Reviewed by Sep 30, 2020| Updated on
Payroll tax refers to taxes withheld by an employer from an employee’s salary. The tax is on par with tax deducted at source (TDS) and has to be remitted to the government.
Payroll tax is calculated on the aggregate earnings of an employee including their salaries, emoluments, allowances, perquisites and payments made in the course of the employment. The tax is paid to the credit of the Permanent Account Number (PAN) or taxpayer-identification number of the employee.
Payroll tax or income tax in India is payable based on the annual compensation package of an employee. The tax payable is calculated on the tax rates for various income slabs. The tax rates applicable are those announced in the annual budget for the financial year.
An employer is bound to consider the salary income, income and loss declarations, investment declarations, and tax-free allowances claimed by an employee while making a calculation of annual taxable income and payroll tax on the same.
In India, an employer is required to file TDS returns on a quarterly basis by furnishing the details of the PAN of the employee.
An employee is entitled to claim various tax-free allowances such as house rent allowance, leave travel allowance, and meal allowance in India. The allowances are tax-exempt upon furnishing receipts and invoices by the employees. An employee can also avail the benefit of income tax deductions such as investments in eligible government securities, tax saver mutual funds, insurance products, and more.
In India, taxpayer can also claim a deduction for payments made towards repayment of housing loan, tuition fees for children, health insurance premium, and others.
Employees can also submit details of income from other sources to their employer. Such income would include bank interest, house rent, capital gains, and any other income earned during the financial year. Similarly, an employee can also declare losses such as loss from house property and capital losses to their employer.