Thursday, 27 September 2018

How to Calculate TDS on Salary - TDS

Section 192: Payment of salary

At the time of payment of salary by the employer to the employee, the employer is also required to mandatorily deduct TDS on Salary under Section 192 and the balance amount deducted on the basis of average rate of income tax of the taxpayer for that financial year.

The average rate of income tax is to be calculated on the basis of income tax slab rates in force for that financial year. The average rate of income tax can be calculated with the help of an example:-

For Example
  • Mr. Akash is earning Rs. 70,000 per month. 
  • Therefore total estimated income of Mr. Akash during the financial year 2018-19 would be Rs. 9,00,000. 
  • He has also claimed deductions of Rs. 1,00,000. Therefore, his income chargeable to tax after deductions is Rs. 8,00,000. 
  • Total Tax on Salary payable for the year computed as per the slab rates would come out to Rs. (12,500+80,000)92,500 + Cess @ 3% i.e Rs. 2775.   Income Tax Slabs Click Here
  • Therefore tax on salary payable is Rs. 95,275 
  • Therefore average rate of Tax on Salary = Total Tax Payable = 95,275 /900000* 100 =10.59% Therefore, in the case of Mr. M, the average rate of tax would be 10.59% as explained above. TDS on Salary would be deducted @ 10.59%. 
  • Therefore TDS on Salary would be 10.59% of Rs. 75,000 i.e. Rs. 7942 would be deducted every month as TDS on Salary. Average rate of Tax in case of each Individual is different for each financial year and keeps varying based on the estimated income of the taxpayer and the Income Tax Slab Rates in force for that assessment year. 
  • The tax deducted as TDS on Salary is reflected in the Form 16 which is issued to the taxpayer at the end of the financial year. The taxpayer can also check the details of the TDS deducted and deposited by his employer by verifying these details through the Form 26AS which can be checked online.

Tax on Salary deducted by the employer does not go in the pockets of the employer as he is required to deposit the TDS on Salary deducted with the Govt before the prescribed due date. At the time of making the payment of TDS with the Govt, the employer is also required to mention his TAN No. on the deposit challan. At the time of deposit of TDS on salary, the employer specifically mentions the salary paid to each employee and the tax deducted thereon. He is also mandatorily required to quote the PAN No. of each employee while depositing the tds with the govt. If the employer fails to deduct and/or pay the TDS on Salary on time – interest & penalty would be levied on the employer In case an employee does not have a PAN No., the employee would be required to apply for aPAN Card No.

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