TDS is a tax deducted before the payment of an amount. In this article, Deductions for TDS Calculation on Salary are mentioned to help employers and employees.
Overview:
Tax deduction at source is a tax relief scheme for companies in India. It applies to all salaried employees who have been paid their salaries by cheque or cash and are required to pay income tax.
The employer deducts the amount of taxes as per his discretion and TDS Calculation, but he must deduct only those taxes that have been deducted from the employee’s salary. You Can make a Calculation of Salary Over TDS online in 2023!
Under this scheme, if you have paid your taxes as per the provisions of the Income Tax Act or any other law applicable to you then you can claim a deduction under Section 80C which is a part of the Income Tax Act of 1961.
What is TDS?
Tax deduction at source or TDS is a tax that is paid by an earning person. This is a type of income tax. TDS is always deducted from the payment amount in advance. This tax is deducted at the source and this way it helps the government to reduce the evasion of tax.
This amount is usually deducted by the employer and submitted or deposited to the Income Tax Department. It is deducted from a certain type of payment which can be rent or fees or Salary etc. This tax is already deducted from the paid amount and the person who receives the amount has to include the paid tax in the total amount received to take the credit for the paid tax.
Some income sources from which TDS is deducted are contractor payments, bank interest rent payments, winning of lottery, salary Commission, etc.
Advantages of TDS
TDS is deducted based on the salary. Whenever payments are being made via cash check or card a certain amount of tax is deducted in advance which goes to the central government agencies.
Some advantages of TDS are mentioned below.
- Reduction of TDS in advance prevents the evasion of taxes.
- TDS proves as a study source of income for the central government.
- The TDS is deducted automatically which makes the process convenient and easy.
In case you want to know more about TDS and want to calculate the TDS that is being deducted from your salary you can use the tool provided by Vakilsearch. You have to enter some basic information on the website and they will inform you about the TDS reduction.
TDS on Salary: What Is TDS Calculated On?
Tax Deduction at Source (TDS) aims to collect taxes directly from the original income source. Employers must deduct and remit taxes from employees’ salaries to the government. Employees can receive a credit for the withheld amount through Form 26AS or the TDS Certificate. To grasp the technical aspects, it’s important to comprehend how TDS is calculated. For any queries, you can contact the tax experts at Vakilsearch.
Key amendments in Income Tax Regulations Effective April 1st of 2023, are as follows – Major Changes in Income Tax Rules from April 1, 2023
TDS Calculation Formula With Example (as Per New Regime)
The ‘average rate’ of the employee’s income tax is typically used by the employer to deduct TDS from the employee’s salary.
This is the general formula:
- Step (1): Consider that your monthly income is ₹.80,000, which includes different parts like basic pay, HRA, travel allowance, medical allowance, CEA, and other allowances totalling ₹12,750.
- Step (2): Identify the amounts for each part of your income.
- Step (3): Figure out your monthly exemption from allowances, which is ₹2,250 (medical + travel + CEA) if you stay at your own property.
- Step (4): Calculate your yearly taxable amount by multiplying the monthly exemption (step 3) by 12 and subtracting it from your gross income. In this case, it is (₹80,000 – ₹2,250) * 12, resulting in ₹9,33,000.
- Step (5): Account for any loss on house loan interest repayments. If you had a loss of ₹1.5 lakhs over the year, subtract this amount from your taxable income. So, the taxable income becomes ₹7,83,000.
- Step (6): Consider any investments made in eligible categories under Section 80C and Section 80D. If you invested ₹1.2 lakhs in Section 80C and ₹30,000 in Section 80D, a total of ₹1.5 lakhs is exempted from taxes. Subtract this exempted amount from the taxable income calculated in step (5). Therefore, your taxable income becomes ₹6,33,000.
- Step (7): Determine your tax slab based on the income slabs provided by the IT department. Calculate the final TDS to be deducted from your yearly income, which amounts to ₹51,600 for the current year’s income or ₹4,300 per month for the current fiscal
TDS on Salary: How do I Calculate TDS on my Salary?
This table will help you in calculating TDS on your salary rates:
| Income Tax Slab | New Tax Rate |
| Up to ₹3 lakh | Nil |
| From ₹3 lakh – ₹6 lakh | 5% above ₹3 lakh lakh |
| From ₹6 lakh – ₹9 lakh | 10% of the total income |
| From ₹9 lakh – ₹12 lakh | 15% of the total income |
| Above ₹12 lakh – ₹15 lakh | 20% of the total income |
| Above ₹15 lakh | 30% of the total income |
Who Is Liable to Deduct TDS On Salary?
When paying the employee’s salary, the employer is required to subtract TDS from the amount. Only when the actual payment is made may TDS be deducted from a salary. Additionally, it will be subtracted when the employee’s salary is taxed. However, no TDS would be taken from the salary if it is equal to or less than 2,50,000. You Can Use TDS Calculator Online in 2023 to get the best Information.
According to Section 192, there must be an employee-employer relationship in order to deduct TDS from pay. Additionally, the following employers are required to withhold TDS from employee salaries:
- Individuals
- Companies (Private or Public)
- HUF (Hindu Undivided Family)
- Trusts
- Partnership firms
- Co-operative societies
However, the employer’s status, such as company, HUF, or trust is irrelevant for TDS on salary deduction. Also, while making TDS on salary calculation, the number of employees employed by the employer has no bearing. You can check the TDS deducted from your salary by downloading your salary slip.
TDS Calculation on Salary: How Can You Save TDS?
- Travel Allowance: Ask your employer to include travel allowances in your salary breakdown if they are not already included.
- Mediclaim Premium: Provide an 80D tax certificate from your insurance company as proof of the premium paid.
- House Rent Allowance (HRA): If your rent exceeds ₹1,00,000 per year, provide your landlord’s details to claim HRA.
- Residential Loan Interest: Provide the lender’s details and a bank certificate for interest paid on a housing loan.
- Food Coupons: Meal vouchers can exempt ₹50 per meal, up to ₹2,500 per month.
- Tuition Fees: Submit signed receipts from the educational institution for tuition fees.
- Donations: Submit donation receipts with relevant credentials.
- National Pension System (NPS): Provide deposit receipts and relevant bank statements for NPS contributions.
- Section 80C: Invest in eligible instruments under Section 80C to save on TDS, with Public Provident Fund (PPF) being a recommended option offering a tax rebate of up to ₹1,50,000 per year.
How Interest is Calculated for Late TDS Payment?
If you pay your TDS after the deadline, you must pay interest by Section 201(1A). TDS interest is calculated at a rate of 1.5% per month starting from the due date.
Consider a scenario in which your payable TDS amount is ₹5,000, the due date is January 13, and you pay it on May 17. The interest you must pay is then 5,000 x 1.5% p.m. x 5 months, which comes to 375 according to the TDS late payment interest calculator.
The aforementioned considerations will help with correct TDS calculation. People can utilise an online TDS calculator for the most accurate results.
Cases of TDS Deduction on Salary Income
TDS Calculation on Salary (Tax Deducted at Source) is applicable to salary income under certain circumstances. These cases include when the employer deducts TDS from the employee’s salary and remits it to the government. This ensures tax collection from the actual source of income. You Can Use Online TDS Calculator for the exact values.
TDS Implications In Case of More Than One Employer
If an individual has more than one employer, TDS implications may arise. Each employer may deduct TDS from the salary based on the applicable tax slab. However, the employee can provide details of income from the other employer(s) to ensure the correct TDS calculation.
Reduction of TDS Rate on Your Salary Income
The TDS rate on salary income is determined based on the individual’s tax slab. In certain cases, individuals can request a reduction in the TDS rate by submitting the necessary documents to the employer. This can help ensure that TDS deductions align with the actual tax liability.
TDS Statements
Employers provide TDS statements to employees, which reflect the details of TDS deductions made from their salaries. These statements serve as proof of TDS deductions and can be used for income tax filing purposes.
Time Limit to Deposit Tax U/S 192
As per section 192 of the Income Tax Act, employers are required to deposit the TDS amount deducted from employees’ salaries within a specified time frame. The time limit for depositing the TDS amount to the government account is typically within a week or month, as per the prescribed rules and regulations. Adhering to this time limit is crucial to avoid any penalties or consequences.
Deductions on TDS
TDS is deducted at different amounts based on different situations. Deduction for TDS calculation is done based on the salary of an individual.
For example,
- If a person is less than 60 years and their salary is less than 2.5 lakh TDS is not deducted from the salary.
- Whereas if the same person has a salary which is above 2.5 lakh but not more than 5 lakhs then the TDS is 5%.
- In case of a salary of more than 5 lacs but less than 10 lakhs that TDS is 20%.
- When a person earns more than 10 lakh per annum the TDS rate is 30%.
In case a person fails to submit the income tax returns they have to pay a penalty. ₹ 100 is supposed to be paid as a penalty for each day on which the income tax remains unsubmitted. If a person makes a mistake in filing the TDS statement they have to pay a penalty of ₹10000 to ₹1 lakh depending upon their case. In case of submitting incorrect details, a penalty of ₹10000 to ₹1 lakh is charged.
That wrong information can be related to PAN card TDS amount challan etc. If the TDS is not paid within the due date interest is charged at the rate of 1.5% every month. This interest starts from the date on which the TDS was due.
When payment is made to or received from banks or insurance societies TDS is not deducted. In case of payment is deposited to the state or Central financial corporation, no TDS is deducted. When an individual receives a refund from the income tax department no TDS is deducted from it. There are certain institutions that are notified under no- TDS and any payment made to them or received from them does not have any TDS reduction.
Conclusion
TDS is the tax deducted at source. As the name suggests this tax is deducted before paying the amount to the deductive. This is an easy way for the government to maintain a constant flow of revenue and prevent tax evasion.
TDS is applicable for almost all transactions however there are some transactions that are exempted from TDS such as Bank transactions or income tax returns or some agencies or companies that have been certified as non-TDS.
There are several deductions for TDS calculation. If you want to calculate your TDS deduction from your salary you can use the TDS calculator provided by Vakilsearch. You can use the TDS calculator and enter the basic details required and calculate the TDS deduction on your salary.
FAQs
Can deduction on HRA be claimed for TDS?
Yes, you can claim a deduction on House Rent Allowance (HRA) while calculating TDS. The deduction is allowed under Section 10(13A) of the Income Tax Act, subject to certain conditions.
While calculating TDS, how much can be claimed under Section 80C for a deduction?
Under Section 80C of the Income Tax Act, you can claim a deduction of up to Rs. 1.5 lakh per year while calculating TDS. This deduction can be claimed for investments in various instruments such as Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS), National Savings Certificate (NSC), and others.
Is there a way to know the amount of tax deducted by the payer from the income?
Yes, you can know the amount of tax deducted by the payer from your income by checking your Form 26AS. It is a consolidated statement that shows the details of tax deducted on your behalf by the payer.
Does the payee face any penalties when the payer does not deduct TDS?
If the payer does not deduct TDS, the payee may face penalties for non-compliance with tax laws. The payee may also be liable to pay interest on the tax amount that should have been deducted.
Why doesn’t TDS credit reflect in the Form 26AS?
If the TDS credit is not reflected in your Form 26AS, it could be due to various reasons such as incorrect PAN details, non-filing of TDS returns by the payer, or delay in processing of TDS returns by the Income Tax Department. You should contact the payer to rectify the issue.
Is TDS deducted every month from salary?
Yes, TDS is deducted every month from salary if the salary is above the minimum taxable limit. The employer deducts TDS on a monthly basis and deposits it with the government.
Is TDS deduction on salary mandatory?
Yes, TDS deduction on salary is mandatory if the salary is above the minimum taxable limit. The employer is required to deduct TDS on a monthly basis and deposit it with the government.
How many types of TDS are there?
There are various types of TDS such as TDS on salary, TDS on interest income, TDS on rent, TDS on professional fees, and others. The rate of TDS and the rules for deduction vary depending on the type of payment.
What is the main difference between PAN card and TAN card?
PAN (Permanent Account Number) is a unique 10-digit alphanumeric code issued by the Income Tax Department to individuals and entities for tax purposes. TAN (Tax Deduction and Collection Account Number) is a 10-digit alphanumeric code issued by the Income Tax Department to entities that are required to deduct or collect tax at source. While PAN is used for individual tax purposes, TAN is used for business tax purposes.
