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TDS on Salary: Ensuring Smooth Tax Collection for Employees

Understanding TDS on Salary

TDS on salary refers to the practice where an employer deducts a certain amount of tax from their employees’ salary each month and submits it to the government on their behalf. The deducted amount is based on the income tax slab rates applicable to the employee for the specific financial year.

TDS on Salary: Legal Framework

Section 192 of the Income Tax Act, 1961, regulates the TDS applicable to salary. This section outlines the rules and procedures that employers must follow for the accurate deduction and deposition of tax.

In conclusion, TDS on salary plays a vital role in the income tax collection process for employees. By facilitating regular tax deductions and ensuring compliance, it contributes to the efficient functioning of the tax system and benefits both employers and employees alike.

Form 16: Your Essential Salary Certificate

Form 16 is a significant document that showcases the amount of tax deducted at source (TDS) from your salary income by your employer. This certificate holds crucial information that aids in filing your income tax return and seeking refunds, if applicable. Let’s explore the key aspects of Form 16 and its significance for employees.

  • Form 16 comprises of two components: Part A and Part B.

Part A contains vital details about your employer, such as their name, address, PAN, and TAN. It also provides a quarterly summary of the TDS deducted and deposited by your employer on your behalf.

Part B comprises comprehensive information about your salary income, encompassing gross salary, allowances, deductions, exemptions, and net taxable income. It also specifies the amount of tax payable and the tax deducted on your income.

  • Obtaining Form 16

You can obtain Form 16 from two sources:

TRACES Website: You have the option to download Form 16 from the TRACES website or any other relevant online platform.

Employer: Alternatively, your employer will also provide you with a copy of Form 16.

  • Issuance and Due Date

Your employer is obligated to issue Form 16 to you by the 15th of June for the next financial year. For example, for the financial year 2022-23, you should receive Form 16 by the 15th of June 2023.

  • Review and Safekeeping

It is essential to thoroughly review Form 16 for accuracy. If you find any discrepancies, promptly inform your employer for necessary corrections.

  • Document of Significance

Form 16 is a critical document that you should preserve securely for future reference. Moreover, it serves as proof of income for various purposes, such as loan applications and visa procedures.

In conclusion, Form 16 is an invaluable certificate for employees, outlining crucial information about TDS on salary.

Benefits of TDS on Salary

TDS on salary offers several advantages:

  • Spread-out Tax Liability: By deducting tax every month, TDS ensures that the employee’s income tax liability is distributed throughout the year. This prevents the burden of a substantial tax payment at the year-end.
  • Curbing Tax Evasion: TDS on salary acts as a robust measure against tax evasion, as it ensures that taxes are deducted and paid regularly, leaving less room for non-compliance.
  • Consistent Revenue Collection: The systematic deduction and deposit of taxes by employers enable the government to maintain a steady flow of revenue throughout the year

Liable to Deduct TDS on Salary

TDS, which stands for Tax Deduction at Source, is a system where tax is deducted from income before it reaches the recipient. In the context of salary income, the deductor is the employer, and the deductee is the employee. The employer becomes liable to deduct TDS on salary if the estimated annual income of the employee exceeds the basic exemption limit for that financial year. The exemption limit varies based on the age of the employee, as follows:

  • For resident individuals below 60 years: Rs 2.5 lakh.
  • For resident senior citizens between 60 and 80 years: Rs 3 lakh.
  • For resident super senior citizens above 80 years: Rs 5 lakh.

The employer needs to calculate the employee’s annual income, considering salary components like basic pay, allowances, perquisites, bonus, etc. Additionally, deductions and exemptions available under different sections of the Income Tax Act, such as Section 80C, Section 80D, Section 10(13A), etc., need to be factored in. Employees provide a declaration in Form 12BB to claim these deductions and exemptions.

Due dates for TDS deduction on Salary

TDS on salary is deducted at the time of actual payment and not when it becomes due. For instance, if an employee receives salary for March 2023 in April 2023, TDS will be deducted in April 2023. However, if an employee receives salary in advance or in arrears, TDS will be deducted at the time of payment.

The employer calculates the employee’s taxable income and applies the income tax slab rates applicable for the financial year. TDS on salary is deducted at an average rate of tax, obtained by dividing the estimated tax liability by the number of months of employment. The employer then deposits the TDS amount with the government within the specified time limit and issues Form 16, a certificate to the employee, detailing the TDS on salary at the end of the year.

TDS on Salary: How it’s Calculated

Calculating TDS on Salary

TDS on salary is the tax deducted at the source by an employer from the salary of an employee. The amount of tax deducted is based on the income tax slab rates applicable to the employee for the relevant financial year. Here’s how the calculation is done:

  • Step 1: Calculate Annual Gross Income: Add all salary components: basic pay, dearness allowance, allowances, perquisites, and bonus.
  • Step 2: Deduct Annual Exemptions: Subtract amounts exempt from tax under Section 10, such as house rent allowance, leave travel allowance, and medical allowance.
  • Step 3: Deduct Voluntary Investments: Subtract amounts eligible for deductions under various sections of the Income Tax Act, like Section 80C, Section 80D, and Section 80G. These include investments in health insurance, life insurance, donations, etc.
  • Step 4: Subtract Standard Deduction: Deduct Rs 50,000 as the standard deduction available to all salaried employees.
  • Step 5: Calculate Tax Based on Tax Slabs: Apply the applicable income tax slab rates to the taxable income obtained after deductions. Add cess and surcharge if applicable.
  • Step 6: Divide Annual Tax Liability by 12: Divide the annual tax liability by 12 to get the monthly TDS amount. This is the amount that the employer deducts from the employee’s salary every month and deposits with the government.

Example: Calculating TDS on Salary

Let’s consider an example for Mr. A, who is an employee below 60 years of age. His salary components and financial details are as follows:

  • Annual Gross Income: Rs 8 lakh
  • Exemptions: Rs 1.2 lakh (house rent allowance, leave travel allowance, medical allowance)
  • Investments: Rs 1 lakh (under Section 80C)
  • Standard Deduction: Rs 50,000

Individuals below 60 years of age are subject to the following income tax slab rates:

  • Up to Rs 2.5 lakh: Nil
  • 5% for income between Rs 2.5 lakh to Rs 5 lakh.
  • From Rs 5 lakh to Rs 10 lakh: 20%
  • Above Rs 10 lakh: 30%

Calculation:

  • Taxable Income = Rs (8 lakh – 1.2 lakh – 1 lakh – 50,000) = Rs 5.3 lakh
  • Tax on Taxable Income = Rs [(2.5 lakh x Nil) + (2.8 lakh x 5%) + (2 lakh x 20%)] = Rs (0 + 14,000 + 40,000) = Rs 54,000
  • Cess @4% = Rs (54,000 x 4%) = Rs 2,160
  • Total Tax Liability = Rs (54,000 + 2,160) = Rs 56,160
  • Monthly TDS Amount = Rs (56,160 / 12) = Rs 4,680

Therefore, Mr. A’s employer has to deduct Rs 4,680 from his salary every month and pay it to the government as TDS on salary. At the end of the year, the employer issues Form 16 to Mr. A, showing the details of his income, deductions, exemptions, and TDS on salary.

Documents Required for TDS on Salary

To ensure smooth processing of TDS on salary, certain documents are essential for both employers and employees. These documents help in verifying income, deductions, and TDS deductions. The key documents required for TDS on salary are:

  1. Form 16: This certificate is issued by the employer to the employee at the end of the financial year. It contains comprehensive details of the employee’s salary income, deductions, exemptions, allowances, and TDS deducted during the year. Employees use this form to file their income tax returns.
  2. Form 12BA: Employers provide this statement along with Form 16. It outlines the particulars of perquisites, fringe benefits, or amenities offered by the employer to the employee.
  3. Form 12BB: Employees submit this form to the employer, along with proofs of investments and expenses, to claim deductions under various sections of Chapter VI-A of the Income Tax Act, such as Section 80C, Section 80D, Section 80G, etc.

How to Check TDS on Salary Online

To conveniently verify your TDS on salary online, follow these simple steps:

  • Visit the Income Tax e-Filing Portal: Access the official Income Tax e-Filing portal and log in using your user ID and password.
  • Navigate to ‘My Account’: After logging in, go to ‘My Account’ and click on ‘View Form 26AS (Tax Credit)’.
  • Select ‘View Tax Credit (Form 26AS)’: From the drop-down menu, choose ‘View Tax Credit (Form 26AS)’ and then pick the assessment year for which you wish to view your TDS details.
  • Redirected to TRACES Website: You will be redirected to the TRACES website, where you can view and download your Form 26AS. This form provides a comprehensive summary of all TDS deductions made by your employer and other deductors.

Deadline for Employers to File TDS Returns

As an employer, it is crucial to adhere to the due dates for filing TDS returns to avoid penalties and ensure smooth tax compliance. The due dates for filing TDS returns by the employer are as follows:

  • For the quarter ending 30th June: The due date is 31st July.
  • For the quarter ending 30th September: The due date is 31st October.
  • For the quarter ending 31st December: The due date is 31st January.
  • For the quarter ending 31st March: The due date is 31st May.

Penalties for Late Payment or Non-Payment of TDS on Salary

The Income Tax Department takes timely TDS payments seriously to ensure accurate revenue collection. Failure to comply with TDS payment deadlines may lead to penalties. The penalties for late payment or non-payment of TDS on salary are as follows:

  • Interest for Late Payment: Interest at the rate of 1% per month or part of a month is charged for late payment of TDS from the due date of payment till the actual date of payment.
  • Interest for Late Deduction: Interest at the rate of 1.5% per month or part of a month is charged for late deduction of TDS from the date on which tax was deductible till the date on which tax was actually deducted.
  • Penalty under Section 271C: A penalty is levied under section 271C, which is equal to the tax amount that was not deducted or paid.
  • Penalty under Section 271H: For late filing or non-filing of TDS returns, a penalty is imposed under section 271H. The penalty amount is a minimum of Rs. 10,000 and a maximum of Rs. 1 lakh.

Conclusion: TDS on salary is a critical aspect of the income tax collection process for employees. By following the legal framework and adhering to due dates, employers ensure smooth tax compliance and prevent penalties. Understanding Form 16 and keeping track of essential documents are essential for a hassle-free tax filing experience.

FAQs about TDS on Salary

What is TDS on salary?

TDS on salary is the tax deduction at source from the salary income of an employee by the employer. It is done as per the income tax slab rates applicable to the employee for the relevant financial year.

Who bears the responsibility of deducting TDS on salary?

The employer is liable to deduct TDS on salary under section 192 of the Income Tax Act, 1961. The employer can be an individual, a company, a partnership firm, a trust, a co-operative society, or any other entity that has an employer-employee relationship with the employee.

When is TDS deducted on salary?

TDS on salary is withheld when the actual payment of salary is made, not during the accrual of salary. It means tax will be deducted when the employer pays salary whether in advance or on time or in arrears (late payment).

How is TDS calculated on salary?

TDS is calculated on salary by estimating the annual taxable income of the employee after considering all the deductions, exemptions, and allowances available to the employee. The tax liability of the employee is then divided by 12 to get the monthly TDS amount. The employer deducts this amount from the employee’s salary every month and deposits it with the government.

What are the benefits of TDS on salary?

TDS on salary has some benefits for both the employee and the government. For the employee, it helps in reducing the tax burden at the end of the year as the tax is paid in installments throughout the year. It also ensures compliance with the tax laws and avoids penalties and interest for late payment of tax. For the government, it ensures a steady flow of revenue and reduces tax evasion.

What are the documents required for TDS on salary?

The documents required for TDS on salary are Form 16, Form 12BA, and Form 12BB. Form 16 is a certificate issued by the employer to the employee showing the details of salary income, deductions, exemptions, and TDS deducted during the financial year. Form 12BA contains a comprehensive account of the perquisites and supplementary fringe benefits provided by the employer. Form 12BB is a statement showing the details of deductions claimed by the employee under various sections of the Income Tax Act.

How can I check my TDS on salary online?

You can check your TDS on salary online by visiting the Income Tax e-Filing portal, logging in with your user ID and password, and selecting ‘View Form 26AS (Tax Credit)’ under ‘My Account.’ From the drop-down menu, choose ‘View Tax Credit (Form 26AS)’ and select the assessment year to view and download your Form 26AS, which shows all the details of TDS deducted and deposited by your employer.

What if my employer does not deduct TDS on salary or deducts less than required?

If your employer does not deduct TDS on salary or deducts less than required, you will have to pay the balance tax along with interest and penalty as per the income tax laws. You will also have to file your income tax return and declare your income from salary and other sources. You can also claim a refund of excess tax paid if any.

What if my employer deducts more TDS than required?

If your employer deducts more TDS than required, you can claim a refund of excess tax deducted by filing your income tax return. You will have to provide your bank account details and verify your return using Aadhaar OTP or EVC or digital signature. The refund amount will be credited to your bank account after processing your return by the income tax department.

How can I reduce my TDS on salary?

You can reduce your TDS on salary by claiming various deductions and exemptions available under the Income Tax Act, such as deduction under section 80C, section 80D, section 80G, and exemption under section 10 and section 10(13A). These deductions and exemptions will reduce your taxable income and, in turn, lower the TDS deducted by your employer.

What is the due date for depositing TDS on salary by the employer?

The due date for depositing TDS on salary by the employer is the 7th day of the next month in which the salary is paid. For example, if the salary is paid in April, the TDS has to be deposited by 7th May. However, for the month of March, the due date is 30th April.

How can I claim credit for TDS on salary?

You can claim credit for TDS on salary by filing your income tax return and mentioning your salary income and TDS details in the relevant columns. You will also have to provide your PAN and TAN (Tax Deduction Account Number) of your employer. You can verify your TDS details with Form 26AS available online.

What is Form 16A and Form 16B?

Form 16A and Form 16B are certificates issued by deductors other than employers for deducting TDS from payments such as interest, commission, rent, etc. Form 16A is issued quarterly and Form 16B is issued annually. These forms show the details of income paid and TDS deducted and deposited by the deductor.

What is Form 24Q and Form 26Q?

Form 24Q and Form 26Q are quarterly statements filed by deductors for deducting TDS from payments such as salary, interest, commission, rent, etc. Form 24Q is filed by employers for deducting TDS from salary and Form 26Q is filed by other deductors for deducting TDS from non-salary payments. These forms show the details of deductees, income paid, TDS deducted and deposited, challan details, etc.

What is Form TRACES?

Form TRACES is an online portal that provides various services related to TDS and TCS (Tax Collected at Source). It allows deductors and deductees to view and download Form 26AS, Form 16, Form 16A, Form 27D (TCS certificate), etc. It also allows them to file corrections in their TDS returns, generate consolidated files, request for refund or cancellation of challans, etc.

What is Form ITNS-281?

Form ITNS-281 is a challan form used for paying TDS and TCS online or offline. It contains details such as PAN/TAN of the deductor/collector, assessment year, nature of payment/code, amount of tax deducted/collected, bank name and branch code, etc.

What are some common mistakes to avoid while deducting TDS on salary?

Some common mistakes to avoid while deducting TDS on salary are not obtaining PAN/TAN of the employee/deductor, not verifying the tax credit in Form 26AS, not deducting TDS at the correct rate, not depositing TDS on time, not filing TDS returns on time, etc.

What is the process to obtain Form 16?

Form 16 is a certificate issued by the employer to the employee showing the details of salary income, deductions, exemptions, allowances, and TDS deducted during the financial year. You can get Form 16 from your employer within 15 days from the due date of filing TDS returns, i.e., by 15th June.

How to file an income tax return with TDS on salary?

You can file your income tax return with TDS on salary online or offline. You will need your Form 16, Form 26AS, PAN, bank account details, and other relevant documents. You can choose the appropriate ITR form based on your sources of income and fill in the required details. You can also use online tools or software to prepare and file your return. You can verify your return using Aadhaar OTP or EVC or digital signature.

What are the consequences of not filing income tax return with TDS on salary?

If you do not file your income tax return with TDS on salary, you may face several consequences. Firstly, you will not be able to claim a refund of excess tax deducted by your employer, resulting in potential loss of money. Secondly, you will not be able to carry forward your losses under certain heads of income, which could affect your tax planning in future years. Thirdly, you will be liable to pay interest and penalty for late filing or non-filing of the return, increasing your tax liability. Moreover, failure to file the return may lead to receiving a notice from the income tax department for non-compliance, leading to further complications. In extreme cases, non-compliance could even result in prosecution and imprisonment.

What are the penalties for late payment or non-payment of TDS on salary?

The penalties for late payment or non-payment of TDS on salary can be significant. If TDS is paid after the due date, the employer will be liable to pay interest at the rate of 1% per month or part of a month on the amount of TDS not deposited. Additionally, if TDS is deducted after the due date, the employer will be liable to pay interest at the rate of 1.5% per month or part of a month on the amount of TDS not deducted. Moreover, there could be penalties under the Income Tax Act. Under section 271C, the penalty will be an amount equal to the tax not deducted or paid. Under section 271H, the penalty for late filing or non-filing of TDS returns can range from a minimum of Rs. 10,000 to a maximum of Rs. 1 lakh, depending on the severity of the non-compliance.

What is the Deadline for Employers to File TDS Returns?

The Deadline for Employers to File TDS Returns depends on the quarter in which the TDS was deducted. For the quarter ending 30th June, the due date is 31st July. For the quarter ending 30th September, the due date is 31st October. For the quarter ending 31st December, the due date is 31st January. For the quarter ending 31st March, the due date is 31st May. It’s essential for employers to adhere to these deadlines to avoid penalties and interest for late filing.

Could you outline the distinctions between Form 16 and Form 16A?

Form 16 and Form 16A are both certificates issued by the deductor for deducting TDS from the income of the deductee. However, Form 16 is issued by the employer for deducting TDS from salary income, whereas Form 16A is issued by any other deductor for deducting TDS from non-salary income such as interest, commission, rent, etc. Form 16 is issued annually and Form 16A is issued quarterly.

How to claim TDS refund on salary?

If your employer has deducted more TDS than your actual tax liability, you can claim a refund of the excess amount by filing your income tax return. You will have to provide your bank account details and verify your return using Aadhaar OTP or EVC or digital signature. The refund amount will be credited to your bank account after processing your return by the income tax department.

What are the consequences of not deducting TDS on salary or deducting less than required?

If an employer fails to deduct TDS on salary or deducts less than required, he will be liable to pay interest and penalty as per the income tax laws. Late deduction of TDS incurs an interest rate of 1% per month or part of a month, while late payment of TDS attracts 1.5% per month or part of a month.The penalty will be equal to the amount of tax not deducted or paid.

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