Salary is the most important component of an employee's annual taxable income. So, if you are employed, your salary will determine the amount of tax you must pay. However, before crediting your salary, your employer must deduct TDS (Tax Deducted at Source) from your salary income i.e. Income Tax TDS Return and then credit your salary to your bank account. Let's go over what TDS on salary is all about. The Income Tax Act of 1961, Section 192, deals with tax deducted at source (TDS) on salaried income. In addition, this article explains the basics of TDS on salary.

Section 192 TDS on Salary

TDS is deductible on salary income under Section 192 of the Income Tax Act of 1961. TDS is deducted by the employer on your behalf and deposited with the income tax department based on your net taxable salary. The employer's TDS is reflected on Formno 16 Income Tax, which is issued annually. Then, at the end of the financial year, you can calculate your tax liability and adjust the TDS to pay either the differential liability or to claim a tax refund.

Because salary is a type of income, the payer, i.e. the employer, is required to deduct TDS on the amount payable to you. Section 192 requires employers to deduct and remit their employees' income taxes to the government.

Who is eligible to deduct TDS under Section 192?

Employers in the following categories are required to deduct TDS on salary:

·        Public and private companies

·        Individual taxpayers

·        Trusts

·        Hindu Undivided Families

·        Co-operative societies

·        Partnership firms

Section 192 of the Income Tax Act requires an employer-employee relationship for tax deduction at source.

When does TDS under Section 192 get deducted?

If your estimated salary is less than the basic exemption limit, the tax amount will be zero, and no TDS will be deducted.

Basic Exemption Limit

Deduction of tax at source under the head 'Salaries' (Section 192)

      I.          This section requires anyone who is responsible for paying any taxable income under the heading of salaries to deduct income tax on the amount payable. TDS must only be deducted by the employer at the time of payment.

    II.           TDS on withdrawals from provident funds is covered by Section 192A of the Income Tax Act of 1961. TDS is 10% if the PAN card is submitted.

  III.          If the payee fails to provide his PAN to the payer, the TDS rate will be the rate specified in the respective section or the rate of 20%, whichever is greater.

  IV.          In cases where an assessee is simultaneously employed by more than one employer or takes up a job with another employer during the financial year following his resignation or retirement from the services of the former employer, he may provide his current employer with details of the income under the heading "salaries" due or received from the other employer, the tax deducted there from, and such other particulars. Following that, the subsequent employer should consider such information and deduct the tax remaining payable in respect of the employee's remuneration from both employers combined for the respect of financial year.

    V.          Employer shall not consider employee losses unless those who fall under the category of "Income from house property." 

  VI.          Employer must consider details of employee's other income and deductions if provided by employee. Employees must provide proof of such deductions, exemptions, and losses.

VII.          Sections 192(1A) and 1(B) provide for the payment of tax on non-monetary perquisites. These sections state that the employer may pay this tax, at his discretion, in lieu of deducting tax at source from the employee's salary. Such tax must be calculated at the average rate applicable to the employee's aggregate salary income, and payment must be made monthly, in addition to tax deducted at source on monetary payments of salary, allowances, and so on.

VIII.         When a firm pays a partner a salary, section 192 does not apply because the salary is taxable in the partner's hands under the heading Business/Profession.

  IX.          If an employee intends to elect the concessional rate of tax under section 115BAC and informs the deductor, which is his employer, of his intention, the employer must compute his total income and deduct tax in accordance with the provisions of section 115BAC. If the employee fails to provide such notice, the employer must deduct tax at source without regard to the provisions of Section 115BAC of the act.

Conclusion

As a result, section 192 of the Income Tax Act of 1961 addresses the deduction of TDS by employers on salary income. TDS on salary is the tax deducted by the employer when the salary is deposited into the employee's account. The section, however, only addresses TDS on salary income. According to Section 192 of the Income Tax Act, an employer-employee relationship is also required for TDS deduction.