Section 192: TDS on Salary

In accordance with Section 192 of the Income Tax Act, 1961, employers are required to deduct TDS (Tax Deducted at Source) from the salary income of employees. The amount of TDS deducted depends on the employee's net taxable salary. Employers deduct this TDS on behalf of employees and submit it to the income tax department.

At the end of the financial year, employees receive Form 16 from their employers, which outlines the TDS deducted. Using this information, employees can calculate their total tax liability. They can then adjust the TDS deducted against this liability. Depending on the scenario, they might need to pay the remaining tax amount (if the TDS is insufficient) or claim a tax refund (if excess TDS was deducted).

Who is responsible for deducting TDS on salary income under Section 192?

Under Section 192 of the Income Tax Act, various entities, including companies (both private and public), individuals, Hindu Undivided Families (HUF), trusts, partnership firms, and co-operative societies, can deduct TDS (Tax Deducted at Source) from salary income. The employer's specific legal status, such as being a company or an individual, is not relevant for TDS deduction under this section. What matters is the existence of an employer-employee relationship between the deductor (employer) and the deductee (employee).

What are the specific criteria or thresholds for TDS deduction from salary income under Section 192?

TDS is deducted by employers when paying salary. Salary income is taxable if it exceeds the basic exemption limit, which varies based on age:

• Below 60 years: Rs. 2,50,000/-
• 60 years or more but below 80 years: Rs. 3,00,000/-
• 80 years or above: Rs. 5,00,000/-
• New regime (Union Budget 2023): Rs. 3,00,000/- for all individuals.

TDS is applicable for advance salary and arrears at the time of payment.

Rate of TDS u/s 192

There is no fixed rate under Section 192. Instead, TDS is determined using the average tax rate applicable to the employee's estimated total income. Instead, the TDS deduction is based on the applicable income tax slab rates for the financial year in which the salary is paid.

Employers calculate the estimated tax liability of the employee for the entire financial year at the beginning of the year. To determine monthly TDS, the estimated annual tax liability is divided by the number of months of employment under the specific employer.

TDS on salary = Estimated Total Tax Liability / Period of Employment (months)   

How to calculate TDS on Salary under section 192?

• Determine Gross Salary: Start with the total salary, including basic pay, allowances, bonuses, and perks.
• Subtract Tax-Free Allowances and Exemptions: Deduct allowances like HRA and exemptions under Section 10 from the gross salary to find the net salary income.
• Account for Tax-Saving Investments and Expenses: Deduct investments and expenses under sections like 80C (PPF, EPF, etc.), 80D (health insurance premiums), and other applicable sections declared for tax benefits.
• Add Other Incomes: Include any additional income declared by the employee, such as rental income.
• Calculate Net Taxable Income: The final figure after deductions and additions represents the net taxable income.
• Determine Tax Slab: Based on the net taxable income, identify the applicable income tax slab.
• Deduct TDS: Calculate TDS (Tax Deducted at Source) based on the determined slab and deduct it from the net salary income.