TDS on salary under Section-192 of Income Tax Act’1961

• Taxation
• ||
• April 16, 2020

TDS on salary under Section-192 of Income Tax Act’1961
Salary as defined u/s 17(1) of the Income Tax Act’1961 is the amount paid or payable by an employer to his employee in the return of the services rendered by him. However, salary as per 17(1) includes all wages, annuity or pension, any gratuity, fees, commissions, perquisites or profits, any advance salary, Leave encashment, etc.

Every employer is required to deduct TDS of his eligible employees on the estimated total salary as per section 192 and subsequently provide form 16 at the end of the financial year. For any sum to be chargeable u/s 192 existence of employer employee relationship is necessary.

Who can deduct TDS u/s 192?
Following is a list of employers who are eligible for deducting TDS in this section. It may include:

• Companies (Private and Public both)
• Individuals
• Hindu Undivided Family ( HUF)
• Trusts
• Partnership firms
• Co-operative societies

Timing of deduction of TDS
TDS on Salary u/s 192 is to be deducted by the employer at the time of actual payment. TDS on any advance or arrears of salary is also to be deducted at the time of payment only.

Eligible Employees
Eligible employees are those employees whose salary exceeds the following exemption limits:

However, any employee being an eligible employee can submit declarations and investment proofs to reduce or avoid any tax consequences on his salary.

Manner of deducting TDS u/s 192 from FY 2020-21 (AY 2021-22)
Every employer shall calculate estimated total salary payable or paid to an employee during the financial year and further tax payable as per the employees choice of Income Tax Slabs (Old/Current regime) or the rates specified u/s 115BAC (new tax regime).

Amount on which TDS is deducted should be reduced by the eligible deductions as per investment proofs submitted by employee and divided by the no. of months to reach monthly TDS of the employee. However, if an employee (falling under the tax slab) does not have PAN, TDS will be deducted @ 20% (excluding the amount of education-cess and higher education-cess).

Rates for FY 2020-21 (AY 2021-22)

• Employees not having PGBP income willing to taxed under new tax regime (Section-115BAC): In the recent Finance Budget’2020 the government has inserted a new section 115BAC where the Assessee could opt for new tax regime without specified deductions and exemptions**, set off of losses, and taxed on the following concessional rates:

**Some of the major deductions and exemptions that are phased out in the new tax regime are HRA, LTC, Standard deduction against salary, any exemptions on allowances and perquisites, Interest on home loan u/s 24b for Self occupied property, Certain donations u/s 35, Family pension deduction, Investment in LIC, EPF, PPF, NSC, ULIP, Tuition fees, 5 year FD with bank, 80D for health insurance, 80DD, 80G, 80TTA for saving interest received, 80TTB, 80U and other chapter VI-A deductions as well except 80CCD(2) for contribution to NPS and 80JJAA.

CBDT vide its Circular No. 370142/13/2020 dated 13^th April, 2020 clarified that employee who wants to opt for new tax regime and has no PGBP income shall intimate their employers at the beginning of the financial year for each previous year and once intimated it cannot be withdrawn. However, the employees have the option to file their Tax return as per any of the scheme irrespective of the intimation. The employees having PGBP income can also choose their option at the time of filing of return but cannot change subsequently.

• Employees not having PGBP income willing to taxed under old tax regime (Section-115BAC): The salaries of employees who do not intend to opt for new scheme will be taxed as per the existing income tax slab which is given below:

Education cess @4% will also be levied on the final tax payable. Surcharge will be applicable if the total income exceeds 50 lakhs.

Time limit to deposit the tax under section 192

Any delay in deposit of TDS will attract interest u/s 201(1A) at the rate of 1% or 1.5% as the case may be.

At AJSH & Co, we understand the importance of adhering to the statutory compliance regime, failing which, businesses could face serious ramifications that may impact their reputation and operations and of their stakeholders. To know more about TDS compliances, please click here.