TDS on Salary Under Section 192 of Income Tax Act

Ever wondered why your in-hand salary is lower than your CTC? Tax is one of the main reasons amongst others. Employers deduct tax from your salary before paying it in your account and deposits it with the government on behalf of the employee. This concept of deducting taxes before making the payment is known as TDS: Tax Deduction at Source.

Section 192 of the Income-tax Act, 1961 deals with TDS on salary. Read on to know more about TDS on how to calculate TDS on salary.

Section 192 deals with the TDS on salary. It mandates every employer to calculate income tax on salary in case the salary of the employee exceeds the basic exemption limit and deduct TDS on salary payments. 

Who can Deduct TDS under Section 192?

The employer’s can be:

• Companies (Private or Public)
• Individuals
• HUF
• Trusts
• Partnership firms
• Co-operative societies

All these employers are required to deduct TDS every month and deposit it with the government within a specific time period.  
The employer’s status such as HUF, firm or company is irrelevant for the deduction of tax at source under this section. Only employer-employee relationship matters. According to section 192 of the Income Tax Act, there must be an employer-employee relationship between the deductor and deductee for the deduction of tax at source. Moreover, the number of employees employed by the employer also does not matter for deducting TDS. 

When is TDS Deducted Under Section 192?

Under Section 192, TDS is deducted at the time of actual payment of salary and not during the accrual of salary. It means tax will be deducted when your employer pays your salary whether in advance or on time or in arrears (late payment).

In case your estimated salary is not more than the basic exemption limit, tax payable will be zero and hence, TDS will not be deducted. 
This rule is applicable even to those who do not have a PAN. To know the income tax rates applicable to you, click here. 
The table below shows the basic exemption limit under the old tax regime as per the age that does not require TDS to be deducted:  

The basic exemption limit under the new tax regime (default regime) for all individuals irrespective of their age is Rs. 3,00,000. Hence, no TDS is required to be deducted if his salary does not exceed Rs. 3,00,000

How to Calculate TDS on Salary Under Section 192

Calculation of Taxable Income of the Employee

Step 1: At first, the employer estimates employee’s salary for the relevant financial year. This should include basic pay, dearness allowance, perquisites granted by the employer, other allowances granted by the employer like HRA, LTA, meal coupons, etc., EPF contributions, bonus, commissions, gratuity, salary from the previous employer, if any, etc.

Step 2: In the next step, the employer calculates exemptions under Section 10 of the Income Tax Act. The exemptions can be applicable on allowances like HRA, travel expenses, uniform expenses, children’s education allowances, etc. Also, reduce the amount of professional tax paid, entertainment allowance and standard deduction of Rs 50,000.

Step 3: The employer reduces such exemption from the gross monthly income and the net amount will be treated as the taxable salary income.

Step 4: If the employee has provided the information about other incomes such as rental income from house property or bank deposits, etc. In that case, such amounts should be added to the net taxable salary. Further, the interest paid on housing loans is deducted from the house property income, but if there is no income from house property, there will be a negative figure under the head ‘income from house property’. After adding or reducing the said amounts, the calculated figure will be the employee’s gross total income.

Step 5: Now, the employer reduces the investments for the year, which fall under Chapter VI-A of the Income Tax Act declared by the employees as per the investment declaration submitted. The declaration may include the amounts of investments such as PPF, employee’s provident fund, ELSS mutual funds, NSC and Sukanya Samridhi account. It may also include expenditures such as home loan repayment, life insurance premiums, NSC Sukanya Samridhi account, etc. Similarly, the employer allows a deduction under various other sections such as Section 80D, 80G, etc.

Note: From FY 2023-24, the new tax regime is the default tax regime and your tax calculation will be done as per the new regime tax rates. If you wish to opt for the old tax regime, then you will have to intimate the same to the employer at the time of making the investment declaration. You can exercise this option between the old and new tax regime each year. The employer may deduct his/her income tax according to the tax regime selected.

Also, if the employee has declared to calculate income tax as per the new tax regime, then the Income Tax act does not allow majority of the exemptions and deductions which are allowed in the old tax regime. Hence, the employer will calculate the net taxable income as per the income tax regime chosen by the employee.

Rate of TDS Deduction

Section 192 does not specify a TDS rate. TDS will be deducted as per the income tax slab rates applicable to the taxpayer for the relevant financial year for which the salary is paid.

After the introduction of the new tax regime under section 115BAC, employees will be provided with an option to choose the tax regime, old or new tax regime, at the beginning of the financial year accordingly, the income tax shall be calculated on the total income after consideration of applicable exemptions, deductions etc.,

If the employee fails to choose the tax regime, the default tax regime shall be applied, and taxes shall be calculated. For FY 2023-24 and onwards, the new tax regime is the default tax regime.

The tax calculation is usually done by the employer at the beginning of the financial year. The TDS is to be deducted by dividing the estimated tax liability of the employee for the financial year by the number of months of his employment under the particular employer.

The employer adjusts any excess or deficit arising out of any earlier deduction by increasing or decreasing the number of subsequent deductions during the same financial year.

If the employee has made any payment as an advance tax, then the same can be adjusted for the calculation of TDS. The employee needs to intimate the same to the employer.

Illustrations

Case 1

A resident employee Nikhil (aged 40), who works for ClearTax, is fixed as Rs 1,00,000 per month as salary during the FY 2023-24. Nikhil has invested Rs 50,000 in ELSS funds, Rs 60,000 in PPF, Rs 40,000 in NSC. What will be the monthly TDS deducted u/s 192?

• His total income would be estimated as Rs 12,00,000.
• Standard deduction of Rs 50,000 is allowed on salary income.
• Deduction (as declared by employee) under Chapter VI A would be Rs 1,50,000.

Calculation of TDS from monthly salary as per the old tax regime

If there are 12 months remaining for TDS deduction in the financial year the employer will deduct TDS u/s 192 = Rs 1,17,000 / 12 = Rs 9,750.

In the above case, if the employee choose to pay taxes as per the new tax regime, the employer shall deduct tax at source as below:

In the new tax regime deduction for investment in ELSS, PPF, NSC will not be allowed as a deduction. And tax will be calculated as per the new slab rate, i.e. Rs 82,500.

Education and higher education cess of 4% on the income tax = Rs 3,300.  
Therefore, the net tax payable = Rs 85,800. 

Accordingly, TDS u/s 192 is to be deducted per month = Rs 85,800 / 12 = Rs 7,150.

Case 2

Mr Soni receives a pension of Rs 30,000 per month and income from interest on pension account (savings account) is Rs 12,000 during the FY 2023-24. What will be the monthly TDS amount deducted from the pension?

As per Section 192, TDS is required to be deducted on all the monetary amounts paid by the employer under the head ‘Salary’. Since, ‘Salary’ also includes pension, TDS on the same needs to be deducted as per Section 192.

Computation of TDS

Hence, since the income tax payable is zero, no TDS will be deducted by the employer from the monthly pension.

Note: The above calculation is done as per the old tax regime.

Salary from More than One Employer

If you are engaged with two or more employers simultaneously, you can provide details about your salary and TDS in Form 12B to any one of the employers. Once the employer receives all kinds of information from you, he/she will be responsible for computing your gross salary to deduct TDS.

Subsequently, if you resign and join a different employer, you can provide details of your previous employment in Form 12B to your new employer. This employer will consider your previous salary and TDS will be deducted for the remaining months of the financial year.

If you choose not to provide details of income of other employment, each employer will deduct TDS only from the salary paid by him respectively.

Deductions Under Section 89

There are several deductions you can claim from your total income to bring down the taxable income and thereby reduce the tax outgo. 

Section 89, the tax deducted in respect of salary paid to employees of the government, companies, co-operative societies, local authorities, universities, association or bodies, etc. should be adjusted for marginal relief as per Section 89 of the Income Tax Act, if applicable. Marginal relief is provided in respect of salary or arrears of salary being subject to a higher rate of tax due to change in the slab rates. 

To get this relief, you must file Form 10E on the official income tax portal. In the absence of this form, you will not receive relief under Section 89. 

TDS Statements

The employer is required to provide Form 16 to you containing the details of salary such as the amount paid and tax deducted. This can also be accompanied by Form 12BA, to show particulars of perquisites, and profits in lieu of salary. 

Time Limit to Deposit the Tax Under Section 192

If the TDS is deducted by any government employer – It has to be deposited on the same day.

If the TDS is deducted by any employer that is other than the government office: 
a. TDS is deducted in March – On or before 30 April  
b. TDS is deducted in any month other than March– Within seven days of next month

TDS Return Filed by Employer

The employer has to file a salary TDS return in Form 24Q. The said form is to be submitted every quarter.  Details of salary paid to the employees and TDS deducted on such payment is to be reported in 24Q.

Employer’s can easily file TDS returns through ClearTax software, i.e. Clear Finance Cloud

Form 24Q consists of 2 annexures – Annexure I and Annexure II

While Annexure I has to be submitted for all four quarters of a FY, Annexure II is not required to be submitted for the first three quarters. Annexure-II has to be submitted in the last quarter, i.e. Jan – Mar quarter only.

Besides, if the employer doesn’t deduct TDS or deducts TDS at a lower rate, he’ll have to provide the reasons for such non-deduction or lower deduction.

Due Dates for Form 24Q

To know more about Form 24Q, refer here.

TDS Certificate

The employer is responsible for providing a TDS certificate to the employee for tax deducted from the salary.

After filing the TDS return, the TDS certificate (Form 16) is generated in a specified format and it can be downloaded from the TRACES utility. Form 16 contains Part-A & Part-B.

Part A of Form 16 mainly contains the details of quarterly TDS deducted and deposited and details of PAN and TAN of the employer, and other information.

Part B of Form 16 is an Annexure to Part A. Part B is to be prepared by the employer for their employees. It contains salary breakup, exemptions, deductions approved under Chapter VI-A and the income tax amount.

To know more about Form 16, click here.

Consequences of Non-Compliance under Section 192?

1. Levy of Interest: If the employer does not deduct the TDS on salary or deduct the TDS but does not deposit it to the government, then interest is required to be paid on such amount.
2. Disallowance of expenses: Also, the employer is only eligible to claim the deduction of salary expense from PGBP income if TDS is deducted on time. 
   The amount of disallowed salary expenses shall be
   1. 30% of the salary payment goes to the resident.
   2. 100% of Salary payment to Non-Resident.

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