for TDS Deductions?
To ensure proper TDS deductions, employees must provide evidence of any claims, like:
- Tax-saving investments
- Losses (such as those from house property) they wish to claim
- Other eligible deductions
This proof helps the employer estimate the employee’s income accurately and make the right deductions for TDS.
What Happens If an Employee Has Multiple Employers?
If you work for more than one employer, you can choose which employer will deduct TDS from your total salary. You’ll need to provide information about your income and any previous tax deductions through Form No. 12B. This will help the employer calculate the correct amount of tax to be deducted.
Can Employers Adjust TDS Deductions?
Yes! Employers can adjust TDS based on any excess or shortfall in tax that was deducted previously. This adjustment is allowed under Section 192(3) of the Income Tax Act, making it easier for employers to correct mistakes or balance out the tax deductions over time.
What Should Employees Inform Their Employers About Other Income?
If you have other sources of income apart from your salary, such as rental income or freelance work, you need to tell your employer about it. This includes:
- Other income: Inform your employer about any other income you receive, such as interest from savings or investments.
- Losses from House Property: If you have rental income and are claiming any losses, share these details with your employer.
This helps your employer calculate your TDS accurately.
How Can Employees Ensure Accurate TDS Deductions?
To ensure that your TDS is calculated correctly, you should:
- Declare all other income (like interest or freelance earnings) to your employer.
- Inform about any eligible deductions (such as home loan interest or medical expenses).
- Provide the necessary forms (like Form No. 12B or Form No. 12BB) to support your claims.
It’s important to understand that while you can reduce your taxable income by showing deductions, TDS on salary cannot be reduced below the minimum tax payable.
Lower or No TDS Deduction Under Section 192: How Can You Benefit?
In some cases, you may qualify for a lower TDS deduction or even no TDS. To apply for this, you must submit Form No. 13 to the Assessing Officer. If your total income is low enough to justify a lower tax rate, you may receive a certificate confirming this.
It’s important to note that since April 1, 2010, you must include your PAN in the form for the certificate to be issued under Section 197.
Does TDS Apply to Non-Resident Employers or Employees?
Yes, TDS provisions under Section 192 apply even if the employer and employee are non-residents, as long as the salary is for services rendered in India. So, even if the salary is paid outside India, TDS is applicable.
What Proof Must Employees Provide for Claims Under Section 192?
If you’re claiming certain deductions like House Rent Allowance (HRA) or Interest on Home Loan, you must provide proof to your employer using Form No. 12BB. Here’s what you need to include:
- HRA Exemption: Rent paid details, landlord’s name, PAN (if rent is above ₹1 lakh), and rent receipts.
- Home Loan Interest: Proof of interest paid, lender details, and interest certificate.
- Donations: Receipt for donations made under Section 80G, including details about the charity.
The employer must collect a written statement from the employee specifying the rent paid, landlord’s name, property address, and rent receipts. If the annual rent exceeds ₹1 lakh, the landlord’s PAN must also be provided. Rent receipts are not required if HRA is ₹3,000 or less per month.
This helps your employer correctly calculate your TDS based on eligible deductions.
Is TDS applicable on salary paid to partners?
TDS under section 192 does not apply to salary or remuneration paid to partners in a partnership firm. This is because partners are not employees, and their earnings are considered business income. As per Section 15, salary paid to a partner is not taxed as “salary,” and hence, no TDS is deducted.
Is TDS applicable on pension and family pension?
Pension is treated as “salary” under Section 17, meaning that TDS is applicable. So, if you receive a pension from a former employer, the bank or pension provider will deduct TDS under Section 192.
However, family pension is classified as “income from other sources” under Section 56, which means no TDS under section 192 is deducted from it.
When Should You Exercise the Option Under Section 115BAC?
Section 115BAC allows individuals to choose a lower tax rate by forgoing certain deductions. Here’s when you can opt for it:
- For Individuals with Business or Professional Income: The option must be exercised by the due date for filing income tax returns.
- For Individuals without Business Income: You can exercise this option when filing your Income Tax Return (ITR).
Once you choose this option, it applies for the entire year, and you can’t change it within the same financial year. But you can change it when filing your return the following year.
How to Check Your TDS Refund Eligibility
If you believe you’ve paid too much TDS, you may be eligible for a refund. Here’s how to check:
- File Your Income Tax Return (ITR): If your TDS exceeds the tax you owe, file your return.
- Track Refund Status: You can check your refund status using your PAN or via the Income Tax Department website.
Make sure to e-verify your ITR to complete the process and receive your refund smoothly.
What Happens if TDS is Not Deposited?
If a company fails to deposit the TDS it has deducted, it faces penalties:
- Daily Penalty: A fine of ₹200 per day, but it can’t exceed the total amount of TDS owed.
- Additional Penalty: A fine of ₹10,000 to ₹1 lakh for incorrect information or late submission.
However, there are no penalties if the TDS is paid, and late fees are settled before filing the return.
How Can I Save on TDS?
Here are some strategies to reduce TDS:
- Form 15G/15H: If your income is below the taxable limit, submit these forms to avoid TDS on interest income.
- Claim Deductions: Ensure you claim all eligible deductions under sections like 80C and 80G to reduce your taxable income.
- Lower TDS Rate: If eligible, submit documents to request a reduced TDS rate.
Consulting a tax professional can help you plan effectively and minimize your TDS.
What is the process for the issuance of a TDS certificate?
Once your employer deducts TDS, you’ll receive a TDS certificate (Form 16) showing the amount of tax deducted. Employers must issue this certificate, and you can download it from the TRACES utility website.
What is the time limit for the deposit of TDS?
TDS must be deposited by the employer after deducting it from the employee’s salary.
For government offices:
- If tax is paid without a challan, it should be deposited on the same day.
- If tax is paid with a challan, it must be deposited within 7 days from the end of the month.
For other employers:
- If the income is credited in March, TDS must be deposited by April 30.
- For other cases, it must be deposited within 7 days from the end of the month in which the tax was deducted.
When should the TDS statement be submitted to the tax department?
After deducting TDS, employers must submit a quarterly statement of tax deducted to the Income Tax Department electronically, along with Form 27A for verification.
| TDS Statement Period | Last Date of Filing | TDS Statement Form |
| April to June | 31st July of the financial year | 24Q |
| July to September | 31st October of the financial year | 24Q |
| October to December | 31st January of the financial year | 24Q |
| January to March | 31st May of the financial year immediately following the year | 24Q |
After filing the TDS statements, employees can check the tax deducted from their salary in Form 26AS.
What documents should be provided by the employer to the employee?
As per Section 192(2C) and Rule 26A(2), the employer must provide the following documents to the employee:
- Form 12BA: This form contains a statement detailing the correct and complete particulars of perquisites or profits in lieu of salary, along with their value.
- Form 16: This form provides a summary of the total salary, TDS deducted, and other tax-related details.
Both forms should be provided to the employee on or before 31st May of the assessment year or the following financial year.
Additionally, the employer may adjust any excess or deficiency in TDS deductions during the financial year by increasing or reducing the amount deducted under Section 192.
