Section 192 of the Income Tax Act, 1961 deals with tax deducted at source (TDS) on salary. Your employer will deduct TDS from the salary payable to you. The salary you receive from your employer is categorised in ‘Income’ under the head ‘Salary’ and he/she will be responsible for deducting TDS on an average rate of income tax based on the current slab rate during the relevant financial year by considering your estimated income.
The TDS deducted u/s 192 is reflected in Form 16, which is issued by the taxpayer at the end of the financial year.
All these employers are required to deduct TDS at a specific time period and deposit it to the government.
According to section 192 of the income tax act, there must be an employer-employee relationship for the deduction of tax at source.
The employer’s status such as HUF, firms or company is irrelevant for the deduction of tax at source under this section. Moreover, the number of employees employed by the employer does not matter while calculating and deducting TDS.
2. 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. Tax will also be deducted if your employer pays salary in advance to you or you receive arrears from him.
In case your estimated salary is not more than the basic exemption limit, TDS will not be deducted. This rule is applicable even to those who do not have a PAN.
The table below shows the basic exemption limit as per the age that does not require TDS to be deducted:
Resident in India below 60 years
Rs 2.5 lakh
Senior Citizens between 60 years and below 80 years
Rs 3 lakh
Super Senior Citizens above 80 years
Rs 5 lakh
3. Rate of Tax Deduction for FY 2019-20
Section 192 does not specify a TDS rate. TDS will be deducted as per the income tax slab and the rates thereof applicable to the relevant financial year for which the salary is paid.
At first, the salary of the employee is calculated after taking into consideration all the deductions applicable and then tax is calculated according to the tax rate applicable to you. The tax calculation is usually done by the employer at the beginning of the financial year. The TDS 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.
However, if you do not have PAN, TDS shall be deducted at the rate of 20% (excluding education cess and higher education cess).
Any excess or deficit arising out of any earlier deduction can be adjusted by increasing or decreasing the number of subsequent deductions during the same financial year. If you have made any payment as an advance tax, then the same can be adjusted for calculation of TDS.
The tax on salary will be deducted at an ‘average rate’ of income tax computed as follows:
Average rate of income tax = Income tax payable (calculated using slab rates) by estimated income of the employee for the financial year.
For instance: A resident employee Nikhil (aged 60), who works for ClearTax, is paid Rs 1,00,000 per month under the head salary during the FY 2019-20. What is the TDS deducted u/s 192 per month?
His total income would be estimated as Rs 12,00,000.
Estimated deduction under Chapter VI A would be Rs 1,00,000.
Therefore, the income chargeable to tax is estimated at Rs 11,00,000.
Tax is calculated as per the current slab rate of individual resident for calculation of TDS on salary u/s 192 = Rs 1,42,500.
Education and higher education cess of 4% on the income tax = Rs 5,700.
Therefore, the net tax payable = Rs 1,48,200.
According to the equation above = Rs 1,48,200/12,00,000*100, which equals to 12.35%.
Hence, TDS u/s 192 to be deducted per month = Rs 1,00,000 x 12.35% = Rs 12,350.
5. 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 in 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.
6. Standard Deduction for Salaried Individuals
Last financial year, the Finance Minister Arun Jaitley introduced standard deduction of Rs 40,000, giving the salaried class a reason to rejoice. This deduction replaced the transport allowance and medical reimbursement of Rs 19,200 and Rs 15,000 per year, respectively. The standard deduction is deducted from the gross salary and can be claimed as an exemption.
The Interim Budget 2019 was presented in the Parliament on February 1, 2019, which included tax benefits for the salaried and the middle-class. An additional amount of Rs 10,000 was added to the previous standard deduction. Now that the deduction is Rs 50,000, this will help taxpayers to reduce their tax outgo.
Let’s look at an example to understand this theory better:
AY2018-19 (in Rs)
AY2019-20 (in Rs)
AY2020-21 (in Rs)
From this table, it is evident that the taxable salary has reduced on account of the standard deduction.
7. 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.
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.
8. 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.
9. 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 other than the government –
a. If the salary is credited and TDS is deducted in the month of march – On or before 30 April
b. If the salary is credited and TDS is deducted in any month other than March- Within seven days from the end of the month in which the deduction is made.