Tax Deducted at Source (TDS) on Salary – Illustrated

TDS applies to payments like salary, interest, dividend, rent, commission, technical/professional fees, compensation, royalty, brokerage, transfer of immovable property, lottery winnings, winnings of races, and payment to non-residents/foreign companies covered by sections 192 to 196D of the Indian Income Tax Act 1961. This article focuses on ‘TDS on salaries’ u/s 192.

Annual Income of every person beyond a specified limit is subject to Income Tax and such tax may be paid by him either by way of advance tax or self assessment tax as and when applicable. In order to make it convenient for the tax payer and to generate a regular source of revenue, the Government introduced ‘deduction of tax at source’ i.e. TDS where tax is deducted at the rates in force, by the person responsible for making the payment to the recipient of income.

For instance, in case of income from salary, let us say Mr.A pays salary to Mr.X (assuming Mr.X’ salary exceeds the basic exemption limit for Financial Year (FY) 2013-14), Mr.A (Deductor) has to deduct tax on payment of salary to Mr.X (Deductee) and remit such tax to the credit of the Central Govt. which is adjusted against the final tax liability of Mr.X for FY 2013-14.

Steps involved on the part of the Deductor – TDS on Salary

  • Find out the list of employees whose annual income exceeds the basic exemption limit as applicable for the FY.
  • Compute the Annual Salary Income of such employees individually. Salary includes all taxable allowances and perquisites paid/provided to the employee.
  • Deduct exempt amount of House Rent Allowance (HRA) u/s 10(13A) from salary income. The employee is required to submit the following in writing along with the rent receipt issued by the owner of the house:
    • Rent paid
    • Name and address of the owner
    • PAN of the owner (If annual rent paid to him/her exceeds Rs.2 lakhs)
    • Note: Rent receipt is not required if HRA does not exceed Rs.3000 per month.
  • The employee at his option may declare in writing, any income other than salaries. If he does so, the employer shall consider such incomes / losses (only Loss from House Property), for the purpose of calculating TDS. The employee should submit along with the details of other income, a verification as follows, I _____________ (name of the employee) do hereby declare that the above stated are true to the best of my information and belief.
  • Consider deductions u/s 80C to 80U if any except 80G & 80GGA. In case of 80G deductions, donations to National Children’s Fund, Prime Minister’s Drought Relief Fund etc are allowed as deduction whereas any contribution made by the employee to public charitable institute notified u/s 80G will have to be claimed by the taxpayer at the time of his annual assessment and has to be ignored for the purpose of TDS.
  • Tax is deducted at the rates applicable to the employee and if the employee does not furnish his/her PAN tax is to be deducted at regular rates or @ 20% whichever is higher. Surcharge is applicable when the total assessable income for the year exceeds Rs.1crore.

Illustration

Mr.Sam’s monthly salary including allowances is Rs.50000/- He declares a House Property loss of Rs.75000/- for the FY 2012-13. He has paid tuition fees of Rs.40000/- for his daughter during the year. His TDS on Salary  computation is as follows:

Particulars Amount in INR
Annual salary income 6,00,000
Less: Loss under House Property 75,000
Gross Total Income 5,25,000
Less: Deduction u/s 80C 40,000
Total Assessable Income 4,85,000
Tax liability 29,355
Tax to be deducted at source every month (29355/12) 2,446

TDS on Salary should be remitted to the credit of the Central Government on or before the 7th of the succeeding month. In genuine cases, employer may increase or decrease the tax to be deducted at source to se right any excess or shortfall in deduction made earlier. TDS certificate should be issued by the employer to the employee annually in Form 16 containing details of tax computation as well as tax deducted and paid on or before 31st of May of the succeeding year. The employer should furnish separately to the employee the details of perquisites given to the employee in Form 12BA if the salary of such employee exceeds Rs.180000/-

The employer does not have any obligation to collect supporting documents for exemption given in the form of Leave Travel Concession, Conveyance allowance etc for calculating TDS (decision of the Apex Court in CIT Vs. Larsen & Toubro (2009) 181 Taxman 71).

The employer should keep in his possession the following information relating to House Property Loss declared by the employee

  • Gross Annual Value of Rent
  • Municipal Tax
  • Interest and other deductions
  • Address of the House Property
  • Amount of loan and
  • Name and address of the lender.

FAQS on TDS on Salaries

What if the employee wants to receive the salary without TDS or at a lower rate of TDS?

The employee has to obtain a certificate from the Assessing Officer by submitting an application in Form No.13.

How is TDS calculated on salary paid in foreign currency?

Value of salaries is determined by converting such foreign currency into Indian rupees at the prevailing Telegraphic transfer buying rate on the date of making the tax deduction.

What is the implication when the employee works under two or more employers in a financial year?

Each employer has to deduct tax separately on account of the employee. Employee has the obligation to give the details of income received during the year and tax deducted by other employers, to any one employer in Form 12B. The employer receiving Form 12B shall deduct tax from the employee on the basis of salary details submitted by the employee.


'Tax Deducted at Source (TDS) on Salary – Illustrated' have 3 comments

  1. January 18, 2016 @ 11:20 am dinesh sutariya

    Housing Board allot me House in the year 1994. I paid Rs. 5000/- at the time of allotment. there after installment of Rs. 685/- per month. Cost of House Rs. 68000/-. but i gave it to my relative within 5 months. He stay and paid regularly installment. Now he sold the house in January 2016. Rs. 600000/- what will be the tax liability on me? Because still said house on my name. can you guide me. As i gave you my mail id.

    Reply

  2. April 14, 2017 @ 12:26 pm RV. Yogeshwar

    Dear Sir,

    In some how employee paid advance tax. If we adjust it means, when filing TDS return in 4th quarter Annexure II, In which columns where to show this advance tax is paid by the employee and to mention it as we adjusted it accordingly. Or else I feel it furtherly this will get a liability to company and company get a demand notice from TDS department.

    I want to know in this case it is a like to show in annexure 2 as short fall in deduction, if not possible columns to show the advance tax paid by that employee. At this case will company get a demand notice to pay this short fall of amount in the column – “Shortfall in Tax deduction” – Column in TDS RPU 24Q 4th Quarter Annexure II / 2.

    Please clear my doubt.

    Regards,
    RV. Yogeshwar

    Reply


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