TDS on salary is calculated based on the employee’s estimated annual taxable income. The employer must consider the following while determining the TDS amount:
- Basic Exemption Limits:
- For individuals below 60 years: ₹2.5 lakh
- For senior citizens (60 to 80 years): ₹3 lakh
- For super senior citizens (80 years and above): ₹5 lakh
- Under the new tax regime: ₹3 lakh for all individuals
- Deductions and Exemptions:
- Investments under Section 80C (up to ₹1.5 lakh)
- Health insurance premiums under Section 80D
- Interest on home loans under Section 24(b)
- Other applicable deductions under Chapter VI-A
- Other Income Declarations:
- Employees can declare additional income or losses (like rental income or housing loan interest) using Form 12BB, which the employer must consider in TDS calculations.
Employers are required to deduct TDS monthly, ensuring that the total tax liability is evenly distributed over the financial year. This approach prevents excessive deduction in any single month, ensuring that the employee’s take-home salary remains consistent.
Applicability of Section 192
Section 192 applies when there is an employer-employee relationship. This includes companies, individuals, HUFs, trusts, partnership firms, and cooperative societies that pay salaries exceeding the basic exemption limit. The obligation to deduct TDS arises when the estimated salary income of the employee exceeds the threshold limit prescribed under the Income Tax Act.
Timing of TDS Deduction
TDS is to be deducted at the time of actual payment of salary, not at the time of accrual. This means that advance salary, arrears of salary, or any other payments that constitute part of salary are covered under this rule.
TDS Rates and Calculation
Unlike other sections of TDS, Section 192 does not specify a fixed rate. The tax is deducted based on the average rate of income tax applicable to the estimated income of the employee during the financial year.
Employers estimate the annual taxable salary, compute the total income tax liability, and then divide this by the number of months of employment to determine the monthly TDS amount.
Employees can choose between the old and new tax regimes at the beginning of the financial year. If no intimation is provided, the default is the new tax regime.
Basic Exemption Limits
Under the old tax regime:
- Individuals below 60 years: ₹2.5 lakh
- Senior citizens (60 to 80 years): ₹3 lakh
- Super senior citizens (80 years and above): ₹5 lakh
Under the new tax regime:
- All individuals: ₹3 lakh
If the estimated annual income is below the respective exemption limit, no TDS is deducted.
TDS on Salary Calculator
To simplify TDS calculations, several online calculators are available:
- Income Tax Department TDS Calculator: Provides a basic estimation of TDS on salary.
- ET Money TDS Calculator: Offers a user-friendly interface to calculate TDS based on various income sources.
- Groww TDS Calculator: Helps in computing TDS by inputting income details and applicable deductions.
These tools require inputs like annual salary, deductions, and tax regime preference to estimate the monthly TDS.
How Much TDS is Deducted on Salary Per Month?
The monthly TDS deduction is calculated by estimating the total annual tax liability and dividing it by the number of months of employment in the financial year. For instance, if the annual tax liability is ₹60,000 and the employee works for 12 months, the monthly TDS would be ₹5,000.
TDS on Salary Limit
TDS is applicable only if the estimated annual taxable income exceeds the basic exemption limit:
- ₹2.5 lakh for individuals below 60 years
- ₹3 lakh for senior citizens (60–80 years)
- ₹5 lakh for super senior citizens (80+ years)
If the income is below these thresholds, no TDS is deducted.
TDS on Salary of ₹50,000
A monthly salary of ₹50,000 amounts to ₹6,00,000 annually, which exceeds the basic exemption limit. Therefore, TDS is applicable. The exact TDS amount depends on applicable deductions and the chosen tax regime.
TDS on Salary Section
Section 192 of the Income Tax Act governs TDS on salary. It mandates employers to deduct tax at the time of salary payment if the employee’s estimated income exceeds the exemption limit.
TDS on Salary New Regime
Under the new tax regime, introduced in FY 2020-21, taxpayers can opt for lower tax rates with no deductions or exemptions. Employers calculate TDS based on the employee’s choice of tax regime at the beginning of the financial year.
TDS on Salary Section 192B Limit
Section 192B pertains to the issuance of Form 16 by the employer, which is a certificate of TDS on salary. There is no specific limit under Section 192B; it facilitates the documentation of TDS deductions made under Section 192.
Is It Mandatory to Deduct TDS on Salary on a Monthly Basis?
Yes, it is mandatory for employers to deduct TDS on a monthly basis at the time of salary payment, provided the employee’s estimated annual income exceeds the exemption limit. This ensures a uniform tax deduction throughout the financial year.
Documentation and Forms
- Form 12BB: Used by employees to declare their tax-saving investments and claim deductions.
- Form 12B: Submitted by an employee when joining a new job within the same financial year to declare previous salary and TDS details
- Form 16: Annual TDS certificate issued by the employer, summarizing the salary paid and tax deducted.
TDS Deposit Deadlines
- Non-government employers:
- TDS deducted in March: Deposit by 30th April.
- TDS for other months: Deposit by the 7th of the following month.
- Government employers:
- Deposit must be made on the same day as the deduction.
Filing of TDS Returns
Employers are required to file quarterly TDS returns in Form 24Q by the following deadlines:
- Q1 (April to June): 31st July
- Q2 (July to September): 31st October
- Q3 (October to December): 31st January
- Q4 (January to March): 31st May
Consequences of Non-Compliance
- Interest:
- 1% per month or part thereof for late deduction.
- 1.5% per month or part thereof for late deposit.
- Penalties:
- ₹200 per day under Section 234E for late filing of TDS return (subject to maximum TDS amount).
- ₹10,000 to ₹1,00,000 under Section 271H for incorrect filing or non-filing.
- Disallowance of Expense:
- For resident employees: 30% of salary expense disallowed.
- For non-residents: 100% disallowed if TDS is not deducted or deposited.
