CA Kamal Gangaramani B. Com., FCA, DISA(ICAI): TAX DEDUCTED AT SOURCE (TDS) ON PAYMENTS TOWARDS SALARIES

TAX DEDUCTED AT SOURCE (TDS) ON PAYMENTS TOWARDS SALARIES

Section 192 of Income-tax Act, 1961 lays down provisions for deduction of tax on salary. Every Person paying Salary has to deduct Tax at Source on payment of salary; if the amount payable is more than minimum income liable to Income-tax. Every person includes individual, HUF, Firm, AOP, BOI, Local Authority, Company, etc. Individuals and HUF though not covered under provisions of income-tax audit are also required to deduct tax and deposit in government treasury.

Tax is to be deducted on the estimated taxable salary paid to the employee during the financial year. Tax is to be calculated on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made.

Salary is to be calculated as per the provisions of the Income-tax Act, 1961, i.e. as calculated under the head ‘Salaries’ The employer has to include all taxable allowances and perquisites.

No tax is required to be deducted if estimated taxable salary is less than the minimum amount chargeable to tax.

The employer deductee is required to calculate taxes for the financial year and deduct the amount equally during the remaining months of the financial year.

While calculating tax to be deducted on the salary, the employer has to take into consideration loss under the head ‘income from house property’ and also deduction available under sections 80C, 80CCC, 80CCD, 80D, 80DD, 80E, 80GG and 80U. Deduction u/s.80G for donation is not to be allowed except for donations to some specified funds established by the Government.

The employee responsible for deduction tax my may at any time during the financial year, reduce or increase the amount to be deducted as average rate of tax; based on the excess and deficiency arising out of any previous deduction and failure to deduct during the financial year.

Details of Deduction under above mentioned sections.

80C. Deduction in respect of life insurance premia, deferred annuity, contributions to provident fund, subscription to certain equity shares or debentures, etc.

80CCA. Deduction in respect of deposits under National Savings Scheme or payment to a deferred annuity plan

80CCB. Deduction in respect of investment made under Equity Linked Savings Scheme

80CCC. Deduction in respect of contribution to certain pension funds

80CCD. Deduction in respect of contribution to pension scheme of Central Government

80E. Deduction in respect of interest on loan taken for higher education

80GG. Deductions in respect of rents paid

80U. Deduction in case of a person with disability

If the employee has more than one employer during the financial year the he can opt of the employee who shall deduct TDS. He must give details of his Salary and TDS from other employees to the opted employee. The details are required to be given in Form 12B.

If the employee declares any other income to the employee, he must take this into consideration and increase the amount of tax to be deducted at average rate. He cannot reduce this amount if employee declares any loss except loss under the head ‘income form house property’

Within one month of the end of the financial year, the employer must issue to the employee, a certificate of deduction of tax/paid on behalf of employee. The certificate is to be issued in Form 16. The employer must also furnish to the employee a statement in Form 12BA, giving correct and complete particulars of perquisites or profits in lieu of salary provided to him and the value thereof.