How to Calculate TDS on Salary – Employer Approach
An employer while paying salary to the employee would cut TDS from the same before the salary is remitted to the account of the employee. And this shall be cut under section 192 under 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 employee’s estimated income for the financial year.
Employers and organisations with a valid TAN are qualified for filing TDS returns. Individuals whose accounts are audited under Section 44AB, and hold an office under the government or companies are liable to file online TDS return every quarter.
- Payment is made by the employer to the employee,and it means that there must be an existence of an employer and employee relationship.
- 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 to income tax act.
Different types of employers would include:
- 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)||Karta of the HUF|
|6||Private and Public limited companies||Company and Principal officer thereof|
Deduction of TDS under Section 192
Asper section 192, of the Income Tax Act, TDS should be deducted at the time of actual payment of salary and not during the accrual of salary. It should also be noted that the employer should deduct TDS on the payment of salary whether in advance or the payment is of the arrears.
But in case of an employee whose total salary during a financial year is not crossing 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 at an age below 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,
- And in case of super senior citizen who is 80 years or above, the limit of income shall be INR 5 Lakhs.
And if the employee is not holding PAN, then also the rule for deducting TDS shall be applicable, but the deduction shall be flat 20% here unlike an employee with PAN.
Rate of TDS Deduction
As per section 192 of the Income Tax Act, there is no particular rate being 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 the possible deductions which are applicable on the salary paid. And after this the tax will be calculated according to the rate of tax which shall be applicable to the taxpayer according to 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.
And in case of an employee who is not having 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. He was employed with the company during the whole year of FY 2019-2020. So, while computing the TDS to be deducted from the salary paid to such 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%
So monthly TDS to be deducted shall be = INR 1,50,000*17.77% = INR 26,655.
Salary Receipt from Multiple Employers
When an employee is earning salary income from more than one employer, he should select an employer of his choice and furnish the details of salary and TDS in Form 12B, who would then deduct TDS considering the aggregate salary from all the available sources.
An employer when taking in an employee should also obtain the particular of salary and TDS earned by him from previous employer in Form 12B and the new employer shall consider the salary earned from precious employment while computing and deducting the TDS. And in any case of failure from the part of employee to furnish such details of salary earned from other source, the employer shall deduct TDS from the payment of salary made to employee based on the employment arrangements made by them.
Revision of the Estimate Made
An employer can make adjustment with regard to the shortfall or excess deduction being made from the salary paid to an employee with respect to the TDS, in the subsequent deductions which 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 have an effect on the TDS deduction liability also.
And if the employee makes any kind of investments which is qualified for earning a reduction or rebate from Income Tax, and such employee furnishes the details of the investments in form 12BB, reducing the tax liability thereby then the employer shall also change the amount of TDS deduction also.
The employer who has deducted the TDS return filing from salary paid to 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 would show particulars of perquisites, and profits in lieu of salary earned.
Time Limit for Depositing TDS under section 192
In case of TDS, which was deducted by a Government Employer, it should be deposited on the same day of deduction.
And in case of TDS deducted by an employer other than Government Employer, then in case of:
- the salary, which is credited, and TDS is deducted during the month of march, the due date shall be on or before 30th of April.
- the salary,which is credited, and TDS is deducted in any month other than the month of 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 thechallan no. ITNS281 and under the nature of payment as given below:
- 92A which is for Government employees other than union government,
- 92B which is for employees other than Government employees
- 92C which is for Union government employees respectively.
The employer shall file Form 24Q to file salary TDS and this shall eb submitted on a quarterly basis which has been given below:
- April to June: 31st of July
- July to September: 31st of October
- October to December: 31st of January
- January to March: 31st of May.
Consequences of Non-Deduction or Payment of TDS
- If an employer fails to pay to the credit of the Central Government tax which was deducted at source by him as required under the provisions of Chapter XVII-B, he shall be punishable with an imprisonment for a term, which shall not be less than 3 months, but which may extend to 7 years, along with applicable fine.
In case of non-deduction of TDS either in whole interest rate of 1% per month shall be applicable as per section 201(1A) from the date on which it wasdeductible to the date on which it was actually reduced from 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 234 E, if the failure to pay TDS continues by the assessee, then he shall be levied with a fine of INR 200 per day till 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 statement of TDS within due date 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 fine by the concerned authorities.