An employer, while paying Salary to the employee, would deduct TDS from the same amount before remitting it to the employee’s account. And this shall be cut under Section 19 of the Income Tax Act, pertaining to the following conditions:
The employer deducts TDS on Salary at the employee’s ‘average rate’ of income tax. It will be computed as follows: Average Income tax rate = Income tax payable (calculated through slab rates) divided by the employee’s estimated income for the financial year.
Employers and organisations with a valid Tax Deduction and Collection (TDS) account are eligible to file TDS returns. Individuals whose accounts are audited under Section 44AB and hold an office under the government or companies are liable to file an online TDS return every quarter.
- The employer makes a payment to the employee, which implies that an existing employer-employee relationship exists.
- Such payment should be the nature of Salary only, and this Salary would include all the monetary & non-monetary perquisites as stated by income tax laws.
- Such salary payment should be above the minimum amount not chargeable under the Income Tax Act.
Different types of employers would include:
- Companies,
- Individuals or Proprietors,
- HUF (Hindu Undivided Family),
- Partnership Firms,
- Co-operative Societies, and
For different types of employers, the responsibility to deduct TDS while paying Salary would be as follows:
| SL. NO. | PARTICULARS | RESPONSIBLE PERSONS |
| 1 | Central or State Government or PSU (Public Sector Undertaking) | The designated drawing and disbursing officers |
| 2 | Firm | The Managing Partners or Partner of the Firm |
| 3 | HUF (Hindu Undivided Family) Partners | of the HUF |
| 4 | Proprietorship Concern | Proprietor |
| 5 | Trusts | Managing Trustees |
| 6 | Private and Public limited companies | Company and Principal officer thereof |
Dedication of TDS under Section 19
Section 192 of the Income Tax Act stipulates that TDS should be deducted at the time of actual payment of salary, not during the accrual of Salary. It should also be noted that the employer is required to deduct TDS on payments of Salary, whether made in advance or for arrears.
But in case of an employee whose total Salary during a financial year does not cross the basic exemption limit as given below, the employer need not deduct the TDS on payment of such Salary:
- In case of a resident in India who is below the age of 60 years, then the limit shall be INR 2.5 Lakhs,
- In case of a senior citizen, who is between the age of 60 years and 80 years, that is up to 79 years, the limit of income shall be INR 3 Lakhs,
- For a super senior citizen aged 80 years or above, the income limit is INR 5 Lakhs.
And if the employee does not hold a PAN, the rule for deducting TDS shall also be applicable; however, the deduction shall be flat at 20% in this case, unlike for an employee with a PAN.
Rate of TDS Deduction
As per section 192 of the Income Tax Act, there is no particular rate specified for deducting the TDS from the Salary being paid to the employee by the employer. And this shall be done on the basis of the Income Tax Slabs which are applicable to each employee as a taxpayer during the relevant financial year.
Firstly, the total Salary payable to an employee after all applicable deductions have been made on the Salary paid. And after this, the tax will be calculated according to the tax rate relevant to the taxpayer, as per the applicable income tax slab. The employer shall conduct such tax calculation at the beginning of a year, and the TDS shall be deducted by dividing the total tax liability of the employee for the relevant financial year by the number of months of his employment under the employer during the financial year.
In the case of an employee without a PAN, TDS shall be deducted at a flat rate of 20%, excluding any education cess.
Say, Mr. A is working in XYZ Private Limited and is earning a salary of INR 1,50,000 per month. The company employed him throughout the entire year 2019-2020. So, while computing the TDS to be deducted from the Salary paid to such an employer, under section 192, the following shall be done:
Total Salary earned during FY 2019-20 or AY 2020-21 = INR 18,00,000 [INR 1,50,000*12 Months]
(Less): Standard Deduction = INR 50,000
(Less): Estimated Chapter VI-A Deduction = INR 1,00,000
Net Taxable Income = INR 16,50,000
Tax Liability as per the Tax Slab (Tax+Education Cess) = INR 3,19,800 (INR 3,07,500+ INR 12,300)
So, TDS liability in % shall be = (INR 3,19,800/INR 18,00,000) *100 = 17.77%
Therefore, the monthly TDS to be deducted shall be INR 1,50,000*17.77% = INR 26,655.
Salary Receipt from Multiple Employers
When an employee earns salary income from more than one employer, they should select an employer of their choice and furnish the details of Salary and TDS in Form 12 B. The employer will then deduct TDS considering the aggregate Salary from all available sources.
An employer, when taking in an employee, should also obtain the particulars of the Salary and TDS earned by him from his previous employer in Form 12B, and the new employer shall consider the Salary earned from previous employment while computing and deducting the TDS. And in any case of failure on the part of the employee to furnish such details of Salary earned from other sources, the employer shall deduct TDS from the payment of Salary made to the employee based on the employment arrangements made by them.
Revision of the Estimate Made
An employer can make adjustments with regard to the shortfall or excess deduction made from the Salary paid to an employee with respect to the TDS in the subsequent deductions that were or will be made. Say there was a payment of advance, arrears, bonus, commission, or such other payment which brought in a change in the total amount paid or increased the payment and thereby the total tax liability. And this would, in turn, affect the TDS deduction liability as well.
And if the employee makes investments that are qualified for earning a reduction or rebate from Income Tax, and such an employee furnishes the details of the investments in Form 12BB, thereby reducing the tax liability. The employer shall also adjust the amount of TDS deduction accordingly.
TDS Statements
The employer who has deducted TDS return filing salary paid to the employee should provide them with Form 16, containing the details of the Salary paid and the amount deducted in the form of TDS. In addition to this, a Form 12BA shall also be provided, which will show the particulars of perquisites and profits in lieu of Salary earned.
Time Limit for Depositing TDS under section 192
In the case of TDS, with the Section 80C Employer deduction, it should be the Government Employer deduction.
And in case of TDS deducted by an employer other than the Government Employer, then in case of:
- The Salary, which is credited, and TD are deducted during Mar. The due date shall be on or before April 30.
- If the Salary, April 30s credited, and TDS are deducted in any month other than March, the due date for depositing TDS shall be within 7 days from the end of the month in which the reduction is being made.
It shall be paid using the challan ITNS281 and under the nature of payment as given below:
- 92A, which is for Government employees other than the Union government,
- 92B, which is for employees other than Government employees
- 92C, which is for Union government employees.
Return Filing
The employer shall file Form 24Q to file Salary TDS, and this shall be submitted on a quarterly basis, as given below:
- April to June: 31st of July
- July September 31 of October
- October 31st of January
- January 31st, 31st of May.
Consequence:
- I suppose an employer fails to deduct the credit of the Central Government tax that was deducted at source by them as required under the provisions of Chapter XVII. In that case, he shall be punishable with imprisonment. In that case, the term shall be at least 3 months, but may extend to 7 years, along with an applicable fine.
- Interest
In canon-dedicationuctio of TDS, the whole interest rate per month will be applicable as per section 201(1A) from the date on which the Section is deductible to the date on which it was deductible to reduce the payment.
In case of non-payment of the TDS, which was deducted either in whole or part, interest at the rate of 1.5% per month shall be applicable as per section 201(1A) from the date of deduction of such payment to the date of making payment.
- Late filing fees or penalty
As per Section 234E, if the failure to pay penalties continues by the assessee, then he shall be levied a fine of INR 200 per day until the non-payment continues, but such fine should not exceed the amount of TDS for which the statement is to be furnished.
The AO (Assessing Officer) shall also direct the person who fails to file a statement of TDS within the due date to pay a minimum penalty of INR 10,000, which may extend to INR 1,00,000. And this shall eb in addition to the fine as per 234E. And a penalty amounting to the TDS amount which was not collected or deducted shall also be imposed as a fine by the concerned authorities.
