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TDS (Tax Deducted at Source) is the sum which is taken away from the income of a person by a specified deductor and deposited to the Income Tax department. Section 192 of the Income Tax Act,1961, talks about the deduction of TDS on salary income by employers. In this blog, we will talk about TDS On Provision for Salary- Section 192, Income Tax Act 1961.
Table of Content
What is TDS on Salary?
TDS on salary is the tax that the employer deducts during depositing the salary into the employee’s account. The employer deposits the sum deducted from the employee’s account to the government.
Employer’s TAN registration is compulsory before deducting the tax at source from an employee’s salary. TAN (The Tax Deduction and Collection Account Number) number is a 10-digit number. This number is used to track TDS deductions as well as an allowance by the Income Tax Department.
TDS on Provision for Salary – Section 192
Section 192 of the Income Tax Act 1961, talks about the deduction of TDS on salary income by the employers. However, the section only covers TDS on salary income.
The employer will deduct TDS from the salary payable to its employees. The salary one receives from his/her employer is categorized in ‘Income’ under the head ‘Salary’. Further, the employer will be responsible for deducting TDS at normal income tax rates relevant to employees on their expected income for the appropriate financial year. The reflection of TDS deduction under section 192 is in Form 16, which employers issue to their employees.
TDS Deducted under Section 192
Following are the points when TDS deduction under section 192 takes place:
- Deduction of TDS is essential by the employer during payment of salary income when the taxable income of an employee is more than the basic exemption limit which is:
- Rs. 2,50,000/- in case age is below 60 years
- Rs. 3,00,000/- in case age is 60 years or more but below 80 years
- Or; Rs. 5,00,000/- in case age is 80 or above
- Deduction of TDS necessary by an employer during payment of advance salary and arrear of salary.
- TDS deduction on salary is necessary even if the employee does not have PAN if the salary is more than the basic exemption limit.
TDS deduction rate under section 192
As compared to other sections of TDS under Income Tax Act, there is no fixed rate for TDS under section 192. TDS under section 192 is calculated on the estimated income earned during the year at an average tax rate.
To calculate the rate of TDS, the estimated overall tax liability that income is divided over the period of employment like months.
TDS on salary = Estimated Total Tax Liability divided by Period of Employment
Who can Deduct TDS under Section 192?
The employers can do a deduction of TDS under section 196. The following can be the employers in this respect:
- Companies (Private /Public)
- Individuals
- HUF
- Local Authority
- Trusts
- Partnership firms
- Co-operative societies and
- Every Artificial judicial person
An employer-employee relationship is necessary for TDS deduction as per section 192 of the Income Tax Act. Under this section, the status of the employer like companies, firms or HUF is irrelevant for the deduction of tax at the source.
Calculation of tax deduction under section 192
The following points must be considered while calculating TDS on salary:
- The other income like rental income etc. shall also be considered by the employer for calculation of TDS on salary if the information of such income is submitted by the employee.
- If any interest on a home loan up to Rs. 2,00,000/- will be set off from salary income to reach the estimated income for TDS calculation if the employee has given evidence in Form 12BB.
- The Employee shall c declare information about all the tax-saving investments to the employer using Form 12BB. Further, if an employer sees this, they will consider these saving investments and calculate the TDS amount accordingly.
What is the time limit to deposit TDS under Section 192?
The TDS deduction on salary by the employer shall be deposited to the government within the following timeline to avoid interest:
- TDS deduction for April-Feb is the 7th of the subsequent month
- TDS deduction for March is 30th April
How to calculate TDS in case the salary is payable in foreign currency?
In this type of situation, firstly, all salaries will be converted into Indian currency. Further, the rate of exchange will be the last day of the month immediately preceding the month in which the salary is due, or advance payment or arrears.
After conversion, the calculation of TDS is according to the normal provisions of the TDS deduction.
Illustration: If the payment of salary in July is in foreign currency then the rate of exchange will be on 30th June.
Some other Important Points related to TDS deduction
The followings are some of the other important points related to TDS deduction:
- TDS deduction under section 192 is not applicable on payments of doctors by the hospital as it comes under professional fees. However, the TDS deduction under section 192 will be there if it is a contract of service.
- The employer is not accountable for the deduction of TDS on the tip (which the customers may pay in the form of service charges to waiters) since it is not a part of salary income.
- The salary of directors by the company does not come under section 192, because there is no employee-employer relationship among them.
Consequences of non-compliance under section 192
Following are the Consequences of non-compliance under section 192:
- Levy of Interest: When there is no deduction of TDS ON salary by the employer or if deduction of the TDS is done but not deposited to the government then interest is mandatory to be paid on such amount.
- Disallowance of expenses: if the TDS deduction is not on time the employer will not be eligible to claim the deduction of salary expense from PGBP income. The number of forbidden salary expenses shall be, 30% of Salary payment to Resident and 100% of Salary payment to Non-Resident.
Conclusion
Therefore, section 192 of the Income Tax Act 1961, talks about the deduction of TDS on salary income by the employers. TDS on salary is the tax that the employer deducts during depositing the salary into the employee’s account. However, the section only covers TDS on salary income. Further, an employer-employee relationship is necessary for TDS deduction as per section 192 of the Income Tax Act.
