Section 192 of the Income Tax Act, 1961, deals with the provisions related to Tax Deducted at Source (TDS) on salaries. It outlines the responsibilities of employers to deduct TDS from the salaries of their employees and deposit it with the government. This section aims to ensure that income tax on salary income is collected in a timely manner.
Here are the key points covered under Section 192:
Applicability and Scope:
Section 192 is applicable to employers who make salary payments to their employees. It requires employers to deduct TDS from the salaries paid to employees under the Income Tax Act. The TDS deducted is treated as an advance tax payment by the employee.
TDS Calculation:
The TDS on salary is calculated based on the employee’s estimated total income and the applicable income tax slab rates. Employers need to consider various components while calculating TDS:
- Basic Salary: The core amount of salary paid to the employee.
- Allowances: Various allowances such as house rent allowance (HRA), special allowance, conveyance allowance, etc.
- Perquisites: Value of any benefits or amenities provided by the employer.
- Deductions: Deductions allowed under the Income Tax Act, such as provident fund contributions, standard deduction, and others.
- Exemptions: Exemptions allowed for certain allowances like HRA, leave travel allowance (LTA), etc.
TDS Deduction Process:
Employers deduct TDS from the employee’s salary on a monthly basis at the time of payment. The TDS is calculated based on the estimated annual tax liability and is divided over the number of months in the financial year.
Form 16 – TDS Certificate:
Employers provide Form 16 to employees at the end of the financial year. Form 16 contains details of the salary paid, TDS deducted, and other relevant information. Employees use Form 16 while filing their income tax returns to claim the credit for the TDS deducted.
TDS Deposit and Reporting:
Employers are responsible for depositing the TDS amount deducted from employee salaries to the government within the due dates specified by the Income Tax Department. Additionally, employers are required to file TDS returns, such as Form 24Q, which provides details of TDS deducted and deposited.
TDS Deduction on Exit:
If an employee leaves the organization before the end of the financial year, the employer is required to calculate and deduct TDS on the salary paid up to the date of exit.
TDS and Compliance:
Employers need to ensure accurate calculation and timely deduction of TDS on salary. Failure to deduct TDS or delay in depositing it with the government can result in penalties and legal consequences.
Exemptions and Deductions:
Certain exemptions and deductions are available to employees under the Income Tax Act. Employers consider these while calculating the taxable salary and TDS amount. Employees can provide their investment declarations to the employer at the beginning of the financial year to avail these exemptions.
Let’s consider an example to illustrate how TDS is calculated on salary under Section 192 of the Income Tax Act:
Example: Employee A works at XYZ Ltd. and receives a monthly salary of Rs. 50,000. The company provides HRA of Rs. 15,000, and there are no other allowances or perquisites. Employee A has made an investment in a provident fund of Rs. 5,000 per month. The employee’s income tax slab rate is 10% for income up to Rs. 5 lakhs and 20% for income above Rs. 5 lakhs.
Here’s how the TDS calculation is done:
- Basic Salary: Rs. 50,000 per month
- HRA: Rs. 15,000 per month
- Provident Fund Investment: Rs. 5,000 per month
Gross Salary: Basic Salary + HRA = Rs. 50,000 + Rs. 15,000 = Rs. 65,000
Taxable Salary: Gross Salary – Provident Fund Investment = Rs. 65,000 – Rs. 5,000 = Rs. 60,000
Annual Taxable Salary: Taxable Salary * 12 = Rs. 60,000 * 12 = Rs. 7,20,000
Tax Calculation: The employee’s income tax slab rate is 10% for income up to Rs. 5 lakhs and 20% for income above Rs. 5 lakhs.
- For the first Rs. 5 lakhs: Tax = 10% of Rs. 5,00,000 = Rs. 50,000
- For the remaining Rs. 2,20,000 (Rs. 7,20,000 – Rs. 5,00,000): Tax = 20% of Rs. 2,20,000 = Rs. 44,000
Total Tax: Total Tax = Rs. 50,000 + Rs. 44,000 = Rs. 94,000
Monthly Tax Deduction: Total Tax / 12 = Rs. 94,000 / 12 = Rs. 7,833.33
In this example, the company XYZ Ltd. would deduct TDS of Rs. 7,833.33 from Employee A’s monthly salary. This TDS amount would be deposited with the government and reported in the TDS returns as per the requirements of Section 192.
