Tds on salary
This query is : Resolved
01 March 2012
In F.y 2011-12 one of employee retire on 29th Feb 2012. We have paid salary to him up to Jan 2012. And the salary for Feb 2012 + Leave encahment + gratuity will be paid in next F.y 2012-13 may be in May 2012 or June 12. While considering his tax liability whether we consider his income whole amount payable to him for F.Y 2011-12 though salary for Feb-2012 + Leave encahment + gratuiry not paid and accordingly tax calculateed on whole amount. Or consider income up to Jan 2012 & accordingly tax calculated and Feb-2012 salary & leave encashment + gratuity in next F.y i.e 2012-13 as on paid basis & tax calculated accordingly.
Pls guide
Pls guide
01 March 2012
The TDS needs to be deducted in the FY 2011-2012 itself. The rationale behind being that on retirment, the salary for february and other allowances becomes due to him. TDS has to be deducted at time of booking or payment which ever is earlier
01 March 2012
though for section 192 tds is deductible on payment basis, practically every one deduct it on due basis.
01 March 2012
But we will booked the expenses at the time of payment.In that case what is the solution. Pls guide. Because we have financial problem so we release the payment may be after 2 or 4 months.
01 March 2012
You need to make the provision into the books of account. Due to financial problems of the company if the payment is delayed, no problem.
The Tax need to be deducted on actual payment or accrual, whichever is earlier.
Again differing of current year expenses to next year (for any reason) is not a prudence practice and will not save you from deduction of TDS before March 12.
With regards,
CA Prasad Modak
The Tax need to be deducted on actual payment or accrual, whichever is earlier.
Again differing of current year expenses to next year (for any reason) is not a prudence practice and will not save you from deduction of TDS before March 12.
With regards,
CA Prasad Modak
01 March 2012
Shamkat, its best you book the provision in current year itself as u are aware the expnses has to be booked.Increase or Decrease in the provision can be adjusted in the next financial year itself.
02 March 2012
We have to follow practice to make any entry in books at the time of payment. In that case pls explain if we will mak epayment in next f.y then we will make the TDS payment in next F.y. Is the practice is right or wrong. pls guide
27 July 2025
You're dealing with the timing of **TDS (Tax Deducted at Source)** under **Section 192** of the Income Tax Act in India, which is specific to **salary income**.
Let’s break it down clearly:
---
### 🔹 **1. Legal Provision:**
Under **Section 192**, TDS on salary must be deducted **at the time of actual payment** of salary, **not on accrual**. So technically, **TDS is deducted on payment basis**, not on due basis.
---
### 🔹 **2. Your Case Summary:**
* Employee retired on **29-Feb-2012** (FY 2011-12).
* You paid **salary only till Jan 2012**.
* **Feb 2012 salary + Leave Encashment + Gratuity** to be paid in **May/June 2012** (i.e., FY 2012-13).
* You asked whether to consider these payments for **TDS in FY 2011-12** or **FY 2012-13**.
---
### 🔹 **3. Correct Treatment (as per law):**
| Income Component | TDS Applicable When? | FY in which taxable |
| ----------------------- | ---------------------------------------------- | ------------------- |
| **Salary for Feb 2012** | On actual **payment**, i.e., **May/June 2012** | **FY 2012-13** |
| **Leave Encashment** | On **payment** (if not exempt u/s 10(10AA)) | **FY 2012-13** |
| **Gratuity** | On **payment** (if taxable after 10(10)) | **FY 2012-13** |
➡️ Therefore, **TDS is to be deducted and deposited in FY 2012-13**, **at the time of payment** in May/June 2012.
---
### 🔹 **4. Practical vs. Legal View:**
* **Practically**, some companies book TDS on **accrual basis** (especially for internal provision/estimation), but **for TDS compliance**, **only payment date matters** under **Section 192**.
* So even if the expense belongs to FY 2011-12, **TDS deduction will happen in FY 2012-13**, when you actually pay.
---
### 🔹 **5. Provision in Accounts:**
* **You should make a provision** in books for Feb salary, leave encashment, and gratuity in FY 2011-12 as these were **accrued expenses**.
* But **TDS liability arises only when payment is made**.
* Not making provision is a **financial reporting issue**, not a TDS issue.
---
### 🔹 **6. Conclusion:**
✅ **Legally Correct Practice:**
* TDS is to be **deducted at the time of payment**, i.e., in **FY 2012-13**.
* Show provision in FY 2011-12 for accounting prudence.
* Deduct and deposit TDS when you actually release the amounts in May/June 2012.
❌ **Wrong Practice:**
* Deferring the **entire salary liability** to next year **just to delay TDS** — **not acceptable under accounting standards**.
---
### 💡 Note:
* Gratuity and leave encashment might be **partly or fully exempt**, depending on employee status (government/non-government, coverage under Payment of Gratuity Act, etc.).
* Calculate exemption under **Section 10(10)** for gratuity and **Section 10(10AA)** for leave encashment.
---
If you need help calculating TDS for those payments in FY 2012-13, I can assist with that too.
Let’s break it down clearly:
---
### 🔹 **1. Legal Provision:**
Under **Section 192**, TDS on salary must be deducted **at the time of actual payment** of salary, **not on accrual**. So technically, **TDS is deducted on payment basis**, not on due basis.
---
### 🔹 **2. Your Case Summary:**
* Employee retired on **29-Feb-2012** (FY 2011-12).
* You paid **salary only till Jan 2012**.
* **Feb 2012 salary + Leave Encashment + Gratuity** to be paid in **May/June 2012** (i.e., FY 2012-13).
* You asked whether to consider these payments for **TDS in FY 2011-12** or **FY 2012-13**.
---
### 🔹 **3. Correct Treatment (as per law):**
| Income Component | TDS Applicable When? | FY in which taxable |
| ----------------------- | ---------------------------------------------- | ------------------- |
| **Salary for Feb 2012** | On actual **payment**, i.e., **May/June 2012** | **FY 2012-13** |
| **Leave Encashment** | On **payment** (if not exempt u/s 10(10AA)) | **FY 2012-13** |
| **Gratuity** | On **payment** (if taxable after 10(10)) | **FY 2012-13** |
➡️ Therefore, **TDS is to be deducted and deposited in FY 2012-13**, **at the time of payment** in May/June 2012.
---
### 🔹 **4. Practical vs. Legal View:**
* **Practically**, some companies book TDS on **accrual basis** (especially for internal provision/estimation), but **for TDS compliance**, **only payment date matters** under **Section 192**.
* So even if the expense belongs to FY 2011-12, **TDS deduction will happen in FY 2012-13**, when you actually pay.
---
### 🔹 **5. Provision in Accounts:**
* **You should make a provision** in books for Feb salary, leave encashment, and gratuity in FY 2011-12 as these were **accrued expenses**.
* But **TDS liability arises only when payment is made**.
* Not making provision is a **financial reporting issue**, not a TDS issue.
---
### 🔹 **6. Conclusion:**
✅ **Legally Correct Practice:**
* TDS is to be **deducted at the time of payment**, i.e., in **FY 2012-13**.
* Show provision in FY 2011-12 for accounting prudence.
* Deduct and deposit TDS when you actually release the amounts in May/June 2012.
❌ **Wrong Practice:**
* Deferring the **entire salary liability** to next year **just to delay TDS** — **not acceptable under accounting standards**.
---
### 💡 Note:
* Gratuity and leave encashment might be **partly or fully exempt**, depending on employee status (government/non-government, coverage under Payment of Gratuity Act, etc.).
* Calculate exemption under **Section 10(10)** for gratuity and **Section 10(10AA)** for leave encashment.
---
If you need help calculating TDS for those payments in FY 2012-13, I can assist with that too.
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