Complete Guide to TDS on Salary | Section 192 Explained

Introduction

TDS (Tax Deducted at Source) is a concept that most salaried employees in India encounter, but not everyone fully understands. Have you ever wondered why your salary slips mention “TDS” or why your monthly paycheck seems slightly lighter than expected? Welcome to the world of Section 192 of Companies Act 2013! 

TDS plays a critical role in India’s taxation system, ensuring taxes are collected efficiently. Among its various provisions, Section 192 specifically deals with TDS on salary. Whether you’re an employee curious about how it works or an employer ensuring compliance, this guide will cover everything you need to know.

This article will break down the complexities of TDS on salary into simple terms, guiding you through everything you need to know about how it works, what it entails, and why it’s crucial for your financial planning.

What is TDS on Salary?

TDS on salary under Section 192 of income tax is a tax mechanism where your employer deducts a portion of your salary as tax before paying you. The deducted amount is then deposited with the Income Tax Department on your behalf. Unlike other sections of TDS, which are applicable to specific payments, Section 192 only applies to salary income.

This deduction is governed by Section 192 of the Income Tax Act, 1961. It ensures that employees pay taxes in advance rather than waiting until the end of the financial year.

Applicability of Section 192 TDS

TDS under Section 192 is applicable when:

1. Employer-Employee Relationship: The payer must be an employer, and the recipient must be an employee.
2. Taxable Salary: TDS is deducted only if the employee’s estimated taxable salary exceeds the basic exemption limit. For FY 2024-25:
   • Below 60 years: ₹2,50,000
   • Senior citizens (60-80 years): ₹3,00,000
   • Super senior citizens (aged 80 years and above): ₹5,00,000
3. Resident and Non-Resident Employees: The provision applies to both resident and non-resident employees.

How is TDS on Salary Calculated?

Unlike many other TDS sections, TDS on salary is not a fixed percentage. Instead, it is calculated based on the income tax slab applicable to the employee. Employers estimate the employee’s annual income and deduct TDS accordingly.

Here’s a step-by-step breakdown:

1. Determine Gross Salary: This includes your basic salary, allowances (HRA, medical, transport, etc.), bonuses, and any other income under the head “salaries.”
2. Exemptions: Subtract exemptions like HRA, LTA, and other allowances under Section 10.
3. Deductions: Apply deductions under Section 80C (e.g., investments in PPF, EPF, LIC), 80D (medical insurance), and other sections like 80E, and 80G.
4. Compute Taxable Income: Once you’ve adjusted for exemptions and deductions, you get your taxable salary income.
5. Apply Tax Slabs: Based on the taxable income, calculate the tax liability using the latest income tax slab rates.
6. TDS Calculation: Divide the total tax liability by 12 (for monthly deduction) and subtract TDS from your salary.

Example: If Mr. Verma has an annual salary of ₹12,00,000 and claims a standard deduction of ₹50,000 along with ₹1,50,000 in eligible deductions, his net taxable income would be ₹10,00,000. The tax calculation would result in a total tax of ₹1,17,000 for the year, including cess. Consequently, the monthly TDS deduction from his salary would be ₹9,750.

Deductions & Exemptions That Can Reduce TDS Liability

Want to reduce your TDS? You can! Here are some popular ways salaried individuals can lower their tax liability under Section 192:

• Section 80C Deductions: This includes investments in the Public Provident Fund (PPF), Employees’ Provident Fund (EPF), National Savings Certificates (NSC), life insurance premiums, and principal repayment on a home loan, among others. The total deduction under Section 80C is capped at ₹1.5 lakh per annum.
• Section 80D: Deduction for medical insurance premiums paid for self, spouse, and children. You can claim up to ₹25,000 (₹50,000 for senior citizens).
• House Rent Allowance (HRA): If you live in rented accommodation, you can claim HRA exemption under Section 10(13A). The exemption is calculated based on your basic salary, rent paid, and city of residence.
• Leave Travel Allowance (LTA): Expenses incurred on travel within India can be claimed as an exemption, provided the employer includes this component in your salary.

Income Tax Slab Rates for FY 2024-25

Let’s quickly glance at the income tax slabs for the Financial Year 2024-25 (Assessment Year 2025-26) under the old and new tax regimes:

Old Tax Regime:

• Income up to ₹2.5 lakh: Nil
• Income from ₹2.5 lakh to ₹5 lakh: 5%
• Income from ₹5 lakh to ₹10 lakh: 20%
• Income above ₹10 lakh: 30%

New Tax Regime:

• Income up to ₹3 lakh: Nil
• Income from ₹3 lakh to ₹7 lakh: 5%
• Income from ₹7 lakh to ₹10 lakh: 10%
• Income from ₹10 lakh to ₹12 lakh: 15%
• Income from ₹12 lakh to ₹15 lakh: 20%
• Income above ₹15 lakh: 30%

The new tax regime offers lower tax rates but does not allow common deductions like HRA or 80C.

Note: These slabs are subject to change based on government regulations.

When is TDS Not Deducted Under Section 192?

Certain conditions may exempt salaried employees from TDS deductions. If your total income for the financial year does not exceed the basic exemption limit (₹2.5 lakh for individuals below 60 years), no TDS will be deducted. 

Additionally, if you declare and submit the necessary proof for investments in 80C, 80D, etc., your taxable income could fall below the threshold, exempting you from TDS.

Form 16: Your TDS Summary

Form 16 is a certificate issued by your employer that summarizes the TDS deducted from your salary and deposited with the government. It is an essential document during income tax return filing, as it provides a complete breakdown of your earnings and tax payments.

Key Sections of Form 16:

1. Part A: Contains details like your PAN, employer’s PAN and TAN, period of employment, and the amount of TDS deducted.
2. Part B: Provides a detailed breakup of salary, exemptions, deductions claimed, and tax payable.

Ensure that you verify the details mentioned in Form 16 with your salary slips before filing your tax returns.

What Happens if Excess TDS is Deducted?

Sometimes, employers may deduct more TDS than required. In such cases, the excess tax can be claimed as a refund while filing your Income Tax Return (ITR). The refund will be credited directly to your bank account after the Income Tax Department processes your return.

TDS Compliance for Employers

Employers play a crucial role in ensuring TDS compliance under Section 192. They must calculate and deduct TDS accurately, considering all exemptions and deductions claimed by employees. They are also responsible for:

• Depositing TDS: TDS must be deposited with the government by the 7th of the following month.
• Issuing Form 16: Employers must provide Form 16 to employees by June 15 each year.
• TDS Return Filing: Employers must file quarterly TDS returns (Form 24Q).

Non-compliance can lead to penalties, including interest on late payments and fines for failure to file returns.

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Consequences of Non-Compliance With Section 192

Non-compliance with TDS provisions under Section 192 can lead to penalties, including interest at 1% per month for non-deduction and 1.5% per month for non-payment after deduction. Employers may also be liable to pay a late filing fee of ₹200 per day for delayed TDS return filing. Additionally, they can be deemed an assessee-in-default and may face prosecution for willful default.

How Employees Can Verify TDS Deductions

Employees can verify TDS deductions by reviewing Form 16 issued by their employer, which provides a detailed breakup of the income earned and tax deducted. Additionally, employees can check their TDS credits in Form 26AS, accessible through the Income Tax Department’s online portal. Discrepancies, if any, should be promptly communicated to the employer for rectification.

Conclusion

Understanding TDS on salary under Section 192 empowers you to manage your finances effectively. Employers play a vital role in ensuring compliance, while employees can benefit by maximizing deductions and exemptions. If you need assistance with payroll management or tax filing, reach out to RegisterKaro for expert guidance. Simplify your tax obligations today!

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Frequently Asked Questions (FAQs)

1. What happens if my employer fails to deduct TDS?

 The employer is liable for penalties, but you must still pay your taxes.

2. Can I claim a refund for the excess TDS deducted?

 Yes, file your income tax return to claim a refund.

3. Is TDS applicable on arrears? 

Yes, but you can claim tax relief under Section 89(1).

4. How does the new tax regime impact TDS on salary? 

Under the new tax regime, standard deductions and exemptions like HRA are not applicable.

5. Can I submit proof of investments mid-year? 

Yes, you can submit proof of investments mid-year; however, note that many employers require these proofs by January or February so that they can adjust the TDS deductions accordingly. It’s best to check your company’s policy for the exact timeline.