Know everything about TDS on salary

TDS or Tax Deducted at Source is an amount that is deducted from the salary of an individual and thereafter submitted to the Income Tax department. By following the simple set of steps one can easily calculate the TDS over his/her Income.

About the TDS on Salary :

When we say, TDS on Salary it means the tax which is deducted by the employer of an individual at the time of giving Salary into the employee's account. However, the amount of TDS which is deducted from the employee’s salary is deposited with the Government by the employer. Before deducting the TDS from the employee’s salary, the employer must get TAN registration. The TAN number is a 10-digit alphanumeric number that is used to track the deduction of TDS and the remittance by the IT Department.

What is the Formula to calculate the TDS on Salary :

The formula which is used to calculate the TDS over the Salary is as follows:

Income Tax Rate = Income Tax Payable (computed with slab rates) / Estimated Revenue for the financial year.

Calculating the TDS on Salary :

Below mentioned are the steps that can help you calculate the TDS on your income easily. The steps are as follows:

  • Step 1:
    • The first step is to calculate the gross monthly income as a sum of basic income, the perquisites, and the allowances.
  • Step 2:
    • The next step is then to calculate all the available exemptions under Section 10 of the Income Tax Act. Notably, the exemptions are applicable over allowances such as HRA, travel, and medical.
  • Step 3:
    • Now, in accordance with step 2, reduce the exemptions for gross monthly income calculated in the first step.
  • Step 4:
    • As we know, the TDS is calculated on the yearly income, now multiply the corresponding figure that you got from the above calculation by 12. Now, this is the yearly taxable income from your salary.
  • Step 5:
    • Also, if an individual is having any other source of income like income from rent of a house or incurred loss, then add or subtract this amount from the figure in Step 4.
  • Step 6:
    • Most importantly, now calculate the investments for the year which come under Chapter VI-A of ITA, and then subtract the amount from the gross income that is calculated in Step 5.
  • Step 7:
    • Thus, now lessen the maximum allowable income tax exemptions over Salary.
  • Step 8:
    • It is important to note that Senior Citizens have a different tax slab and that they receive more exemptions than others.

The Aspects over which the TDS is calculated :

At the time of your joining the CTC which is quoted to you comprises various components like the basic salary, house rent allowance, travel allowance, medical allowance, dearness allowance, special allowance, and other allowances as well. Your CTC has divided into two categories the salary and the perquisites. These perquisites comprise all the facilities and benefits that are offered by the employer to the expenditure like canteen, fuel subsidies, hotel expenses, traveling, and much more.

Calculating the TDS :

The Government under Sections 80C and 80D allows tax exemption. Thus, it allows an individual to look for an exemption over different kinds of investments that he/she is making for that financial year. As said by the Income Tax department, the TDS on a salary can be easily determined by subtracting the exemption from the total annual earnings. Notably, the employer needs to get a declaration or proof from the individual to approve the tax exemption. Below mentioned are some of the categories that are considered for tax exemption:

  • House rent allowance :An employee paying for the accommodation as rent, entitled to HRA from the employer, can declare the amount for tax exemption.
  • Medical allowance :Entitled to the medical allowance, an employee can declare and give medical bills for tax exemption.
  • Conveyance or travel allowance :Provided with the conveyance allowance, the employee can use it for tax exemption.

For example : If your age bracket is under 60 and the taxable income is Rs. 5 lakhs then you have to pay 5% of 2.5 lakhs as tax. The TDS is subtracted every month by the employer, such that the tax liability over the year is divided by 12 and hence, collected per month.

Conclusion :

Now, that we have understood how TDS is applied to the salary and to which Income bracket it is important to know that the deduction for TDS on a salary is compulsory under Section 192 of the Income Tax Act. The companies or the employers who are paying salaries to their employees have to deduct TDS on salary. However, the TDS on Salary is deducted if the income amount is over the basic exemption limit.

Frequently Asked Questions

  • Mention a few things that are allowed for the TDS exemption.
    Few things that are allowed for TDS exemption are ELSS, Bank FDs, PPF, EPF, NSC, House Rent Allowance, Transport Allowance, and savings under Section 80C.
  • What is the deduction an individual can claim under Section 80C while calculating TDS on Salary?
    Under Section 80C of the Income Tax Act, the maximum amount that can be claimed is Rs. 1.5 lakh.
  • Under Section 192, when is the TDS on Salary deducted?
    Under Section 192, the TDS is needed to be deducted by the employer in the case when the taxable income of an employee exceeds the basic exemption limit.
  • Does an individual need to provide his/her PAN card for the TDS?
    Yes, a PAN card is very much needed for the same. A PAN card is needed for the TDS deductions and the deposits as well.
  • If an individual receives Rs. 1 lakh bonus from his/her employer, in that case, would TDS be applicable?
    Yes, TDS would be applicable in that case. The TDS is applied to the bonus that one receives from his/her company.