Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

TDS from Salary [Section 192]

TDS from Salary [Section 192]
TDS from Salary [Section 192]

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

Any person responsible far paving any income chargeable under the head ‘salaries’ shall at the lime of payment, deduct income-tax on the estimated income of the employee under the head “Salaries” for that financial year. The tax is to be deducted at the average of income-tax computed on the basis of the rates in force for the financial year in which the payment is made. In other words, the total tax to be deducted, on the estimated income of the employee for the relevant financial year, is divided by the number of months of his employment during that financial year. The amount so arrived at is the monthly deduction of tax at source. No tax will, however, be required to be deducted at source for financial year 20 19-20 in any case unless the estimated salary income including the value of perquisites, exceeds—

(i) Rs. 3,00,000 in case of an individual being resident in India who is of the age of 60 years or more but less than 80 years at any time during the previous year
(ii) Rs. 5,00,000 in case of an individual being resident in India who is of the age of 80 years or more at any time during the previous year
(iii) Rs. 2,50,000 in case of an employee other than those covered under clauses mentioned in (i) and (ii) above.

2.   [Rule 26C]- Furnishing of Evidence of Claims by employee for Deduction Of Tax under section 192

Rule 26C (1):

The assessee shall furnish to the person responsible for making payment under section 192(1), the evidence or the particulars of the claims referred to in rule 26C(2), in Form No.1 2BB for the purpose of estimating his income or computing the tax deduction at source.

Rule 26C (2):

The assessee shall furnish the evidence or the particulars specified in column (3), of the Table below, of the claim specified in the corresponding entry in column (2) of the said Table:— Table

SI. No Nature of Claims Evidence or Particulars
(1) (2) (3)
1. House Rent Allowance. Name, address and permanent account number of the landlord! landlords where the aggregate rent paid during the previous year exceeds Rs. 1 Lakh.
2. Leave travel concession or assistance. Evidence of expenditure.
3. Deduction of interest under the head “Income from house property”.
Name, address and permanent account number of the lender.
4. Deduction under Chapter VI-A. Evidence of investment or expenditure.

3.   When does the liability to Deduct Tax at Source arise:

While most of the sections dealing with deduction of tax at source stipulate that tax should be deducted at source at the time of credit or payment of the amount whichever is earlier, section 192, uses the expression “at the lime of payment”.

Therefore, in the case of “Salaries”, the liability to deduct tax arises only at the time of payment. There is no question of tax deduction in cases where the employees’ account is credited with the salary due to him, which for some reason or other was not paid.

See also  [Section 195]- TDS on Payment to a Non-Resident

4.   [Section 204(1)]- Person responsible for Deduction Of  Tax At Source:

“Person responsible for paying means”  in the case of payments of income chargeable under the head “Salaries”, other than payments by the Central Government or the Government of a State, the employer himself or. if the employer is a company, the company itself, including the principal officer thereof.

The liability of the employer to deduct tax is absolute. Therefore any agreement between the employer and employee, whereby the employee undertakes to discharge his own tax liability, will not affect the employer’s liability.

5. Tax on Non-monetary Perquisites can be paid by employer [Section 192(1A) and (1B)]:

Sub-sections (1A) provides that an employer shall have an option to pay tax on behalf of an employee, without making any deduction from his income, on the income in the nature of perquisites, where are not provided for by way of monetary payment. However, the employer shall also continue to have the option to deduct the tax on whole or part of such income. [Section 192(1A)]

For the purpose of paying tax by the employer under sub-section (1A), tax shall be determined at the average of income-tax computed on the basis of the rates in force for the financial year, on the income chargeable under the head “Salaries” including the income referred to in sub-section (1A) (i.e. value of non-monetary perquisites), and the tax so payable shall be construed as if it were, a tax deductible at source, from the income under the head “Salaries” as per the provisions of sub-section (1). [Section 192(1B)]

6. [Section 192(2)]- Salary from more than one Employer

Where during the financial year, as assessee :

(a)        is employed simultaneously under more than one employer, or

(b)        has changed the employment during the previous year,

he may furnish to the employer of his choice or the subsequent employer (as the case may be) such details of salaries due or received by him from other employer(s), the tax deducted at source therefrom and such other particulars as may be prescribed, in Form No. 12B [Rule 26A(1)]. In this case, the employer, so chosen, shall take into account these details while making deduction of tax at source.

7. Relief under Section 89 [Section 192(2A) and Rule 21AA]

Where the assessee is:

(A)       a Government servant, or

(B)     an employee in a:

(i)           company,

(ii)          co-operative society,

(iii)         local authority,

(iv)          university,

(v)          institution,

(vi)          association or body

and if he is entitled to relief under section 89, he may furnish to his employer such particulars in Form No. 10E. The employer then, shall compute the relief on the basis of such particulars and take them into account while making tax deduction at source.

No Relief U/s 89, if Exemption U/s 10(10C) is availed

No relief shall be granted under section 89 in respect of amount received or receivable by an assessee on his voluntary retirement or termination of his service, if the assessee has claimed exemption under section 10(10C).

8. Details of Other Incomes may furnish by the Employee [Section 192(2B) and Rule 268]:

Where an employee also has any income (not being a loss) for the same financial year, chargeable under any other head, he may furnish the statement of such other income and any tax deducted thereon to his employer to take them into consideration while deducting tax from his salary. However, the resultant tax deductible at source cannot be less than the amount that would have been deductible if such other income and tax deducted thereon had not been taken into account.

Loss from House Property may be adjusted [Rule 26B]:

Although, as stated above, the statement for the loss under any other head cannot be furnished but a statement of loss under the head income from house property can be furnished. If the employee incurring the loss from house property furnishes the abovesaid statement of such loss to the employer, the resultant tax deductible at source can be less than the amount that would have been deductible if such loss had not been taken into account.

9. Employer to furnish a Statement to Employee [Section 192(2C) and Rule 26A(2)]:

A person responsible for paying any income chargeable under the head “Salaries” shall furnish to the person to whom such payment is made, a statement giving correct and complete particulars of perquisites or profits in lieu of salary provided to him and the value there of in Form No. 12BA along with Form No. 16 issued by the employer. Form 12BA along with Form 16, as issued by the employer are required to be produced on demand before the Assessing Officer in terms of section 139C of the Income Tax Act.

See also  [Section 194D]- TDS from Insurance Commission

10. [Section 192(2D)]- Employer to obtain evidence / proof regarding deductions, exemptions or allowances claimed by the employee while estimating the income of the employee for the purpose of deduction of tax under section 192

The person responsible for making the payment of salary shall, for the purposes of estimating income of the assessee or computing tax deductible from salary, obtain from the assessee the evidence or proof or particulars of prescribed claims (including claim for set-off of loss) under the provisions of the Act in such form and manner as may be prescribed.

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

The person responsible for making the payment referred to in sub-sections (1) or (1A) or (2) or (2A) or (2B) above may, at the lime of making any deduction of lax, increase or reduce the amount to be deducted under this section for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the financial year.

If any tax has been deducted in excess in the earlier months, the employer is authorised to adjust such excess in the subsequent months. On the other, if the employer has deducted less tax in the earlier months, he will have to make higher deduction in the subsequent months.

The above adjustment is permissible only in respect of same employee and not for all employees. Controversy normally arises when such variation is adjusted in last quarter or last month.

12. [Section 192(4)]- Deduction at Source of Tax Payable on accumulated balance of Recognised Provident Fund:

The trustees of a recognized provident fund, or any person authorised by the regulations of the fund to make payment of accumulated balances due to employees, shall, in cases where payment from recognised provident fund is taxable, at the time an accumulated balance due to an employee is paid, deduct therefrom the amount of tax payable on the taxable portion of such amount

13. [Section 192(5)]- Deduction of Tax on Contributions paid to an employee out of Approved Superannuation Fund:

Where any contributions made by an employer, including interest on contributions, if any, are paid to an employee during his lifetime, in circumstances other than those referred to in section 10(13), tax on the amounts so paid shall be deducted at the average rate of tax at which the employee was liable to tax during the preceding three years or during the period, if less than three years, when he was a member of the fund, and shall be paid by the trustees to the credit of the Central Government within the prescribed time and in such manner as the Board may direct.

In this case, as per rule 33, the trustees of the approved superannuation fund shall send within two months from the end of the financial year, to the Assessing Officer, a statement giving particulars as required under the abovesaid rule.

14. CBDT Rules & Guidelines to be followed for TDS from Salary

Every year CBDT issues a circular giving guidelines to be followed by employers in computing tax to be deducted at source from salary. Following are to be taken into consideration while computing taxable salary for the purpose of deduction of tax at source:—

1.    Salary includes wages, fees, bonus, commission, allowances, perquisites, advance or arrears of salary, profits in lieu of or in addition to salary or wages, annuity or pension, gratuity, leave encashment, etc. to the extent these are not exempt. It also includes employers contribution to recognised provident fund which is in excess of 12% of salary of employee and interest credited to recognised provident fund which is in excess of the limit specified. Further, it includes any contribution made by the Central Government to the account of an employee under the notified New Pension Scheme.

2.   It has to be noted that only the expenditure actually incurred on payment of rent in respect of residential accommodation occupied by the assessee subject to the limits laid down in rule 2A, qualifies for exemption from income-tax. Thus, house rent allowance granted to an employee who is residing in a house / flat owned by him is not exempt from income-tax. The disbursing authorities should satisfy themselves in this regard by insisting on production of evidence of actual payment of rent before excluding the house rent allowance or any portion thereof from the total income of the employee.

See also  Rate of Income Tax in case of a Domestic Company

Though incurring actual expenditure on payment of rent is a pre-requisite for claiming deduction under section 10(13A), it has been decided as an administrative measure that salaried employees drawing house rent allowance up to Rs. 3,000 p.m. will be exempted from production of rent receipt. It may, however, be noted that this concession is only for the purpose of tax-deduction at source, and, in the regular assessment of the employee, the Assessing Officer will be free to make such enquiry as he deems fit for the purpose of satisfying himself that the employee has incurred actual expenditure on payment of rent.

3.   The value of all taxable perquisites under section 17 like free or concessional residential accommodation, any benefit or amenity granted or provided free of cost or at concessional rate to certain employees vi:., supply of gas, electricity, servant. etc. and value of prescribed fringe benefits and amenities is to be taken into account. Further it will also include the following:

(a)     value of any specified security or sweat equity share allotted or transferred by the employer or former employer free of cost or at concessional rate to the employee.

(b)     the amount of any contribution to an approved superannuation fund by the employer in respect of the assessee to the extent it exceeds Rs. 1,50,000.

4.   Aggregation of salary received from more than one employer during the year.

5.   Deductions from salary permissible under section 16 i.e. entertainment allowance and professional tax (Standard deduction under section 16(ia) will also be allowed w.e.f. A.Y. 2019-20).

6.   The employer shall allow the deductions under sections 80C (maximum Rs. 1,50,000), 80CCC, 80CCD (subject to maximum of Rs. 1,50,000 (exclusive of contribution made by the employer to the new pension scheme) as per section 80CCE), deduction of Rs. 50,000 as additional contribution under sections 80CCD(1B). 80CCG, 80D, 80DD, 80DDB, 80E, 80GG, 80GGA, 80TTA and 80U before calculating the tax on the income. Deduction under section 80G will not generally be allowed by the employer.

The tax relief on such donations as admissible under section 80G of the Act, will have to be claimed by the tax payer in the return of income. However, in cases where employees make donations to the Prime Minister’s National Relief Fund, the Chief Minister’s Relief Fund or the Lieutenant Governor’s Relief Fund through their respective employers, it is not possible for such funds to issue separate certificate to every such employee in respect of donations made to such funds as contributions made to these funds are in the form of a consolidated cheque An employee who makes donations towards these funds is eligible to claim deduction under section 80G. It is, hereby, clarified that the claim in respect of such donations as indicated above will be admissible under section 80G on the basis of the certificate issued by the Drawing and Disbursing Officer (DDO) / Employer in this behalf.

No deduction under section 80G is allowable in case of amount of donation if exceeds Rs. 2,000 unless the amount is paid by any mode other than cash.

7.   Rebate of the tax payable or Rs. 12,500 , whichever is less, is allowable in case of an individual having total income up to Rs. 5,00,000 [Section 87A]

8.   After allowing the above deductions the taxable income should be computed and rounded off to the nearest multiple of Rs. 10. It may be noted that the deductions will be allowed provided proof of the same is submitted by the employee to the employer. The tax will be calculated at the rates applicable for that financial year, keeping in view the age and gender of the employee subject to the provisions of section 206AA.

9.   The amount of tax payable so arrived at shall be increased by surcharge if applicable and by health and education cess (H&EC) @ 4% to arrive at the total tax payable.

10.   The amount of tax as arrived at para 8 should be deducted every month in equal instalments. Any excess or deficit arising out of any previous deduction can be adjusted by increasing or decreasing the amount of subsequent deductions during the same financial year.