Section 192 of Income Tax Act

The Income Tax Act 1961 mentions the TDS in the salary section under Section 192. The section requires that income is withheld from the assessee’s estimated income under the salary head for everyone accountable for paying any chargeable income under the heading.

TDS deducted from the salary is crucial as the government can collect tax from the source directly, reducing the chances of missed payments. Knowing what compensation they will receive after deduction also helps employees plan their budget adequately.

Moreover, paying the TDS monthly reduces the burden of paying huge taxes at year-end.

TDS deduction on salary is a tax provision under Section 192, where employers are entitled to deduct tax at source on an employee’s salary. The salary received from the employer is categorised as income and attracts TDS based on the prevailing tax rates.

ITA requires employers to deduct TDS from salaries if they pay compensation to their employees. However, the deduction can only be made if the salaried income exceeds the exempted limit.

Remember that TDS on salary is usually refundable. Still, the refund is only possible if the amount of tax deducted is more than the employee’s tax liability. Another condition is that the investment details declared at a fiscal year’s beginning are not the same as the investments that were made at year-end. In this situation, the TDS amount on salary is deducted.

TDS under Section 192 is deducted by any person who is responsible for making an employee’s salary payment as per the prescribed average rate of tax on the estimated total income of the employee.

Here is the list of individuals responsible for making payments under the head salaries and tax deduction:

As per Section 192, TDS on salary is deducted at the time when the compensation is paid rather than during salary accrual. Tax will be deducted when the employer pays the employee in advance, on time, or in arrears (late payment).

Suppose the estimated salary does not exceed the basic exemption limit. In that case, the tax payable will be zero and TDS will not be deducted.

Here is the TDS on the salary slab as per the Old Tax Regime for FY 2023-24:

Here is the TDS on the salary slab as per the New Tax Regime for FY 2023-24 (Section 115 BAC):

Also Read: Step-by-Step Process to File TDS Return

Step 1: The first step will be that the employer needs to estimate the employee’s salary for the relevant financial year. It includes basic pay, dearness allowance, perquisites granted by the employer and other allowances granted by the employer, such as HRA, LTA, EPF contributions, gratuity, salary from the previous employer, etc.

Step 2: Next, the employer will calculate the exemptions applicable under Section 10 of the Income Tax Act. These exemptions include allowances like HRA, travel expenses, children’s education allowance, uniform expenses, etc. Moreover, reduce the amount of professional tax, standard deduction, and entertainment allowance of ₹50,000.

Step 3: Now, the employer will reduce all such exemptions mentioned in the previous step from the gross monthly income and the net amount will be considered as the taxable salary income.

Step 4: Next, if the employee provided information about their other income sources, such as rental income or bank deposits, etc., then these amounts should be added to the net taxable income.

Moreover, the interest paid on the housing loan is deducted from the income from the house property. Still, if there is no income from the house property, there will be a negative figure under the heading “income from house property.” After the said amount is added or reduced, the calculated figure will be the employee’s gross income.

Step 5: Now, the employer reduces the investments of that year, which falls under Chapter VI-A of the Income Tax Act declared by the employee as per the investment declaration submitted.

The declaration can include the amount of investments for the year, such as PPF, ELSS mutual funds, EPF, NSC and Sukanya Sukanya Samridhi accounts. It can also include expenditures such as home loan repayments, NSC, Sukanya Samridhi account, life insurance premiums, etc. Similarly, the employer also allows a deduction under various other sections of the Income Tax Act, such as Section 80D and 80G.

[Note: From FY 2023-24, the new tax regime will be used as the default tax regime, and the tax calculation will be done according to it. If an individual opts for the old tax regime, they need to inform their employer about it when making an investment declaration.]

Employers deduct TDS from their employees' salaries, and thus, they have certain responsibilities to fulfil. As per Section 192, employers are required to take out TDS each month and deposit it to the government within the allotted due date. If any government employer deducts TDS, then they are required to deposit the money on the same day.

If the employer other than the government employer deducts TDS and does so in March, then they must deposit the TDS by the 30th of April at the latest. However, the Hindu Undivided Family (HUF), firm or company status of the employer, has no applicability to the tax deduction at the source allowed by this section. The relationship between the employer and employee is the only one that counts.

TDS Return Filed by Employer

Employers are required to file a return for TDS on salary in Form 24Q, which is said to be submitted every quarter. The Form 24Q includes the compensation paid to the employees and the TDS deducted.

The Form 24Q consists of two annexures: Annexure 1 and Annexure 2. Submitting Annexure 1 is mandatory for all the quarters of an FY, but there is no requirement to submit Annexure 2 for the first three quarters.

Moreover, if the employer does not deduct TDS or deducts TDS at a lower rate, they must provide appropriate reasons for this non-deduction or lower deduction.

Every employer needs to issue a TDS certificate (Form 16) to their employees for the TDS deducted from their salary. The TDS certificate is generated after the TDS return is filed; it is generated in a specific format and can be downloaded from the TRACES utility.

Form 16 contains Part A and Part B. Part A refers to the tax deposited, while Part B refers to the salary breakup and the deductions claimed by the employee. The employer is required to provide Form 16 to the employee containing the details of their salary, such as the amount paid and the tax deducted.

However, there are no obligations to issue a TDS certificate in case of tax at the source is not deducted or deductible by virtue of claims of exemptions or deductions.

Levy of Interest: Under this penalty, if the employer fails to deduct TDS on salary or deducts TDS on salary but does not submit it to the government, then they need to pay interest on such amount.

Expense Disallowance: The employer is eligible to claim the deduction of salary expense from PGBP income if the TDS is deducted on time. The amount of disallowed salary expenses shall be:

• 30% of the salary payment goes to the resident.

• 100% of salary payment to non-resident.

TDS on the salary section is a crucial tax deduction made by employers on an employee’s salary. That is why, whether you are an employer or an employee, you must know about it.

With the points mentioned here, you would have gotten a good idea about the TDS tax slabs, their calculation, etc., so now you can fulfil your part of the responsibility.

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