TDS on Salary (u/s 192)

Tax Deduction at Source (TDS) or TDS on Salary is mandatory for employers in

India paying salaries to employees on which income tax is applicable. For any
income chargeable under the “Salaries” classification, the employer must deduct the
applicable income-tax on the estimated income of the employee and deposit the
same with the Government. In this article, we cover the procedure for TDS on salary
and the computation of TDS on salary.

What is TDS Calculated on?

When you join any company then they tell you the CTC which includes components
like your basic salary, travel allowance, house rent allowance, medical allowance,
dearness allowance, special allowances and other allowances.

CTC has mainly two major categories

 Salary
 Perquisites- It includes facilities and benefits given by the employer to the
employee expenses such as traveling, canteen and, hotel expenses, fuel
subsidies etc.

TDS Deduction Rate for FY 2017 – 2018

Tax applicable for individuals below 60 years
 Secondary and
Education
Annual Income Tax Rates Higher Education
Cess
Cess

Up to Rs.2,50,000 Nil Nil Nil

Rs.2,50,001- 2% of income
5% 1% of income tax
Rs.5,00,000 tax

Rs.5,00,001- Rs.12,500 + 2% of income

1% of income tax
Rs.10,00,000 20% tax

Rs.1,12,500 + 2% of income
Above Rs.10,00,000 1% of income tax
30% tax
Tax applicable for individuals over 60 years and under 80 years

Secondary and
Education
Annual Income Tax Rates Higher Education
Cess
Cess

Up to Rs.3,00,000 Nil Nil Nil

Rs.3,00,001- 2% of income
5% 1% of income tax
Rs.5,00,000 tax

Rs.5,00,001- Rs.10,00 + 2% of income

1% of income tax
Rs.10,00,000 20% tax

Rs.1,10,000 + 2% of income
Above Rs.10,00,000 1% of income tax
30% tax
Tax applicable for individuals over 80 years and above

Secondary and
Education
Annual Income Tax Rates Higher Education
Cess
Cess

Up to Rs.5,00,000 Nil Nil Nil

Rs.5,00,001- 2% of income
20% 1% of income tax
Rs.10,00,000 tax
 Secondary and
Education
Annual Income Tax Rates Higher Education
Cess
Cess

Above Rs.10,00,000 Rs.1,00,000 + 2% of income

1% of income tax
Rs.1,12,500 30% tax

Along with the surcharge and Education Cess, TDS should be deducted at
applicable rates as above.

Calculation of TDS on salary

Under Section 80C and 80D, the government allows tax exemption which allows an
individual to go for exemption on tax which is based on various types of investment
he is making for that particular financial year. We can calculate TDS on salary by
reducing the exemption from total annual earning.

It is necessary for an employee to get a declaration and proof from individuals to

approve tax exemption. These are the following categories are considered for
exemption:

 House Rent Allowance – If an employee is paying towards accommodation

as rent and entitled for HRA from the employer, the employee can declare this
amount for tax exemption.
 Conveyance or Travel Allowance – The employee can declare them for tax
exemption if an employee is provided with the travel allowance.
 Medical Allowance – If an employee is provided with medical allowance then
he can declare and produce medical bills for tax exemption.

There are certain limits to the maximum amount that can be measured for
exemption.

TDS Deductions
The following process is involved in the deduction of TDS:

 Calculating total earning – The employer is required to calculate the total

earning of the employee.
 Calculating total amount eligible for the exemption – The employer is
responsible for calculating the total amount that is measured for tax
exemption and it is necessary to declare the type of amount that is eligible for
exemption.
 Obtaining declaration and investment proof – The employer is required to
collect investment and proofs from employees
 Depositing TDS deductions – It is necessary for an employee to depositing
the collected TDS to the central government.
Section 80C
A maximum of Rs.1, 50,000 for tax exemption an employee can declare. The
following investments schemes are considering for exemption under section 80C.

 Investment in mutual funds and equity shares, such as ULIP, Linked Saving
Scheme of a Mutual Fund/UTI
 Life Insurance Premium paid
 Contribution to Statutory PF, 15 years P.P.F., and superannuation funds
 Payments subscription for NSS and Home Loan Account Scheme
 Interest earned through few of the National Savings Certificates are eligible
for a certain amount of tax
 Fixed deposit scheme for a period of minimum 5 years

Section 80CCG
If the employee has made an investment under certain equity saving schemes then
the employee is eligible for a maximum of Rs.25, 000 annual exemptions. The
investment made for at least 3 years from the date of scheme purchase.

Section 80D
Section 80D offer exemption for the premiums paid for a Medical Insurance.

There are various other Sections that control many other types of exemptions.

Calculation of TDS on salary

While the basic salary is fully taxable according to respective tax bracket, some
exemptions are available for payments made as allowances and perks.

Calculate your TDS on salary by the Following steps below:

 Step 1– Calculate gross monthly income as a sum of basic income,

allowances, and perquisites.
 Step 2– Calculate available exemptions under Section 10 of the Income Tax
Act (ITA). Exemptions are applicable on allowances such as medical, HRA,
travel.
 Step 3 -In the 1st step decrease your exemptions for the total monthly income
calculated in
 Step 4– As TDS is calculated on yearly income, multiply the corresponding
figure from above calculation by 12. This is your yearly taxable income from
salary.
 Step 5– Add your Income from house rent subtract if you incurred losses from
paying housing loan interests from the figure in Step 4
 Step 6– Under Chapter VI-A of ITA calculate your investments for the year
and deduct this amount from the gross income calculated in the above step.
 Step 7– Reduce the maximum allowable income tax exemptions on a salary.
 Step 8– Do note that senior citizen has different tax slabs and receive higher
exemptions than those discussed above.
Example
Mr. Saurabh is earning Rs. 70,000 per month. Therefore the total estimated income
of Mr. Saurabh during the financial year 2013-14 would be Rs. 8, 40,000.

He has also claimed deductions of Rs. 1, 00, 000. Therefore, the income chargeable
to tax after deductions is Rs. 7, 40,000. Total Tax on Salary payable for the year
computed as per the slab rates would come out to Rs. 78,000 + Cess @ 3% i.e. Rs.
2340.

Tax on salary payable is Rs.80340

Average rate of Tax on Salary = Total Tax Payable = 80340 * 100

Total Income = 840000 = 9.56%

Therefore TDS on Salary would be 9.56% of Rs. 70,000 i.e. Rs. 6695 would be
deducted every month as TDS on Salary.

Form 16 –TDS Certificate

After TDS, the employer is required to remit the TDS amount through internet
banking facility or credit or debit card. TDS must be remitted by the employer before
the 7th day of the month; in April, TDS on salary must be remitted prior to the 30th
day of the month.
Prior to 31st May of each year, the employer is required to provide to the Employee
a TDS certificate, i.e., Form 16. Form 16 usually contains the PAN number of the
employer, TAN number of the employer, TDS deposit details and details of all
quarterly TDS statements, TDS on Salary.

Non-Compliance with respect

An employee cannot pay the tax himself if TDS on his Salary deducted by the
Employer but not deposited to the Government, the employer is defaulted, not the
employee.
As per Section 191 if TDS on salary was NOT deducted by the Employer, then the
employee would be liable to pay the Income Tax due. Further, when TDS is not
deducted and remitted by the employer, the entire expenses relating to the salary
payment would be disallowed as an expenditure for the Employer, increasing the
income tax liability of the Employee.

In case you are confused about TDS Return Filing as a deductor, feel free to consult
the experts at LegalRaasta. You can get comprehensive assistance with our TDS
Return Filing Software which supports TDS on Salary payments (Form 24Q), Rent,
Interest, Commission and other Non-salary transactions (Form 26Q), NRI (Form
27Q)and TCS (Form 27EQ).