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TDS on Salary

TDS Calculation on Salary

Last Updated 23rd Jun 2021

  • TDS on salary is deducted under Section 192 by the employer at the time of actual payment of salary.
  • In the absence of PAN, the TDS will be deducted at 20%.
  • TDS is exempted upto the annual income of ₹ 2,50,000.
  • Employees can claim tax exemption under section 80C for a maximum amount upto ₹ 1,50,000/per year.
  • TDS is exempted on HRA, TA and medical allowances.
INCOME TAX CALCULATOR

Section 192 of the Income Tax Act

The tax deducted at source (TDS) is related to section 192 of the Income Tax Act of 1961. The employer deducts TDS from the salaries payable. The employer will categorise your pay as 'Income' under the heading 'salary' and be responsible for deducting the TDS from your estimated earnings at an average income tax rate based on the existing slab rate over the relevant financial year.

The TDS deduction is seen in Form 16 that the taxpayer issues at the end of the fiscal year.

Who Can Deduct TDS Under Section 192?

Employer categories permissible to deduct TDS:

  • Public and private ltd companies
  • Individuals
  • Trusts
  • Partnership firms
  • Co-operative organisations
  • Hindu Undivided Family (HUF)

Employers from these categories deduct TDS at a specific period and submit it to the government. Section 192 of the income tax act suggests that an employer-employee relationship must exist for deducting tax at source.

An employer's status from HUF, businesses, and companies is insignificant in this section for a tax deduction. Employee strength in an organization is irrelevant for calculating and deducting TDS.

When is TDS Deducted Under Section 192?

TDS is deducted when wages are paid not during the accrual under section 192. If you receive an advance salary or arrears, then TDS will be deducted by your employer.
If your projected pay does not surpass the basic exemption cap or do not have PAN, there will be no TDS deduction.

Income of IndividualsIncome of Senior CitizensSuper Sr Citizens Of Age Above 80 YearsRates
₹ 2.50 Lakh₹ 3 Lakh₹ 5 LakhNil
₹ 2.50 Lakh - ₹ 5 Lakh₹ 3 Lakh - ₹ 5 Lakh - 5%
₹ 5 Lakh - ₹ 10 Lakh₹ 5 Lakh - ₹ 10 Lakh₹ 5 Lakh - ₹ 10 Lakh 20%
Above ₹ 10 LakhAbove ₹ 10 LakhAbove ₹ 10 Lakh30%

Rate of Tax Deduction for FY 2021 - 22

  • No TDS rate is defined in Section 192. In compliance with the income tax slab and the thresholds for the respective fiscal year in which the wages are paid, the employer shall deduct TDS.
  • Employers calculate their employees' salary according to the tax rate by considering all the applicable exemptions and deductions, and then tax is calculated. The employer typically calculates the taxes at the beginning of the financial year. The TDS is deducted by dividing the tax liability by the number of months the employee serves under the particular employer.
  • In the absence of PAN, the TDS deduction will apply at the rate of 20% (excluding education and higher education cess).
  • Any surplus or loss resulting from any previous deduction may be balanced by increasing or minimising the number of deductions subsequently made within the same fiscal year. If you have paid an advance tax, the same is balanced to calculate the TDS.

Illustration

The tax on salary gets deducted at an annual rate of income tax:

Average income tax rate = income tax owed by the employee's income for the fiscal year.

For example, MyLoanCare's resident employee Sudha who is 50 years old, is paid ₹ 1 Lakh monthly salary for the year 2018-19. The TDS deduction u/s 192/month is:-

  • The gross salary is expected to be ₹ 12,00,000/yr.
  • Under section VI A, the approximate deduction of ₹ 1,00,000.
  • The salary taxable is thus valued at ₹ 11,00,000.
  • For computation of TDS on salaries u/s 192 = ₹ 1,42,500, based on the existing slab rate.
  • The income tax will have 4% cess for higher education = ₹ 5,700.
  • The net tax payable is then ₹ 1,48,200.
  • According to the above equation = ₹ 1,48,200/12 Lakh *100 = 12.35%.

Therefore, a monthly deduction of TDS u/s192 = ₹ 1,00,000 x 12.35% = ₹ 12,350.

Salary from More Than One Employer

  • In case you resign and join another firm, you have to provide the previous employment details in Form 12B to your current employer. The company considers the income from your last job and TDS is deducted for the rest of the fiscal year.
  • Each employer deducts TDS only from the salary paid to you if you withhold your previous job’s income details.

TDS Deductions

Following is the TDS deduction process:

  • Estimating total income - The employer firm calculates the employee's total earnings.
  • Calculation of the eligible amount for exemption - It is the Employer's responsibility to determine the total tax exemption amount. Employees have to declare the type of amount eligible for exemption.
  • Declaration and proof of investment — The employers are expected to gather proof of investment from employees.
  • TDS deductions deposit – The employers will submit the collected TDS to the Union government.

The TDS deduction for various sections is as follows:

Section 80C

For the tax exemption, an employee can declare for an amount up to ₹ 1,50,000. For exemption under section 80C, the following investment plans are considered:

  • Mutual fund and equity share investments.
  • Payment of Life Insurance Premiums
  • Statutory PF, 15 years PPF and superannuation contribution
  • National Saving Certificates (NSCs) and Home Loan Account Scheme subscription payments
  • Interest earned on NSCs
  • FD investments for a minimum tenure of 5 years

List of items for which you can claim deductions under section 80C.

  • PPF investments
  • Buying National Savings Certificate (NSC)
  • An employee's contribution to the Provident fund
  • Life Insurance Premiums
  • Children's education
  • Home Loan Principal sum
  • Unit related Insurance policies
  • Savings schemes linked with equity
  • Samriddhi Account Investments
  • Saving Schemes for Senior Citizens
  • Deposit Program for five years
  • LIC's notified annuity plan
  • Subscription to the deposit plans of housing finance or public sector corporations
  • Contribution to the UTI or Mutual Fund formed notified Pension Fund
  • NABARD notified Bonds Subscription

Section 80CCG

Employees who have invested under equity saving schemes are eligible for an annual exemption of ₹ 25,000. The investment should be made over a minimum term of 3 years from the scheme’s purchase date.

Section 80D

In this section, the employees can claim exemptions (extended to dependents) for the health insurance premium.
There are also other sections regulating several different forms of exemptions.

How is TDS calculated?

The tax exemptions are available under section 80C and 80D to enable an individual to avail rebates on different investments made by them for the financial year. The TDS on pay is measured by subtracting the exemption from the annual salary defined by the Department of Income Tax. The employers must collect a tax exemption statement and documentation from the individuals. The types of exemption are as follows:

  • House Rent Allowance (HRA) — The employees paying house rent through HRA received by the employer can claim tax exemptions.
  • Travel Allowance (TA) — Employees getting travel allowance can also claim the amount for tax exemption.
  • Medical Allowance — Employees can declare and produce medical bills for tax exemption if they are offered medical allowance.

FAQs

How is TDS calculated on salary?

First, to determine the gross monthly income, add basic salary, perks and prerequisites. In compliance with section 10 of the Income Tax Act, calculate the available exemptions and multiply it with 12 for annual TDS.

What is the rate of TDS on salaried income?

The slab for TDS deduction is

  • Upto ₹ 2,50,000, nil charges
  • From ₹ 2,50,001 to ₹ 5,00,000, you will have to pay 5%.
  • The rate for the income between ₹ 5,00,001 to ₹ 10,00,000 is ₹ 12,500 + 1/5th of the income above ₹ 5,00,000.
  • People earning more than ₹ 10,00,000 have to pay ₹ 1,12,500 and 30% of the income over ₹ 10,00,000.

What is the TDS exemption limit for salary?

The TDS is exempted completely for an annual salary of upto ₹ 2,50,000.

Is TDS refundable on salary?

Tax Deducted at Source (TDS) is the amount deducted from taxpayers' income, interest on bank accounts, rent, etc. You will get a refund if the authorities collect TDS higher than you owe.

Can I get a TDS refund?

Yes, you will get a TDS refund if you have paid more TDS than you owe. Ensure, TDS is shown in your Form 26AS.

Who will pay TDS?

Any individual making such payments referred to the Income Tax Act is obligated to deduct TDS at the payment time. However, no TDS needs to be deducted if an individual making the payment doesn't need to be audited.


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