The concept of Tax Deducted at Source (TDS) on salary, governed under Section 192 of the Income Tax Act, 1961, is a cornerstone of India’s direct tax system. For salaried individuals, understanding how TDS works, its legal framework, and how to seek a refund (if excess TDS is deducted) is essential not just for compliance but also for efficient financial planning.
Legal Framework: Section 192 – TDS on Salary
Under Section 192, an employer is mandated to deduct TDS at the time of paying salary to employees, provided the income exceeds the basic exemption limit. The TDS amount is calculated based on the applicable income tax slab ratesafter considering:
- Standard deduction
- HRA exemptions
- Investments under Section 80C, 80D, etc.
- House rent receipts
- Other declarations submitted via Form 12BB
Importantly, there is no fixed TDS rate on salary; it is determined by the employee’s estimated income and deductions during the financial year.
Compliance Obligations for Employers
- PAN of the Employee: TDS must be deducted based on PAN; absence of PAN attracts 20% flat TDS.
- Form 16: Issued annually to employees, detailing salary paid and TDS deducted.
- Monthly Deposit: Employers must deposit TDS by the 7th of the following month.
- Quarterly TDS Returns: Filed using Form 24Q to the Income Tax Department.
Recent Trends and Legal Interpretations
- The CBDT has emphasized stricter compliance through digital records and mandatory PAN-Aadhaar linking.
- Tribunals have ruled that employers cannot defer TDS deduction claiming delay in investment proof submission unless supported by valid documentation.
- Failure to deduct or deposit TDS can result in penalties under Section 201(1) and interest under Section 201(1A).
How to Get a TDS Refund – Step-by-Step Guide
If excess TDS has been deducted, employees can claim a refund while filing their Income Tax Return (ITR). Here’s how:
Step 1: Collect Form 16
Ensure you have received Form 16 from your employer. This form contains all details of salary income and TDS.
Step 2: Verify TDS in Form 26AS and AIS
Check Form 26AS and the Annual Information Statement (AIS) on the income tax portal to ensure the TDS amount matches what has been reported.
Step 3: File Your ITR
Log in to the Income Tax e-Filing Portal and file the appropriate ITR (usually ITR-1 for salaried individuals).
Step 4: Claim the Excess TDS
While filing, mention all eligible deductions (80C, 80D, HRA, etc.) and claim the refund due.
Step 5: E-verify the Return
Complete the e-verification process through Aadhaar OTP, bank account EVC, or net banking.
Step 6: Refund Processed
Once the return is processed by the CPC, the refund is directly credited to your linked bank account. Refunds are typically issued within 30 to 45 days of ITR processing.
Important Tips
- Always declare all sources of income, including interest and capital gains.
- Keep investment proofs ready by March to avoid higher TDS deduction.
- Track refund using the “Know Your Refund Status” tool on the income tax portal.
Conclusion
TDS on salary, though complex in calculation, is fundamentally designed to ease tax collection and ensure year-round compliance. With increasing digitization and stricter enforcement by authorities, both employers and employees must remain vigilant. For employees, understanding TDS helps not just in tax planning but also in recovering excess deductions through timely ITR filing.
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