When a person/Employer is paying Income Under head ‘salary‘,he is responsible for deducting TDS on an average rate of income tax (check the bottom of the post for average rate computation example)based on the prevailing rate during the Financial Year by considering the estimated Income of assessee. All Employers making such payments like Individual,HUF,Partnership Firms,Companies,Co-operative societies, trust, artificial judicial persons are liable to deduct TDS .
Conditions to be fulfilled for TDS deduction Under Section 192
- Payment made to resident employees.
- Payment made to non resident employees.
- The TDS deduction under section 192 under head salary is makes it mandatory that, there exist an employer – employee relationship between deductor and deductee.
- Payment is made by the employer to the employee.
- The payment is in the nature of salary
- The income under the head salaries is above the maximum amount not chargeable to tax.
When and at what amount of TDS to be deducted under section 192
The deduction should be made at the time of making payment not on when it becomes due or obligation arises, and TDS shall be deducted as per Section 192, the employer is required to deduct tax at source on the amount payable at the average rate of income tax. Average rate of Income tax is calculated on the basis of rates in force for the financial Year in which payment is made.
The 2018 budget has been decided to be withdrawn the existing benefits of deduction of transport allowance of 1600/ month and medical expense up to 15000 re reimbursed by the employer. in place a standard deduction of 40000/- or amount of salary whichever is less is allowed from 1 st April 2018 . Therefor medical expense 15000+ transport allowance (1600 x 12) 19200 = 34200, The net benefit of this scheme is 5800.00
2019 budget update: The benefit of standard deduction has been increased to 50000.
Explanation standard deduction
This is a deduction of fixed amount of 40000 in place of transport allowance and medical expense and no proof documents are required.
For example : A person with a taxable salary of 450000 can deduct 40000 and his taxable salary becomes 410000.
Note: This is applicable in the AY -2019-2020 only.For AY 2018-19 You can deduct existing 450000- 15000 ( medical allowance ) and transport allowance 19200= Hence taxable salary would be = 415800.
Surcharge and cess for AY -2018-19
10% Surcharge is applicable for tax payers under category Individuals, Hindu undivided family HUF), for Income slabs between 50 lacs to 1 crore and 15 % is applicable for Income above 1 crore. Education cess & Higher Education Cess is applicable @ 3% on Income tax for Resident and non resident assessee. Hence TDS on salalry is calculated after considering these tax elements.
Budget 2018 Update of Cess & Surcharge for AY 2019-20
The budget 2018 proposed a replacement of existing Education cess of 3 % with new Health and Education cess of 4 % income tax of personal income tax and corporation tax.
Wherein surcharge on income tax of Individuals shall be paid the surcharge as follows.
Income Does not exceeds 50 Lakhs : Nil
Between 50 lakhs & 1 crore : 10 % on income tax.
More than 1 crore : 15 % on income tax.
There is no change for cess and surcharge ( Budget 2019) for AY 2020-2021.
Calculation of TDS under average rate of income tax.
For Example: A resident Employee X is is paid 50000/month Under the head salary during Financial year 2016-17, Who is under the age of 60.
His Total Income would be estimated as 600000
And an estimated deduction under various section would be 50000
Income chargeable to tax is estimated 550000
Tax is calculated as per current slab rate of Individual resident for Calculation of TDS on salary under section 192 35000
Education and higher Education Cess of 3% on the income tax 1050
Net Tax Payable 36050
Averare rate of Tax on salary is calculated by applying Formula = Estimated tax 36050 x 100 Devided by
Total Income Estimated 600000
= 6.008 %
Hence Mr X TDS is to be deducted/Month = 50000 x 6.008% = 3004
The rate varies for persons under various slab rate ,may vary in different financial year & depends on Total Income earnings & available deductions per year.
Note :You can Consider any other income reported by employee,incomes exempt, deductions and relief while calculating average rate of income tax.
Issue of Form 16 & Form 12 BA
The TDS deducted to be Deposited to Government and a FORM 16 should be issued to employees. He can claim the TDS amount while submitting tax return against the total tax payable.The cut off date for issuing Form 16 is 31 May of the Next Financial year in which tax is deducted.
Apart from issue of form 16 Form 12 BA is also issued in case the employer is giving perquisites & Profit lieu of salary under section 17 (3).
Time Limit for the Payment of TDS to the Government.
- On 7th of the Next month in which TDS is deducted.
- Salary Paid in the month of March should be deposited on or before 30th of April
- In the case of a Government office ,same day of deduction without a challan.
- The deposition of TDS is to be made vide challan No.ITNS 281.
Quarterly Return in Form 24 Q
The person/Employer who is deducting TDS or the payer of such Income should Furnish a Quarterly return to the Income tax department in Form Prescribed Which is Form 24 Q.The due date for the same is
I Quarter April to june – On or before 15th July,
II Quarter July to September – On or before 15th October
III Quarter October to December – On or before 15th January
IV Quarter January to March – On or before 15th May.
Similarly For Government deductors due date is as follows
I Quarter April to june – On or before 31st July,
II Quarter July to September – On or before 31st October
III Quarter October to December – On or before 31st January
IV Quarter January to March – On or before 15st May.
TDS on Salary on Change of Employment or Multiple Employer.
Employee Working Under more than One Employee :-In the case of an employee who is working for more than one employer, he may furnish his salary TDS details to the employer of his choice.
Employee Changed his employer during the Financial Year:- In case of employee who has changed his employer also submit his previous TDS ,salary details to subsequent employer.
These details are to be furnished Form 12 B according to Rule 26A. Up on receipt of such Form ,Employer consider the aggregate salary and TDS paid so far and deduct if necessary for the remaining Income earned by the employee.
Is TDS deductible for the Non Monitory perquisite given to the employee?
It is not necessary to deduct TDS on non monitory perquisites.But employer can opt to make deduction on such benefits under Sections 192 (1A) & 192 (1B) .The condition is that such payment will have to be made when such tax was otherwise deductible. The tax so paid shall be deemed to be the TDS made from the salary of the employee. However, as per provison to section 198, this tax paid will not be deemed to be income of the employee.
Other Important Points Regarding TDS on Salaries
- Tax payer can make application for lower deduction or non-deduction of TDS in prescribed form No 13 Under Rule 28AA
- The Total TDS paid in excess of Total tax due is eligible for a refund.
- Adjustment can be made in the subsequent deduction in case of Lower deduction or excess payment of TDS made due to Increment in salary,Advance salary,Bonus, Commission etc.
Income tax compuation
|Income Tax Computation|
|Basic Salary Including DA||xxx|
|House Rent Allowance||xxx|
|Transport Allowance ( Tax free limit is 19200 in FY 2018)||xxx|
|Medical Reimbursement ( Tax free limit of Rs 1500 in FY 18,Separate fro Medical deduction u/s 80D||xxx|
|Taxable Portion of LTA||xxx|
|Taxable Income from Housing ( Total Income received from housing after deduction for property tax and statutory deduction of 30 % for repair and maintenance but without considering any deduction towards principal and /or interest paid on housing loan.)||xxx|
|Other Income ( Representing income from other sources ,being interest pension,and devident from foreign companies.||xxx|
|Total Income ( A )||xxx|
|Deduction U/S 80 C Up to 1.5 lakhs ( Deduction for Investments u/s 80 C ( Instruments like EPF ,PPF , ELSS,NSC ,Insurance premium,Home Loan Principal etc||xxx|
|DEDUCTIONS U/S 80CCD (UPTO RS 2 LACS) – NEW PENSION SCHEME|
|80CCD (1) ( Amount of Deduction Cannot Exceed 10 % of your basic salary Including DA )||XXX|
|8CCD(1B)Maximum amount of deduction allowed is 50000,Available to Tier 1 accounts only.||XXX|
|DEDUCTIONS U/S 80D (UP TO RS 1,00,000)|
|Medical insurance premium expenditure for self /family ( For Senior citizen the limit is 30000 for FY & FY 19 it is 50000. Otherwise 25000. Senior citizen can claim deduction for the amount spent as medical expenditure if he/she does not have a medical insurance in his /her name.||xxx|
|Preventive medical check up for self & family limit upto 5000||xxx|
|Medical insurance premium expenditure for Parents ( For Senior citizen the limit is 30000 for FY & FY 19 it is 50000. Otherwise 25000. Senior citizen can claim deduction for the amount spent as medical expenditure if he/she does not have a medical insurance in his /her name.||xxx|
|Preventive medical check up for parents limit upto 5000||xxx|
|Standard Deduction ( Standard Deduction has increased to 50000 from 40000 ( This deduction is available from salary in lieu of transport allowance and medical reimbursement ( no proofs required )||xxx|
|Other Deduction ( Any other deduction under section 80TTA,80TTB,80DD,80DDB,80E,80G,80GG,80QQB,80U.||xxx|
|Interest Paid on Housing Loan ( Limit of Rs 2 Lac for self occupied house .Additional Deduction of Interst of Rs 50000 Per annum In case of individual buying property for the first time provided value of the house, does not exceed Rs 50 Lakhs,and loan does not exceed Rs 35 lakhs.||xxx|
|Interest Paid on Housing Loan not occupied by the owner. No limit on interest paid on housing loan for house not self occupied.||xxx|
|House Rent paid||xxx|
|Total deduction ( B)||xxx|
|Taxable Income (A)-(B)||xxx|