Deduction of Tax (TDS) from Salary [Section 192]

Section 192 mandates employers to deduct Tax Deducted at Source (TDS) from employees’ salaries if their taxable income exceeds the basic exemption limit. It is the primary TDS provision for salaried individuals and ensures advance tax collection by the government.

Key Provisions of Section 192

1. Who is Responsible for Deduction?

• • Employer (Deductor): Any person/entity paying salary (company, firm, individual, HUF, etc.) must deduct TDS if the employee’s income is taxable.
  • Exemption: No TDS if total income is below the basic exemption limit (₹3 lakh for FY 2024-25 under new tax regime).

2. Calculation of TDS on Salary

• • Step 1: Compute gross salary(basic + allowances + perks + bonuses + other benefits).
  • Step 2: Subtract exemptions(HRA, LTA, standard deduction, etc.).
  • Step 3: Add other taxable income(if reported by employee, e.g., house property, capital gains).
  • Step 4: Deduct Chapter VI-A deductions(80C, 80D, etc.) if opting for the old tax regime.
  • Step 5: Apply applicable tax slab rates(old or new regime).
  • Step 6: Deduct rebates (e.g., 87A)if eligible.
  • Step 7: Divide the annual tax liability by 12 for monthly TDS deduction.

3. Due Dates for TDS Deposit

• • TDS Deduction: At the time of salary payment (each month).
  • TDS Payment: By the 7th of the next month(e.g., April’s TDS by 7th May).
    • Exception: For March salary, TDS can be deposited by April 30.

4. TDS Returns & Certificates

• • Form 24Q: Quarterly TDS return for salaries.
  • Form 16: Annual TDS certificate issued by the employer (by June 15).

5. Penalties for Non-Compliance

• • Late Deduction: Interest @ 1% per month(Section 201(1A)).
  • Late Payment: Interest @ 5% per month(Section 201(1A)).
  • Late Filing of TDS Returns: Penalty up to ₹1 lakh(Section 271H).

Example of TDS Calculation (FY 2024-25)

PARTICULARS	AMOUNT (₹)
Basic Salary	6,00,000
HRA (Exempt: ₹60,000)	1,20,000
Bonus	50,000
Gross Salary	7,70,000
Less: Standard Deduction	50,000
Taxable Salary	7,20,000
Tax Liability (New Regime)	36,000 (5% on ₹3L–₹6L + 10% on ₹6L–₹7.2L)
Monthly TDS	3,000 (₹36,000 ÷ 12)

Special Cases

1. Perquisites (Company Car, Rent-Free Accommodation)

• • Taxable value is added to salary before TDS deduction.

2. Multiple Employers

• • Employee must declare salary from other employers to avoid under-deduction.

3. NRIs

• • Higher TDS rates apply if DTAA benefits are not claimed.

1.  Tax to be Deducted at Average Rate of Income-Tax [Section 192(1)]

Section 192(1) of the Income Tax Act, 1961, requires employers to deduct Tax Deducted at Source (TDS) from an employee’s salary at the “average rate of income-tax” based on the employee’s estimated total income for the financial year.

Key Provisions of Section 192(1)

1.  What is “Average Rate of Income-Tax”?

• The average rateis calculated as:
  
• The employer must estimate the employee’s:
  • Total taxable salary(after exemptions like HRA, standard deduction, etc.).
  • Other income(if declared by the employee, e.g., rental income, interest).
  • Deductions(under Chapter VI-A, e.g., 80C, 80D, if applicable).

2.  How is Monthly TDS Calculated?

1. 1. Estimate Annual Taxable Income(Salary + Other Income).
   2. Compute Tax Liability(as per applicable slab rates).
   3. Determine Average Rate(Tax ÷ Total Income).
   4. Apply the Rate to Monthly Salaryfor TDS deduction.

3.  When Does This Apply?

• • Regular Salaried Employees: TDS is deducted monthly based on estimated annual income.
  • Employees with Variable Income(e.g., bonuses, commissions): Employer may adjust TDS later.
  • Employees with Other Income(e.g., house property, capital gains): Must declare to employer for correct TDS.

4.  Consequences of Incorrect Deduction

• • If TDS is lower than actual liability: Employee pays balance tax while filing ITR (may attract interest under Section 234B).
  • If TDS is higher: Employee gets a refund.

Example of TDS Calculation Under Section 192(1)

PARTICULARS	AMOUNT (₹)
Annual Salary	9,00,000
Less: Standard Deduction	50,000
Taxable Salary	8,50,000
Other Income (Rental)	1,50,000 (declared by employee)
Total Taxable Income	10,00,000
Tax Calculation
– 0–3,00,000 → 0%	0
– 3,00,000–6,00,000 → 5%	15,000
– 6,00,000–9,00,000 → 10%	30,000
– 9,00,000–10,00,000 → 15%	15,000
Total Tax	60,000
Average Rate	(60,000 ÷ 10,00,000) × 100 = 6%
Monthly TDS	(9,00,000 ÷ 12) × 6% = ₹4,500

Key Points :

✅ Employer’s Duty: Deduct TDS at the average rate based on estimated income.

✅ Employee’s Duty: Declare other income (if any) to avoid under-deduction.

✅ Adjustments Possible: If salary changes (bonus, arrears), employer can revise TDS.

✅ Refund/Additional Tax: Final tax liability is adjusted while filing ITR.

Penalties for Non-Compliance

• Employer fails to deduct TDS: Interest @ 1% per month(Section 201(1A)).
• Employee fails to declare income: May face interest under Section 234B/C.

2.  Furnishing of Evidence of Claims by Employees for TDS Deduction Under Section 192 [Rule 26C]

Applicability: Rule 26C of the Income Tax Rules, 1962, mandates employees to submit proof of tax-saving claims to their employers for accurate TDS deduction under Section 192. However, this rule does not apply if the employee opts for the concessional tax regime under Section 115BAC (New Tax Regime) .

Key Provisions of Rule 26C

1. When Does Rule 26C Apply?

• • Only for employees opting for the Old Tax Regime(where exemptions like HRA, LTA, and Chapter VI-A deductions apply).
  • If the employee chooses the New Tax Regime (Section 115BAC), no evidence submission is required since most deductions/exemptions are disallowed.

2. Submission Requirements

Employees must furnish evidence in Form No. 12BB, including:

CLAIM TYPE	REQUIRED EVIDENCE
House Rent Allowance (HRA)	Landlord’s name, address, PAN (if annual rent > ₹1 lakh) + rent receipts.
Leave Travel Allowance (LTA)	Travel tickets/invoices as proof of expenditure.
Home Loan Interest (Section 24)	Lender’s name, address, PAN, and loan statement.
Chapter VI-A Deductions (80C, 80D, etc.)	Investment proofs (e.g., PPF receipts, insurance premium paid, ELSS statements).

3. Employer’s Responsibilities

• • Verify submitted documents before calculating TDS.
  • Retain proofs for 7 yearsfor audit purposes.
  • Deduct TDS based on declared investments + exemptionsunder the Old Regime.

4. Penalties for Non-Compliance

• • Employee: If false claims are made, the employer may deduct higher TDS, and the employee could face scrutiny during ITR filing.
  • Employer: Failure to verify proofs may lead to disallowance of deductionsand penalties under Section 271(1)(c) for incorrect TDS.

Example Scenario

• Employee A(Old Regime) claims:
  • HRA exemption (₹1.2L rent/year) → Submits landlord’s PAN + rent receipts.
  • ₹1.5L under Section 80C→ Provides PPF passbook + LIC premium receipts.
• Employeradjusts TDS accordingly.
• Employee B(New Regime) skips Form 12BB as no deductions apply.

Key Points

✅ Form 12BB is compulsory for Old Regime employees.

✅ PAN of landlord/lender is mandatory for HRA/home loan claims.

✅ No submission needed under New Tax Regime (Section 115BAC).

✅ Employers must cross-check proofs to avoid TDS errors

3.  When Does the Liability to Deduct Tax at Source (TDS) Arise?

The liability to deduct TDS arises at the earlier of the following two events:

1. At the Time of Credit
   • When the income is credited to the payee’s account(even if not yet paid).
   • Example: A company accrues interest payable to a depositor on March 31 but pays it on April 15. TDS must be deducted on March 31.
2. At the Time of Payment
   • When the payment is actually made(in cash, cheque, bank transfer, etc.).
   • Example: A firm pays rent of ₹1 lakh/month in cash. TDS under Section 194-Imust be deducted at the time of payment.

Key Exceptions & Special Cases

• Salary (Section 192): TDS is deducted when salary is paid(monthly).
• Contractors (Section 194C): TDS applies on credit/payment, whichever is earlier.
• Non-Residents (Section 195): TDS applies even if payment is outside India.
• TCS (Tax Collected at Source): Collected at the time of receipt(not payment).

Consequences of Late Deduction

• Interest @ 1% per month(from the date TDS was deductible till actual deduction).
• Penalty under Section 271C(up to the amount of TDS not deducted).

Example

• Scenario: ABC Ltd. pays ₹50,000 as professional fees on June 10 but credits it on May 31.
• TDS Due Date: May 31 (since credit is earlier than payment).
• Late Deduction Penalty: If deducted on June 10, interest applies for 10 days.

Final Rule: “Credit or Payment, whichever is earlier” triggers TDS liability. Always check the relevant TDS section for specific rules.

4.  Person Responsible for Deduction of Tax at Source [Section 204(i)]

Section 204(i) of the Income Tax Act, 1961, defines the “person responsible for paying” who is legally obligated to deduct Tax Deducted at Source (TDS). This provision ensures accountability in TDS compliance across various types of payments.

Key Provisions of Section 204(i)

1. Who is the “Person Responsible for Paying”?

The term includes:

• • Employers(for salary payments under Section 192).
  • Companies/Firmsmaking payments like interest, rent, or professional fees.
  • Government Departments(if the payer is a government entity, the Drawing and Disbursing Officer (DDO) is responsible).
  • Authorized Representatives(e.g., trustees, guardians, or agents handling payments on behalf of others).

2. Key Responsibilities

• • Deduct TDSat the applicable rate (e.g., 10% for professional fees under Section 194J).
  • Deposit TDSto the government by the 7th of the next month (e.g., TDS deducted in July must be paid by August 7).
  • File TDS Returns(e.g., Form 24Q for salaries, Form 26Q for non-salaries).
  • Issue TDS Certificates(e.g., Form 16 for employees, Form 16A for others).

3. Penalties for Non-Compliance

• • Interest @ 1% per monthfor late deduction/deposit.
  • Penalty up to ₹1 lakhunder Section 271H for incorrect/filed returns.
  • Prosecutionin cases of deliberate tax evasion.

Example Scenario

• Tech Innovations Pvt. Ltd.pays a ₹1 lakh bonus to employee Mr. Arjun.
  • As per Section 204(i), the company must:
    1. Deduct TDS under Section 192.
    2. Deposit it by the next month’s 7th day.
    3. Issue Form 16to Arjun

5.  Tax on Non-Monetary Perquisites Paid by Employer [Section 192(1A) & (1B)]

1. Overview

Under Section 192(1A) and (1B) of the Income Tax Act, 1961, employers have the option to pay tax on behalf of employees for non-monetary perquisites (benefits not in cash). This provision applies when calculating TDS on salary income.

2. Key Provisions

A. Section 192(1A) – Employer’s Option to Pay Tax on Non-Monetary Perquisites

• Applicability: Covers benefits like:
  • Company car for personal use
  • Rent-free accommodation
  • Club memberships
  • Stock options (ESOPs)
• Employer’s Choice: The employer may(not mandatory) pay the tax on these perks without recovering it from the employee’s salary.
• Tax Treatment:
  • The tax paid by the employer is not considered a perquisitein the employee’s hands (i.e., not added to taxable income).
  • The employer cannot claim this tax payment as a business expense.

B. Section 192(1B) – Valuation of Perquisites for Tax Calculation

• The taxable value of non-monetary perquisites is determined as per Rule 3 of Income Tax Rules:
  • Rent-free accommodation: Based on salary and city population.
  • Company car: Standard rates apply (e.g., ₹2,400/month for 1.6L engine).
  • ESOPs: Taxable at exercise (FMV – exercise price).

3. Example

• Scenario: Mr. Sharma receives:
  • Salary: ₹12 lakh/year
  • Rent-free accommodation (taxable value: ₹1.2 lakh/year)
  • Company car (taxable value: ₹28,800/year)
• Tax on Perquisites: ₹1.48 lakh × 30% (slab rate) = ₹44,400
• Employer’s Option: Can pay ₹44,400 directly to the government without deducting from Mr. Sharma’s salary.

4. Compliance & Implications

• For Employers:
  • Must deposit tax via Challan 281under “Tax on Non-Monetary Perquisites.”
  • Report in Form 24Q(Quarterly TDS return).
• For Employees:
  • No additional tax liability on the employer-paid amount.
  • Perquisite value must still be reported in Form 16.

5. Penalties for Non-Compliance

• Late Payment: Interest @ 5% per month(Section 201(1A)).
• Incorrect Reporting: Penalty under Section 271C(up to the tax amount).

6. Key Points

✅ Optional for Employers: No obligation to pay (can recover from salary).

✅ Tax Efficiency: Helps employees avoid cash flow strain.

✅ No Double Taxation: Employer’s payment is excluded from employee’s income.

6.  Salary from More Than One Employer [Section 192(2)]

1. Overview

Section 192(2) of the Income Tax Act, 1961, governs TDS deductions for employees receiving salary from multiple employers in the same financial year. This provision ensures accurate tax withholding when an individual has more than one source of employment income.

2. Key Provisions

A.  Employee’s Responsibility

• Declaration to Current Employer:
  • The employee must inform their current employerabout previous/other employment income during the financial year.
  • Provide details like:
    • Salary structure from other employers
    • TDS already deducted (if any)
    • Any exemptions/deductions claimed elsewhere

B.  Employer’s Responsibility

• Adjust TDS Based on Total Income:
  • The current employer must consider:
    1. Salary from all employers(as declared by the employee).
    2. Other income(if reported, e.g., rent, interest).
    3. Tax-saving deductions(under Chapter VI-A, if applicable).
  • Deduct residual TDS(after accounting for tax already paid via other employers).

C.  Failure to Declare Multiple Incomes

• If an employee does not discloseother salaries:
  • The employer will deduct TDS only on the salary paid by them, leading to under-deduction.
  • The employee may face:
    • Higher tax liabilitywhile filing ITR.
    • Interest under Section 234B/Cfor advance tax shortfall.

3. Example Scenario

PARTICULARS	EMPLOYER A (₹)	EMPLOYER B (₹)	TOTAL (₹)
Annual Salary	6,00,000	4,00,000	10,00,000
Standard Deduction	50,000	50,000	50,000*
Taxable Salary	5,50,000	3,50,000	9,50,000
Tax Liability (New Regime)	45,000	25,000	70,000
TDS Deducted (if not declared)	45,000 (by A)	25,000 (by B)	Shortfall: ₹0

Note:

• Standard deduction is claimed only once (₹50,000) in ITR, not per employer.
• If the employee did not declareEmployer B’s salary, Employer A would deduct TDS only on ₹6L, leading to a tax shortfall of ₹25,000 + interest.

4. Compliance & Best Practices

For Employees

✔ Submit Form 12B (to new employer) declaring previous employment details.

✔ Reconcile Form 16 from all employers while filing ITR.

✔ Pay advance tax if TDS is insufficient (to avoid interest).

For Employers

✔ Verify employee declarations before calculating TDS.

✔ File accurate Form 24Q (mentioning multiple employments, if known).

5. Penalties for Non-Compliance

• Under-deduction of TDS: Employer may face penalty under Section 271C.
• Non-disclosure by employee: Risk of tax notice + interest under Sections 234B/234C.

6. Key Takeaways

✅ Mandatory Disclosure: Employees must declare all salaries to avoid year-end tax shocks.

✅ Single Standard Deduction: Claimed only once, not per employer.

✅ Employer’s Limited Role: Can only adjust TDS based on declared income.

7.  Relief Under Section 89 for Arrears/Advance Salary [Section 192(2A) & Rule 21AA]

1. Overview

Section 192(2A) allows employees to claim tax relief under Section 89(1) when receiving:

• Arrears of salary(past due payments)
• Advance salary(early payments)
• Terminal benefits(e.g., gratuity, pension commutation)

This relief prevents higher tax liability due to bunching of income in a single year.

2. Key Provisions

A.  Who Can Claim?

• Salaried employeesreceiving arrears/advance payments taxed in a lump sum.
• Pensionersreceiving delayed pension payments.

B.  How Relief is Calculated (Rule 21AA)

The relief is computed as:

1. Tax on Total Income (Including Arrears)– Calculate tax for the current year including
2. Tax on Total Income (Excluding Arrears)– Calculate tax for the current year excluding
3. Tax Difference (A – B)= Additional tax due to arrears.
4. Relief Granted= The excess tax attributed to arrears is deducted from current year’s liability.

C.  Employer’s Role (Section 192(2A))

• The employer may(optional) adjust relief in TDS calculations if the employee submits:
  • Form 10E(filed online on the IT portal).
  • Proof of arrears(e.g., salary revision order).

3. Example

SCENARIO	AMOUNT (₹)
Annual Salary (FY 2024-25)	8,00,000
Arrears (from FY 2023-24)	2,00,000
Total Taxable Income	10,00,000

Tax Calculation (New Regime):

• Tax on ₹10L (with arrears)= ₹75,000
• Tax on ₹8L (without arrears)= ₹50,000
• Excess Tax Due to Arrears= ₹25,000
• Relief Under Section 89= ₹25,000 (reduced from current year’s tax).

4. Compliance Steps

For Employees

1. File Form 10E(mandatory before claiming relief in ITR).
2. Submit Proof to Employer(if seeking TDS adjustment).
3. Claim Relief in ITR(under “Schedule S” if not adjusted by employer).

For Employers

• Optional Adjustment: Can reduce TDS if Form 10E is submitted.
• No Relief for Previous Years: Employer cannot revise past TDS.

5. Penalties for Non-Compliance

• Not Filing Form 10E: Relief claim rejected by IT Department.
• Incorrect Relief Calculation: May lead to tax demand + interest under Section 234B/C.

6. Key Takeaways

✅ Applies to: Arrears, advance salary, gratuity, commuted pension.

✅ Form 10E Mandatory: Must be filed before ITR submission.

✅ Employer’s Discretion: Can adjust TDS but not obligated.

8.  Details of Other Incomes [Section 192(2B) & Rule 26B]

Section 192(2B) of the Income Tax Act, 1961, allows employees to declare other incomes (besides salary) and tax credits (TDS/TCS) to their employer for accurate TDS calculation on salary. This prevents excessive tax withholding and aligns deductions with the employee’s total tax liability.

Key Provisions

1.  What Can Be Declared?

Employees may submit details of:

• • Other taxable incomes(e.g., interest, rent, capital gains).
  • TDS/TCSdeducted/collected on such incomes (e.g., TDS on fixed deposits under Section 194A, TCS on foreign remittances under Section 206C(1G)).
  • Losses under “Income from House Property”(but no other losses).

2.  Submission Process

• Form 12BAA: Employees must furnish details in this newly prescribed form (effective October 2024).
  • Includes:
    • Income sources (e.g., rental income, dividends).
    • TDS/TCS amounts and deductor/collector details (name, TAN, amount).
    • House property loss (if applicable).
  • Self-verification: The form requires a declaration of accuracy.

3.  Employer’s Role

• Adjust TDS on salaryby considering:
  • Declared other incomes.
  • TDS/TCS credits (to avoid double taxation).
  • House property losses (reduces taxable salary).
• Cannot reduce TDS below the statutory minimumunless house property loss is claimed.

4.  Compliance Updates

• Form 16/24Q: Revised to reflect adjustments from Form 12BAA.
• Deadline: Employers must process declarations quarterly.

Example Scenario

• Employee Declares:
  • Rental income: ₹2.4L (TDS: ₹24K under Section 194-I).
  • FD interest: ₹50K (TDS: ₹5K under Section 194A).
  • House property loss: ₹1L.
• Employer Adjusts:
  • Adds ₹2.4L + ₹50K to taxable salary.
  • Deducts ₹1L (house loss) and ₹29K (TDS credits).
  • Result: Lower TDS on salary.

Penalties for Non-Compliance

• Employee: Undeclared incomes may lead to tax demands + interest (Section 234B/C).
• Employer: Incorrect TDS adjustment attracts penalties under Section 271H.

Key Takeaways

✅ Form 12BAA is mandatory for offsetting TDS/TCS against salary TDS.

✅ Only house property losses are adjustable .

✅ Employers must update systems to process Form 12BAA

9.  Employer’s Obligation to Furnish Statement to Employee [Section 192(2C) & Rule 26A (2)]

1. Overview

Under Section 192(2C) and Rule 26A (2) of the Income Tax Rules, employers are required to provide a detailed statement to employees if they adjust TDS based on the employee’s declaration of other incomes or tax-saving investments. This ensures transparency in TDS deductions.

2. Key Provisions

A.  When is the Statement Required?

The employer must furnish a statement if:

• The employee submits Form 12B(for tax-saving investments under the Old Regime) or Form 12BAA (for other incomes under Section 192(2B)).
• The employer adjusts TDSbased on the employee’s declarations (e.g., lower TDS due to house property loss or TDS credits).

B.  Contents of the Statement

The statement must include:

1. Total salary income(after exemptions like HRA, LTA).
2. Other incomesdeclared by the employee (e.g., rent, interest).
3. Tax-saving deductionsclaimed (under Chapter VI-A, if applicable).
4. TDS/TCS creditsadjusted (e.g., TDS on fixed deposits).
5. Final TDS computation(showing how the tax was calculated).

C.  Format & Deadline

• Format: Typically part of Form 16(Annexure) or a separate document.
• Deadline: Must be provided annuallyalong with Form 16 (by June 15).

3. Example

PARTICULARS	AMOUNT (₹)
Salary Income	12,00,000
Less: Standard Deduction	50,000
Add: Rental Income	2,40,000
Less: House Property Loss	(1,00,000)
Taxable Income	12,90,000
TDS Adjusted (from FD, etc.)	30,000
Final Tax Liability	1,20,000
TDS Deducted Monthly	10,000

Statement to Employee:

• Shows how ₹1.2L tax was computed after adjusting for rental income, losses, and TDS credits.

4. Penalties for Non-Compliance

• Employer Fails to Provide Statement:
  • Penalty under Section 272A(2)(₹500/day for delay).
  • Employee may face difficulties in ITR filing.

5. Key Takeaways

✅ Mandatory Disclosure: Employers must explain TDS adjustments.

✅ Linked to Form 16: Usually provided as an annexure.

✅ Ensures Transparency: Helps employees verify tax calculations.

10.  Employer’s Duty to Obtain Evidence for Employee Claims for the Purpose of TDS [Section 192(2D)]

1. Overview

Section 192(2D) mandates employers to collect and verify documentary proof when employees claim:

• Exemptions(e.g., HRA, LTA)
• Deductions(e.g., under Chapter VI-A like 80C, 80D)
• Allowances(e.g., transport, medical)

This ensures accurate TDS deductions and prevents fraudulent claims.

2. Key Requirements

A.  Documents to Collect

CLAIM TYPE	REQUIRED PROOF
HRA Exemption	Rent receipts + landlord’s PAN (if rent > ₹1L/year)
LTA Exemption	Travel tickets/invoices
Section 80C (₹1.5L)	PPF passbook, ELSS statements, LIC receipts
Section 80D (Health Insurance)	Premium payment proof
Home Loan Interest (Section 24)	Loan statement + lender’s PAN

B.  Employer’s Responsibilities

1. Verify Authenticity: Cross-check documents for validity (e.g., PAN matches rent receipts).
2. Retain Records: Maintain proofs for 7 years(audit requirement).
3. Adjust TDS: Deduct tax only after validating claims.

C.  Consequences of Non-Compliance

• For Employers:
  • Penalty under Section 271(1)(c)for accepting false claims.
  • Disallowance of deductions during tax audits.
• For Employees:
  • Excess TDS if claims are rejected.
  • Scrutiny by IT Department for unverified exemptions.

3. Example

• Employee Claims:
  • HRA exemption (₹1.2L/year) → Submits rent receipts + landlord’s PAN.
  • ₹1.5L under 80C → Provides PF statement + LIC receipts.
• Employer Action:
  • Validates documents → Deducts lower TDS.
  • Rejects incomplete claims (e.g., missing PAN for HRA) → Deducts higher TDS.

4. Key Takeaways

✅ Proof is Mandatory: No TDS adjustment without documents.

✅ PAN Required: For HRA (if rent > ₹1L/year) and home loan interest.

✅ Digital Submission: Employers may accept scanned copies (Rule 26C).

11.  Adjustment in the Amount of Tax to be Deducted [Section 192(3)]

Section 192(3) of the Income Tax Act, 1961, allows employers to adjust the amount of TDS deducted from an employee’s salary under specific circumstances to ensure accurate tax withholding.

1. When Can Adjustments Be Made?

Employers may revise TDS deductions in the following cases:

• Change in Salary Structure(e.g., mid-year increment, bonus, arrears).
• Additional Income Declared(e.g., rental income, interest income via Form 12BAA).
• New Tax-Saving Investments(e.g., employee submits late Section 80C proofs).
• Correction of Errors(e.g., previous under/over-deduction).

2. How is Adjustment Done?

• Recalculation: Employer re-computes the annual tax liabilitybased on updated income/deductions.
• Catch-Up Deduction:
  • If less TDSwas deducted earlier → Employer deducts higher TDS in subsequent months.
  • If excess TDSwas deducted → Employer reduces future deductions (but cannot refund directly).

3. Example Scenario

MONTH	SALARY (₹)	CUMULATIVE INCOME (₹)	TAX DUE (₹)	TDS DEDUCTED (₹)	ADJUSTMENT
Apr-Jun	1,00,000/month	3,00,000	5,000	5,000	–
Jul	1,20,000 (bonus)	4,20,000	15,000	10,000 (shortfall)	Extra ₹5K TDS in Aug-Sep

4. Employer’s Compliance Requirements

• Quarterly Review: Adjust TDS in subsequent months if income/deductions change.
• Form 24Q Update: Reflect revised TDS in quarterly returns.
• Form 16 Accuracy: Ensure final tax computation matches adjustments.

5. Employee’s Rights

• Can request a revised TDS calculationif they submit new proofs (e.g., late 80D receipts).
• Excess TDS can be claimed as a refund in ITR.

6. Penalties for Incorrect Adjustments

• Under-Deduction: Employer liable for interest @ 1% per month(Section 201(1A)).
• Over-Deduction: No penalty, but employee must wait for ITR refund.

Key Points

✅ Flexible TDS Adjustments: Employers can correct deductions mid-year.

✅ No Direct Refunds: Excess TDS is refunded only via ITR.

✅ Employee Cooperation: Submit income/investment proofs early for accurate TDS.

12.  Deduction of Tax on Accumulated PF Balance [Section 192(4)]

1. Overview

Section 192(4) of the Income Tax Act mandates TDS deduction on the taxable portion of an employee’s accumulated Provident Fund (PF) balance at the time of withdrawal, if the withdrawal occurs before completing 5 years of continuous service (with some exceptions).

2. When is TDS Deducted on PF Withdrawal?

SCENARIO	TAXABILITY	TDS RATE
Withdrawal before 5 years	Taxable if: – Service period < 5 yrs – Not due to retirement/resignation	10% (if PAN provided) 20% (if PAN not provided)
Withdrawal after 5 years	Fully tax-exempt	N/A
Exceptions (No TDS even if <5 yrs)	– Termination due to ill health – Employer’s business discontinuation – Transfer to another PF account	Exempt

3. Who Deducts TDS & How?

• Responsible Authority: The PF Trust/Employerdeducts TDS before releasing the PF balance.
• Form 15G/15H: Employees can submit these forms to avoid TDSif total income is below taxable limits.
• TDS Deposit & Reporting:
  • Deposited via Challan 281under “194C – Other payments”.
  • Reported in Form 26Q(Quarterly TDS return).

4. Example Calculation

• Employee Awithdraws ₹6 lakhs after 3 years of service:
  • Taxable Amount: Employer/employee contributions + interest (if not exempt).
  • TDS @ 10%: ₹60,000 (if PAN provided).
  • Net PF Payout: ₹5,40,000.

5. Key Compliance Points

✅ PAN Mandatory: Without PAN, TDS jumps to 20%.

✅ No TDS on Exempt Amounts: Only taxable portions attract TDS.

✅ ITR Filing: Employee must report PF withdrawal and claim credit for TDS.

13.  Deduction of Tax on Approved Superannuation Fund Pay-outs [Section 192(5)]

1. Overview

Section 192(5) governs TDS on payouts from Approved Superannuation Funds (a type of retirement benefit scheme). It ensures tax compliance when employees receive lump-sum or periodic payments from such funds.

2. Key Rules for TDS on Superannuation Fund Withdrawals

SCENARIO	TAXABILITY	TDS RATE
Lump-Sum Withdrawal (on retirement/resignation)	Taxable if employer’s contribution exceeds ₹7.5L during employment	10% (if PAN provided) 20% (if PAN not provided)
Periodic Pension Payments	Fully taxable as “Salary Income”	As per slab rates (deducted monthly)
Death Benefit to Nominee	Tax-exempt	N/A

Exceptions (No TDS):

• If the employee’s total taxable income (including superannuation) is below the basic exemption limit(₹3L under new regime).
• If the employee submits Form 15G/15H(for senior citizens/low-income individuals).

3. Who Deducts TDS?

• Employer/Trustee of the Superannuation Fundmust deduct TDS before releasing payments.
• TDS Deposit: Via Challan 281under “194C – Other payments”.
• Reporting: In Form 24Q(for salary/pension) or Form 26Q (for lump sums).

4. Example Calculation

• Employee Bretires and receives:
  • Superannuation Lump Sum: ₹12L (employer contributed ₹8L during service).
  • Taxable Amount: ₹8L – ₹7.5L (exemption) = ₹50,000.
  • TDS @ 10%: ₹5,000 (if PAN provided).
  • Net Payout: ₹11,95,000.

5. Compliance Checklist

✅ Verify Exemption Limit: Only employer contributions > ₹7.5L are taxable.

✅ PAN Submission: Avoid higher TDS (20%).

✅ Pension TDS: Deducted monthly as salary income.

14.  CHDT Rules for Deduction of Tax at Source (TDS)

The “CHDT Rules” (likely referring to Centralized Holding of Dematerialized Tax Securities Rules) are not explicitly mentioned in the Income Tax Act or related TDS provisions. However, based on standard TDS compliance under Sections 190–206CA, here are the key rules to follow for TDS deduction:

1. Obtain TAN (Tax Deduction Account Number)

• Requirement: Mandatory for deductors (except for TDS under Sections 194-IA/IBon property/rent).
• Penalty: ₹10,000 for non-compliance.

2. Deduct TDS at the Correct Time

• Earlier of:
  • Credit to payee’s account(e.g., salary accrued but not paid).
  • Actual payment(cash/cheque/bank transfer).

3. Deposit TDS to the Government

• Due Date: By the 7th of the next month(e.g., July TDS by August 7).
• Mode:
  • Electronic payment(via Challan 281) for most cases.
  • Form 26QB/26QCfor property/rent TDS.

4. File TDS Returns

• Forms:
  • Form 24Q(for salaries).
  • Form 26Q(non-salary payments).
• Deadlines: Quarterly (July 31, Oct 31, Jan 31, May 31).

5. Issue TDS Certificates

• Form 16(for employees) by June 15.
• Form 16A(for non-salaried payments) within 15 days of return filing.

6. Verify PAN of Payees

• Higher TDS Rate: 20%if PAN is not provided (under Section 206AA).

7. Maintain Records

• Preserve TDS proofs (e.g., employee declarations, rent receipts) for 7 years.

Penalties for Non-Compliance

• Late Deduction/Payment: Interest @ 1–1.5% per month.
• Late Filing: Penalty up to ₹1 lakh(Section 271H)

15.  TDS Not Deductible or Deductible at Lower Rate [Section 197 & Rules 28, 28AA]

Section 197 of the Income Tax Act, 1961, allows taxpayers to avoid TDS or get a reduced TDS rate if they can prove their total tax liability is nil or lower than the standard TDS rate. This is facilitated through:

• Lower/Nil TDS Certificate(Form 13)
• Declaration for No TDS (Form 15G/15H)

1. When Can TDS Be Avoided or Reduced?

A.  Section 197 – Lower/Nil TDS Certificate

• Applicability: For payments like interest, rent, professional fees, etc. (under Sections 193, 194, 194A, 194J, etc.).
• Who Can Apply?
  • Individuals/HUFs with estimated tax liability < TDS amount.
  • Non-residents under DTAA benefits(lower TDS rate).
• How to Apply?
  • Submit Form 13to the Assessing Officer (AO).
  • AO issues a Lower/Nil TDS certificate(valid for a financial year).

B.  Rule 28AA – Conditions for Lower TDS

• Taxpayer must provide:
  • Income computation(showing lower tax liability).
  • Audit report (if applicable).
  • Proof of past tax compliance(ITR, advance tax payments).

C.  Rule 28 – No TDS for Certain Incomes

• Exempt Incomes:
  • Interest on Tax-Free Bonds.
  • Dividends (now taxable but earlier exempt).
  • Agricultural income (no TDS).

2. How to Claim Lower/Nil TDS?

METHOD	FORM	APPLICABLE FOR	VALIDITY
Lower TDS Certificate	Form 13	Interest, Rent, Professional Fees, etc.	1 Financial Year
No TDS (for Individuals)	Form 15G	Interest/Dividends (Income < Basic Exemption)	Per Payment
No TDS (for Seniors 60+)	Form 15H	Interest/Dividends (Income < Basic Exemption)	Per Payment

3. Example Scenarios

Case 1: Lower TDS on Fixed Deposits

• Taxpayer’s Income: ₹3.5L (below taxable limit).
• FD Interest: ₹50,000 (normally 10% TDS).
• Solution: Submit Form 15Gto bank → No TDS.

Case 2: Reduced TDS on Rent (Section 194-I)

• Taxpayer’s Tax Liability: ₹20,000 (vs. standard 10% TDS on ₹2L rent).
• Solution: Apply for Lower TDS Certificate (Form 13)→ Deduct 5% instead of 10%.

4. Penalties for Misuse

• False Declaration (Form 15G/15H): Penalty under Section 277(up to ₹10,000 + prosecution).
• Non-Deduction Despite No Certificate: Employer/deductor liable for TDS + interest @ 1% p.m.

5. Key Takeaways

✅ Form 13 = For lower TDS (approved by AO).

✅ Form 15G/15H = For no TDS (income below exemption).

✅ Rule 28AA = Ensures genuine cases get lower TDS.