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How to Calculate TDS on Salary?

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How to Calculate TDS on Salary?
January 23, 2024

Table of Content

 

In this policy, the investment risks in the investment portfolio is borne by the policyholder. 

If you’ve ever looked at your salary slips, we’re sure you’ve noticed a deduction called TDS. TDS stands for Tax Deducted at Source. Your employer deducts a small portion of your salary and pays tax on your behalf. Over the year, the TDS will amount to the total income tax you owe the government. But, how does your employer calculate the deduction? Let’s find out!

How to Calculate TDS on Salary

Over the years, your TDS amount would have changed. As you earn more money and fall into different tax brackets, your TDS liability also increases. Your employer will deduct TDS on salary based on your total annual income. Depending on the tax slab you fall under, the TDS amount could be as low as 10% or as high as 30%. You need to provide your employer with proof of your tax-saving investments and other tax-deductible expenses. They will then calculate the TDS amount on your salary after deducting all eligible claims. You can claim deductions for your housing rent allowance, your child’s education, leave travel allowance, tax-deductible investments and more.

Understanding TDS on Salary

We can understand how to calculate TDS better with the help of an example. Mr Kumar is a 35-year-old man. He draws a monthly salary of INR 70,000. So, his annual income works out to INR 8,40,000. Over and above this amount, he earns perquisites worth INR 1,38,600 per year. So, his gross total income is INR 9,78,600. His employer estimates that some investments make Mr Kumar eligible to claim a deduction of INR 1,52,000 per year. Mr Kumar’s total taxable income works out to INR 8,26,600 per year.

Based on this calculation, Mr Kumar’s employer knows that he has to pay INR 77,820 to the Income Tax Department. A health and education cess of 4% gets levied on the amount, totalling INR 80,933. Mr Kumar’s employer must deduct a total of roughly INR 80,900 per year from his salary. So, by breaking up that amount over 12 months, Mr Kumar will receive a monthly salary of INR 70,000, less INR 6,742. Mr Kumar receives INR 63,258 every month.

Who is Liable to Deduct TDS on Salary?

Employers must deduct the TDS whenever they make a salary payment to their employees. They can deduct TDS only if an employee’s annual income is more than INR 2,50,000. If it is less, they do not have to pay any tax. As per the guidelines under Section 192 of the Income Tax Act, the following types of employers must deduct TDS on salary:

  • Individual employers

  • All private and public companies

  • Hindu Undivided Families

  • Trusts

  • Cooperative societies

  • Partnership firms

Is TDS on Salary Refundable?

Under specific circumstances, yes, your TDS can get refunded. Let’s assume you decided to make a single investment at the beginning of the financial year. You provided your employer with the details of this investment. Before the end of the year, you made another tax-deductible investment. Your employer has deducted TDS based on your single investmentSo, you’re eligible to receive a refund on your TDS based on the excess.

How Do I Claim TDS excess deducted?

Upon identification of any error, you must check all the details, especially your PAN and the challan details. Depending on the details one needs to change or correct, employer can undertake  one or more of the following revisions:

  • C1 – To revise the name and address of the employer

  • C2 – To revise challan details including serial number and tender date

  • C3 – To revise your details

  • C4 – To revise your salary details

  • C5 – To update your PAN

  • C9 – To insert a new challan and underlying deductee

You can file several revised returns to incorporate all the necessary changes.

What Happens If TDS on Salary Is Not Deposited?

If the TDS does not get deposited with the government’s IT department, the employee cannot claim tax credits of the TDS while filing their income tax returns. Often, the employee gets stuck between the Income Tax Department and the employer.

If the employer did not deduct or failed to deposit the TDS, they will have to pay a penalty on the amount. If they did not deduct TDS, the company is charged an interest of 1% per month or part thereof from the date when they should have made the deduction to the date they actually make it. If they deduct the TDS but do not deposit it, they are charged interest at a rate of 1.5% per month or part thereof from actual deduction date till payment date

How Can I Save TDS on Salary?

You can save on TDS by making smart tax-saving investments. You can use an online tax calculator to understand how much tax you are liable to pay. To save up to INR 1,50,000 per year on taxes, you can invest your money in a Unit-Linked Insurance Plan (ULIP), PPF, Equity-Linked Savings Schemes and other avenues.

What is the TDS rate on salary?

The TDS rate on salary varies across the income level of a salaried employee, based on which he/she falls under different tax slabs. TDS on salary is deducted under Section 192 of the Income Tax Act, 1961 as per the slab rates applicable to each employee. It may range between 5-30%.  

How to calculate TDS on salary?

You can calculate TDS on salary with the following steps:

  1. Calculate gross monthly income summing up the basic income, allowances and perquisites.

  2. Calculate applicable exemptions like HRA, medical, LTC & similar others as per section 10 of the Income Tax Act, 1961. 

  3. Deduct the exemptions from the gross monthly income.

  4. Add up any additional source of income like from house rent received and subtract any loss/expenditure like home loan interests. 

  5. Now subtract the total investment amount (subject to Chapter VI-A of ITA) like in life insurance, PPF, ULIP etc. for the year from gross income calculated at step 5.

  6. Deduct the maximum salary-specific exemptions along with professional tax paid, standard deduction of Rs. 50,000/-

  7. Calculate the total tax liability as per the income tax slab applicable to the employee & apportion the same to compute monthly TDS deduction.

TDS implications on account of multiple employment in a financial year   

In case you resign from your previous job and join a new employer, the previous employment details need to be submitted through Form 12B to the new employer. He/she will take the information into account to calculate your gross income and corresponding TDS. 

Understanding TDS on Salary with Example 

Total Income

978600

Estimated Deduction 

(As per Chapter VI-A of ITA)

152000

Taxable Income

826600

Tax amount

77,820

Add: Cess @4%

3113

Total Tax Amount (for a year)

80933

Monthly TDS Deduction

6742

When is TDS deducted under section 192?

Under section 192 of the Income Tax Act, 1961, TDS is deducted when your employer pays you the salary, whether on time, in advance or arrears. It is not deducted when the salary gets accrued. 

Tax is payable only when your estimated salary exceeds the basic exemption limit. This rule applies even to those without a PAN. 

The following table specifies the basic exemption limits for different age categories:

Age

Income threshold for TDS

Residents of India below 60 

Rs 2.5 lakh

Senior citizens between 60-80

Rs 3 lakh

Super Senior citizens above 80

Rs 5 lakh

Is TDS deducted every month from salary?

Yes, TDS gets deducted from your salary every month. According to section 192 of the Income Tax Act, 1961, TDS should be deducted at the point of salary payment to the employee. Hence, as the salary is paid every month, the TDS deduction follows the same format too. In case the employer fails to do that, a penalty and interest is charged to him/her. 

Is TDS deduction on salary mandatory?

TDS deduction is mandatory under section 192 of the Income Tax Act, 1961. Every employer is bound to deduct TDS from the monthly salary of every employee, provided he/she has exceeded the basic exemption limit. 

How can I be exempt from TDS payment?

As a salaried employee, you can get exempted from TDS only if your estimated salary is within the basic exemption limit. Else, you can’t escape TDS payment. The rule is applicable even if you don’t have a PAN. 

What are the TDS deduction rules?

The TDS deduction rules suggest: 

  • TDS payment is mandatory for every employee with an estimated salary above the basic exemption limit, whether or not he has a PAN. 

  • The tax calculation is to be done at the beginning of a financial year under usual circumstances. 

  • TDS needs to be calculated as at the estimated tax liability of the employee for the financial year divided by the number of months of employment under the corresponding employer. 

  • If the employee has no PAN, TDS will be deducted at 20% plus 4% cess. 

  • Any excess or deficit in the previous TDS calculation has to be adjusted by the employer through increasing or decreasing deductions in the same financial year.

  • In case advance tax payment is made by the employee the same can be adjusted in TDS deduction upon submission of details to the employer. 

Time limit to deposit the tax under section 192

As per section 192 of the Income Tax Act, 1961, the following are the time limits for depositing the tax to the Central Government.

  • If TDS is deducted by a non-government employer in March, the deposit should be on or before 30th April of each year. 

  • If TDS is deducted by a non-government employer in any month other than March, the deposit should be within 7 days of the following month. 

TDS statements

After deducting TDS from salary, the employer is bound to offer the employee statements containing the breakup of TDS deduction. Hence, every financial year, the employer provides Form 16 to the employee. This form is a statement of salary details, like the amount paid and tax deducted. In addition, Form 12BA can also be provided detailing the perquisites and profits instead of salary. 

TDS certificate

TDS certificates like Form 16 in the case of salaried employees and Form 16A for non-salaried individuals furnish a summary of the tax deductions for the financial year by employers or deductors. They include details of the income, investments by the employee and corresponding deductions and taxes to facilitate smooth and accurate filing of income tax returns. 

Here's a glance at the two forms:

Form

Certifies

Frequency

Due date of furnishing the same to the deductee 

Form 16

TDS on salary

Yearly

31st May

Form 16A

TDS on the non-salary payments

Quarterly

15 days from the last day of filing ITR TDS Statement

FAQs about TDS on Salary

1. How much TDS is deducted from salary?

TDS rate depends on the income level of individuals and corresponding tax slabs. According to the Income Tax Act, 1961, no tax is payable for annual taxable income up to Rs 2.5 lakh. Post that, TDS is 510% for income between Rs 2.5-5 lakh, 20% for Rs 5-10 lakh and 30% if income exceeds Rs 10 lakh.  

2. How can I check my TDS salary?

TDS on salary can be checked online from the tax credit statements by the Income Tax Department. Registered users of the Income Tax Portal can access the tax credit information through online Form26AS, providing their user ID and PAN.

3. When Can TDS On Salary Be Claimed?

Under the provisions of the Income Tax Act, 1961, an employee can claim TDS on salary, paid or accrued, in the same financial year of TDS deduction.  

4. How many Types of TDS certificates are there?

There are two types of TDS certificates, issued by deductors: a) Form 16 which provides details of salary and corresponding TDS deductions for the year and b) Form 16A listing TDS deductions on incomes other than salary.

5. Can HRA be claimed as a deduction when calculating TDS on salary?

Yes, HRA can be claimed as a deduction while calculating TDS on salary. For this, the employee needs to stay in a rented accommodation and declare the rent amount providing receipts and rent agreement as proof.  

6. What are the few items allowed for TDS exemption?

Investments in EPF, PPF, NSC, ELSS, Tax-saving FD, Transport and House rent allowance and savings under section 80C of the Income Tax Act are allowed for TDS exemption.  

7. Is any penalty levied if the payer fails to deduct TDS?

Yes, if the payer fails to deduct TDS, he has to pay the penalty and interest for the corresponding period to the government. 

8. When is TDS on salary deducted under section 192 of the Income Tax Act?

Under section 192 of the Income Tax Act, 1961, TDS on salary has to be deducted if the taxable income for the year exceeds the basic exemption limit. 

9. Is there a fixed rate at which TDS is deducted from salary?

There isn’t any fixed rate for TDS deduction from salary. TDS is deducted as per the average income tax rates corresponding to the tax slab rate applicable to the concerned person’s salary in that financial year. 

10. Is a PAN card imperative for the TDS deductions?

Yes, submitting the PAN details to the employer is mandatory for TDS deductions. Failing this, TDS will be charged at a flat 20% rate

Related Article:

ARN - ED/01/24/7706

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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