When an employer is paying a ‘salary’ to his employees, it is important that he deducts TDS on the salary at the average rate of Income Tax before processing it. In this guide, the provisions of TDS on salary under section 192 are discussed in detail.
Section 192 of income tax act deals with provisions regarding TDS (Tax Deducted at Source) on salary. An employer is required to deduct TDS from the salary payable to the employees. When an employer is paying salary to an employee, which is categorised in Income under the head Salary, he is responsible for deducting TDS on an average rate of income tax based on the prevailing rate during the financial year by considering the estimated income of the assessee.
[ Read: What is TDS? ]
All these employers are required to deduct TDS at the given time and deposit to the Government.
For the application of Section 192, there must be an employer-employee relationship between payer and payee, in the absence of which TDS liability does not arise. It does not include any payment made by a person to another person voluntarily.
The status of the employer is irrelevant for TDS on salary under Section 192. Hence, whether the employer is an individual, HUF, partnership firm or corporate entity, section 192 is applicable for payment of salary. Also, it does not matter as to whether the individual employer is carrying on business or profession or claiming such salary as a deduction or not.
Number of employees engaged by the employer is also not a consideration for calculating TDS. Section 192 is applicable even if the employer has only one employee.
Unlike provisions of other TDS sections, under section 192 tax is required to be deducted at the time of actual payment of salary and not at the time of accrual of salary.
TDS has to be deducted if the employer pays salary in advance or arrears.
If the estimated salary of the employee does not exceed the minimum amount chargeable to tax, TDS is not required to be deducted. This mandate is applicable even if the employee does not have PAN.
Under section 192 there is no specific TDS rate. TDS to be deducted is calculated according to the tax slabs and rates thereof applicable to the financial year for which the salary is paid. First, the salary of the employee is calculated, then tax is calculated as per the tax slab as applicable to that individual.
Below mentioned table reflects the minimum amount under which taxes are not required to be deducted
|For the individual resident in India whose age is below 60 years||Rs 2,50,000|
|For Senior Citizen whose age between 60 years but below 80 years||Rs 3,00,000|
|For Super Senior Citizen whose age is above 80 years||Rs 5,00,000|
The above-given income slabs are applicable for F.Y. 2017-18, i.e. A.Y.2018-19.
TDS is to be deducted even if the salary of an employee is likely to exceed the minimum taxable limit in the financial year. Thus, it is to be considered that the employee remains employed for the throughout the financial year and TDS is to be deducted from the 1st month of his employment if the estimated salary for the whole year exceeds the minimum tax slab.
At the time of deducting TDS, the employer may increase or decrease the amount of TDS to adjust any previous deficient or excess deduction. Monthly adjustment of deduction is to be made employee-wise and not collectively for all employees.
If the employee has made any payment as an advance tax, then the same can be adjusted for calculation of TDS.
[ Read: Income Tax Slab 2017-18 ]
TDS u/s 192 has to be deducted from the estimated income of the employee for the financial year. No tax will, however, be required to be deducted at source if the estimated salary of the employee does not exceed the minimum tax slab for the financial year.
TDS u/s 192 has to be deducted by the average of income tax computed and the rates in force during the financial year. The TDS to be deducted is calculated by dividing the estimated income of the employee for the financial year by the number of months of his employment. The amount so arrived is deducted monthly as TDS. However, if the employee does not have PAN No., TDS shall be deducted at the rate of 20% (excluding education cess & higher education cess).
If an employee is engaged with more than one employer simultaneously, he may provide details about his salary and TDS in form 12B to any one of the employers. The employer receiving such details shall be responsible for considering it while estimating the total salary income of the employee to deduct TDS.
Similarly, if the employee resigns and joins another employer, he may provide the details of his previous employment in form 12B to his subsequent employer. The subsequent employer is to consider his previous salary and TDS to deduct tax at source for the remaining months of the financial year.
If the employee chooses not to furnish the details of income of other employment, each employer shall deduct tax only in respect of salary paid by him respectively.
Sec192(2C) makes it mandatory for the employer to furnish to the employee a statement by providing correct and complete particular of perquisites or profits in leiu of salary and the value thereof in form 12BA.
This requirement is applicable only if the amount of salary paid or payable to the employee is more than the basic exemption limit. In other cases, the particulars of perquisites or profits in lieu of salary can be included in form 16 itself.
If any portion of salary is received in advance or arrears, tax relief is allowed u/s 89. If employee furnishes information in Form No- 10E to the employer, relief under section 89 should be given to the employee while deducting Tax at Source u/s 192. However, to avail this relief, the employee will be required to file Form 10E on the official IT portal. If the employee fails to file the form, relief will not be allowed to him.
[ Read: How to claim relief under section 89? ]
If the employer deducts TDS on salary but does not deposit it to the Government, the employer is defaulted, not the employee.
As per Section 191, if the employer does not deduct TDS on salary, then the employee would be liable to pay the income tax due. Also, if the employer does not deduct and remit the TDS, the entire expenses relating to the salary payment would be disallowed as expenditure for the employer, increasing the income tax liability of the employee.
If the return is not filed then as per the provisions of Act, late filing fees under section 234E (Penalty) of Rs 200 per day will be levied till the time failure continues subject to a maximum of total amount of TDS.
If you have any issues relating to TDS compliance or tds return filing feel free to reach us at H&R Block India and our dedicated team of tax experts will be happy to help you.