TDS on Salary Under Section 192 of Income Tax Act

TDS on Salary Under Section 192 of Income Tax Act. TDS on salary refers to the tax amount deducted by an employer from an employee’s earnings before payment. This deduction is deposited with the Income Tax Department as per Section 192 of the Income Tax Act. The section provides detailed guidelines for employers to calculate and deduct TDS from salaries based on applicable tax slabs, exemptions, and declarations.
Key Highlights on TDS on Salary
1. Employer’s Responsibility:
Employers are legally required to deduct TDS on salary when an employee's annual income exceeds the basic exemption limit. These deductions must adhere to the guidelines specified in Section 192 of the Income Tax Act.
2. Issuance of Form 16:
At the close of the financial year, employers must issue Form 16 to employees. This certificate acts as proof of TDS deducted and is essential for employees when filing their income tax returns.
3. Regulations Under Section 192:
Section 192 governs TDS on salary, providing detailed methods for computing deductions and applicable rates based on income slabs. Employers calculate the tax liability and deduct TDS accordingly.
4. Form 24Q:

Used by employers to report TDS deducted on employee salaries.

Filed quarterly with the Income Tax Department.

Who Can Deduct TDS Under Section 192?
Under Section 192 of the Income Tax Act, any employer paying taxable salary to an employee is required to deduct TDS. Employers can include:

Private Limited Company and Public Limited Company

Individuals

Hindu Undivided Families (HUFs)

Trusts

Partnership firms

Cooperative societies

The employer’s legal structure (e.g., HUF, firm, or company) is irrelevant for this section. The key criterion is the employer-employee relationship. Additionally, the number of employees does not affect the obligation to deduct TDS.
When is TDS Deducted?
TDS under Section 192 is deducted only at the time of actual salary payment, not during its accrual. This applies to salaries paid in advance, on time, or in arrears. No TDS is deducted if the employee’s annual salary does not exceed the basic exemption limit of Rs.2,50,000 for individuals (Rs.3,00,000 for senior citizens and ?5,00,000 for super-senior citizens).
Steps for Calculating Taxable Income of an Employee
1. Estimate Annual Salary:

Include all components such as basic pay, dearness allowance, perquisites, bonuses, commissions, HRA, LTA, and employer contributions to EPF.

2. Calculate Exemptions:
Deduct exemptions under Section 10, such as:

HRA

Leave travel concession

Standard deduction of Rs.50,000

Professional tax paid

3. Determine Taxable Salary: Subtract the calculated exemptions from the gross annual salary to arrive at the taxable salary income.
4. Include Other Income: If the employee declares additional income (e.g., rental income or interest from deposits), it is added to the taxable salary. Deductions for interest on housing loans are adjusted under the "Income from House Property" head.
5. Deduct Chapter VI-A Investments: Reduce investments and deductions under Chapter VI-A, such as PPF, EPF, life insurance premiums, NSC, or ELSS mutual funds. Deductions under Sections 80C, 80D, and other applicable sections are accounted for.
6. Final Taxable Income and TDS Calculation: The employer calculates the net taxable income based on the selected tax regime (old or new). TDS is deducted monthly by dividing the total tax liability by the number of months of employment in the financial year.
TDS Rates Under Section 192
Section 192 does not prescribe a fixed rate for TDS. Instead, TDS is calculated based on the applicable income tax slab rates for the financial year.
Other Important Points

If an employee has paid advance tax, they must inform the employer for adjustment in TDS calculations.

Employers may adjust any excess or deficit in TDS deductions during subsequent months within the same financial year.

For employees failing to choose a tax regime, the default new tax regime will be applied.

Transactions Requiring TDS Deduction
Apart from salary, TDS applies to various income streams, such as:

Interest on securities and deposits

Dividends

Lottery or crossword winnings

Professional fees

Rent and property transfers

TDS on Salary: Key Aspects
Employer’s Responsibility: Employers must register for a TAN (Tax Deduction and Collection Account Number) and deduct TDS based on employee declarations.
When TDS is Deducted: It is deducted at the time of salary payment. If the total annual income is below ?2,50,000 (basic exemption limit for FY 2024-25), no TDS is applicable.
TDS Rates for Financial Year 2024-25
Old Tax Regime

Income Slabs

TDSRate (Below 60 Years)

TDS Rate (Senior Citizens: 60-80 Years)

TDS Rate (Super Seniors: Above 80 Years)

Up to Rs.2.5 lakh

Nil

Rs.2.5 lakh – Rs.5 lakh

Nil

Rs.5 lakh – Rs.10 lakh

20%

Above Rs.10 lakh

30%

New Tax Regime (Default from FY 2023-24)

Income Slab

TDS Rate

Up to Rs.3,00,000

Nil

Rs.3,00,001 – Rs.6,00,000

Rs.6,00,001 – Rs.9,00,000

10%

Rs.9,00,001 – Rs.12,00,000

15%

Rs.12,00,001 – Rs.15,00,000

20%

Above Rs.15,00,000

30%

Calculating TDS on Salary
To calculate TDS:
1. Determine gross salary.
2. Subtract exemptions, deductions, and investment declarations.
3. Apply the applicable tax rates based on the chosen tax regime.
Employer’s Obligations
Employers must:

Deduct TDS as per declarations and applicable rates.

Deposit the deducted amount to the government.

Issue Form 16, summarizing total TDS deductions for the financial year.

Choosing the Tax Regime
Employees can opt for the old tax regime by submitting Form 10IEA, even though the new regime is the default.
Understanding TDS and ensuring compliance with its provisions is essential for both employers and employees to avoid penalties and maintain accurate tax records.
How is TDS Deducted on Salary Per Month?
The monthly TDS deduction on salary depends on an employee’s total taxable annual income, income tax slab rates, and eligible exemptions and deductions. Employers estimate the annual taxable income by considering components like House Rent Allowance (HRA), Leave Travel Allowance (LTA), and deductions under Sections 80C, 80D, etc. This tax is then divided and deducted proportionately each month. Employees can request adjustments by submitting proof of investments or deductions during the year.
Can TDS be Claimed Back?
If the TDS deducted exceeds the actual tax liability, individuals can claim a refund by filing their Income Tax Return (ITR). For example, this can occur if the taxpayer later avails of deductions or exemptions not considered during the initial TDS calculation. The Income Tax Department processes the refund after verifying the ITR. Taxpayers can track their refund status online.
Non-Compliance and Its Implications
1. Employer Default:
If an employer deducts TDS but fails to deposit it with the government, the liability does not transfer to the employee.
However, the employer faces penalties and disallowance of salary expenses for tax deductions, increasing their taxable income.
2. No TDS Deduction:

If an employer does not deduct TDS, the employee must pay the tax due on their income while filing the ITR.

Conclusion
TDS on salary is important for both employers and employees to ensure compliance and avoid penalties. Employers must deduct and deposit TDS promptly while issuing Form 16 to employees. For employees, accurate declarations and timely submission of investment proofs can prevent excessive deductions. In case of over-deduction, filing an ITR enables a refund.
FAQs
Q1. How is TDS on salary calculated?
Ans. The calculation of TDS (Tax Deducted at Source) is done by the employer at the start of the financial year. The estimated tax liability of the employee for the entire year is divided by the number of months the employee will work under that employer, and TDS is deducted accordingly.
Q2. Which section of the Income Tax Act governs TDS on salary?
Ans. TDS on salary is governed by Section 192 of the Income Tax Act. This section mandates employers to deduct tax at source on the salary payments made to employees.
Q3. What is a TDS certificate for salary?
Ans. A TDS certificate for salary can be of two types: Form 16 (for TDS on salary) and Form 16A (for TDS on non-salary payments). As per Section 203 of the Income Tax Act, employees are entitled to receive a TDS certificate whenever tax is deducted at source from their income.
Q4. What formula is used to calculate TDS?
Ans. The formula to calculate TDS is: Average Income Tax Rate = Income Tax Payable (calculated using applicable tax slabs) ÷ Estimated income for the financial year.
Q5. Who is responsible for paying TDS on salary?
Ans. The employer is responsible for deducting and paying TDS on salary.
Q6. Who is required to deduct TDS on salary?
Ans. The employer is responsible for deducting TDS on salary at the time of paying the employee. The deduction occurs when the actual payment is made, provided the employee's salary is taxable.
Q7. How much tax is deducted from an employee's salary?
Ans. The tax deducted from a salaried employee is typically 10% of the gross salary, with a tax exemption limit of Rs. 1.5 lakh under Section 80 CCE. Additionally, both salaried and self-employed individuals can claim an extra deduction of Rs. 50,000 under this section, in addition to the deductions available under Section 80C.

TDS on salary refers to the tax amount deducted by an employer from an employee’s earnings before payment. This deduction is deposited with the Income Tax Department as per Section 192 of the Income Tax Act. The section provides detailed guidelines for employers to calculate and deduct TDS from salaries based on applicable tax slabs, exemptions, and declarations.

Key Highlights on TDS on Salary

1. Employer’s Responsibility:

Employers are legally required to deduct TDS on salary when an employee's annual income exceeds the basic exemption limit. These deductions must adhere to the guidelines specified in Section 192 of the Income Tax Act.

2. Issuance of Form 16:

At the close of the financial year, employers must issue Form 16 to employees. This certificate acts as proof of TDS deducted and is essential for employees when filing their income tax returns.

3. Regulations Under Section 192:

Section 192 governs TDS on salary, providing detailed methods for computing deductions and applicable rates based on income slabs. Employers calculate the tax liability and deduct TDS accordingly.

4. Form 24Q:

Used by employers to report TDS deducted on employee salaries.
Filed quarterly with the Income Tax Department.

Who Can Deduct TDS Under Section 192?

Under Section 192 of the Income Tax Act, any employer paying taxable salary to an employee is required to deduct TDS. Employers can include:

Private Limited Company and Public Limited Company
Individuals
Hindu Undivided Families (HUFs)
Trusts
Partnership firms
Cooperative societies

When is TDS Deducted?

TDS under Section 192 is deducted only at the time of actual salary payment, not during its accrual. This applies to salaries paid in advance, on time, or in arrears. No TDS is deducted if the employee’s annual salary does not exceed the basic exemption limit of Rs.2,50,000 for individuals (Rs.3,00,000 for senior citizens and ?5,00,000 for super-senior citizens).

Steps for Calculating Taxable Income of an Employee

1. Estimate Annual Salary:

Include all components such as basic pay, dearness allowance, perquisites, bonuses, commissions, HRA, LTA, and employer contributions to EPF.

2. Calculate Exemptions:

Deduct exemptions under Section 10, such as:

HRA
Leave travel concession
Standard deduction of Rs.50,000
Professional tax paid

3. Determine Taxable Salary: Subtract the calculated exemptions from the gross annual salary to arrive at the taxable salary income.

4. Include Other Income: If the employee declares additional income (e.g., rental income or interest from deposits), it is added to the taxable salary. Deductions for interest on housing loans are adjusted under the "Income from House Property" head.

5. Deduct Chapter VI-A Investments: Reduce investments and deductions under Chapter VI-A, such as PPF, EPF, life insurance premiums, NSC, or ELSS mutual funds. Deductions under Sections 80C, 80D, and other applicable sections are accounted for.

6. Final Taxable Income and TDS Calculation: The employer calculates the net taxable income based on the selected tax regime (old or new). TDS is deducted monthly by dividing the total tax liability by the number of months of employment in the financial year.

TDS Rates Under Section 192

Section 192 does not prescribe a fixed rate for TDS. Instead, TDS is calculated based on the applicable income tax slab rates for the financial year.

Other Important Points

If an employee has paid advance tax, they must inform the employer for adjustment in TDS calculations.
Employers may adjust any excess or deficit in TDS deductions during subsequent months within the same financial year.
For employees failing to choose a tax regime, the default new tax regime will be applied.

Transactions Requiring TDS Deduction

Apart from salary, TDS applies to various income streams, such as:

Interest on securities and deposits
Dividends
Lottery or crossword winnings
Professional fees
Rent and property transfers

TDS on Salary: Key Aspects

Employer’s Responsibility: Employers must register for a TAN (Tax Deduction and Collection Account Number) and deduct TDS based on employee declarations.

When TDS is Deducted: It is deducted at the time of salary payment. If the total annual income is below ?2,50,000 (basic exemption limit for FY 2024-25), no TDS is applicable.

TDS Rates for Financial Year 2024-25

Old Tax Regime

Income Slabs	TDSRate (Below 60 Years)	TDS Rate (Senior Citizens: 60-80 Years)	TDS Rate (Super Seniors: Above 80 Years)
Up to Rs.2.5 lakh	Nil	Nil	Nil
Rs.2.5 lakh – Rs.5 lakh	5%	5%	Nil
Rs.5 lakh – Rs.10 lakh	20%	20%	20%
Above Rs.10 lakh	30%	30%	30%

New Tax Regime (Default from FY 2023-24)

Income Slab	TDS Rate
Up to Rs.3,00,000	Nil
Rs.3,00,001 – Rs.6,00,000	5%
Rs.6,00,001 – Rs.9,00,000	10%
Rs.9,00,001 – Rs.12,00,000	15%
Rs.12,00,001 – Rs.15,00,000	20%
Above Rs.15,00,000	30%

Calculating TDS on Salary

To calculate TDS:

1. Determine gross salary.

2. Subtract exemptions, deductions, and investment declarations.

3. Apply the applicable tax rates based on the chosen tax regime.

Employer’s Obligations

Employers must:

Deduct TDS as per declarations and applicable rates.
Deposit the deducted amount to the government.
Issue Form 16, summarizing total TDS deductions for the financial year.

Choosing the Tax Regime

Employees can opt for the old tax regime by submitting Form 10IEA, even though the new regime is the default.

Understanding TDS and ensuring compliance with its provisions is essential for both employers and employees to avoid penalties and maintain accurate tax records.

How is TDS Deducted on Salary Per Month?

The monthly TDS deduction on salary depends on an employee’s total taxable annual income, income tax slab rates, and eligible exemptions and deductions. Employers estimate the annual taxable income by considering components like House Rent Allowance (HRA), Leave Travel Allowance (LTA), and deductions under Sections 80C, 80D, etc. This tax is then divided and deducted proportionately each month. Employees can request adjustments by submitting proof of investments or deductions during the year.

Can TDS be Claimed Back?

If the TDS deducted exceeds the actual tax liability, individuals can claim a refund by filing their Income Tax Return (ITR). For example, this can occur if the taxpayer later avails of deductions or exemptions not considered during the initial TDS calculation. The Income Tax Department processes the refund after verifying the ITR. Taxpayers can track their refund status online.

Non-Compliance and Its Implications

1. Employer Default:

If an employer deducts TDS but fails to deposit it with the government, the liability does not transfer to the employee.

However, the employer faces penalties and disallowance of salary expenses for tax deductions, increasing their taxable income.

2. No TDS Deduction:

If an employer does not deduct TDS, the employee must pay the tax due on their income while filing the ITR.

Conclusion

TDS on salary is important for both employers and employees to ensure compliance and avoid penalties. Employers must deduct and deposit TDS promptly while issuing Form 16 to employees. For employees, accurate declarations and timely submission of investment proofs can prevent excessive deductions. In case of over-deduction, filing an ITR enables a refund.

FAQs

Q1. How is TDS on salary calculated?

Ans. The calculation of TDS (Tax Deducted at Source) is done by the employer at the start of the financial year. The estimated tax liability of the employee for the entire year is divided by the number of months the employee will work under that employer, and TDS is deducted accordingly.

Q2. Which section of the Income Tax Act governs TDS on salary?

Ans. TDS on salary is governed by Section 192 of the Income Tax Act. This section mandates employers to deduct tax at source on the salary payments made to employees.

Q3. What is a TDS certificate for salary?

Ans. A TDS certificate for salary can be of two types: Form 16 (for TDS on salary) and Form 16A (for TDS on non-salary payments). As per Section 203 of the Income Tax Act, employees are entitled to receive a TDS certificate whenever tax is deducted at source from their income.

Q4. What formula is used to calculate TDS?

Ans. The formula to calculate TDS is: Average Income Tax Rate = Income Tax Payable (calculated using applicable tax slabs) ÷ Estimated income for the financial year.

Q5. Who is responsible for paying TDS on salary?

Ans. The employer is responsible for deducting and paying TDS on salary.

Q6. Who is required to deduct TDS on salary?

Ans. The employer is responsible for deducting TDS on salary at the time of paying the employee. The deduction occurs when the actual payment is made, provided the employee's salary is taxable.

Q7. How much tax is deducted from an employee's salary?

Ans. The tax deducted from a salaried employee is typically 10% of the gross salary, with a tax exemption limit of Rs. 1.5 lakh under Section 80 CCE. Additionally, both salaried and self-employed individuals can claim an extra deduction of Rs. 50,000 under this section, in addition to the deductions available under Section 80C.