Every employer is required to deduct TDS on salary paid to the employees and deposit the same with the Income Tax Department. Tax on salaries is deducted on estimated earnings of the employee. Tax deduction at source is mandatory by law. In this article we will discuss basics of Tax deduction at source.
Information related to Tax Deduction at Source
Before we discuss Salary taxes we need to understand few important terms which are used in relation to TDS.
- Tax Deduction at Source (TDS): TDS is an amount deducted at appropriate rate from the payments made to an employee and deposited with the Central Government. The person from whose payment the amount is deducted gets credit of this amount in his personal income tax.
- Tax Deductor: Person who deducts tax from another person’s payment and deposits with Central Government is called Tax Deductor.
- Deductee or Tax Deductee: Person whose payment is deducted or cut is called the Deductee or Tax Deductee.
List of Incomes on which Tax is deducted
- Salary Payments
- Commission or Brokerage
- Professional or Technical Services
- Insurance Commission
- Interest other than interest on securities
- Winning of Lotteries or Crossword Puzzles
- Winnings on horse races
- Deposits under NSS
- Income in respect of units
- Transfer of immovable property
- Payment to Contractor or sub-contractor
- Commission on sale of lottery tickets
- Repurchase of units by Mutual Funds or UTI
Process of Tax deduction on monthly salary
An employer has to deduct TDS on salary from the salary paid to the employees. The deducted amount is then deposited with the Central Government and a TDS Return has to be filed by the employer in prescribed format.
For payment of TDS with Central Government and filing of TDS return TAN Registration is required. TAN is Tax Deduction and Collection Account Number which is a ten digit alphanumeric number issued by Income Tax Department.
Salary tax deductions at source are to be deducted from the salary of all the employees whose income is taxable. The TDS depends on the Salary of the employee including value of perquisites. For calculation of TDS amount, first the estimated salary income of the employee is to be computed. After calculation of estimated salary income, additional incomes are added to the estimated salary income.
Losses & various deductions applicable are then deducted. Income Tax is then computed on the estimated total income at normal rates. The computed Income Tax amount is then deducted from the salary of the employee and deposited with the Central Government.
After deduction of TDS from employee’s salary, an employer is also required to file TDS return with the Income Tax Department every quarter. On completion of one year, before 31st of May, the employer is required to provide an employee a TDS Certificate in Form 16. The employee will get the credit of the TDS amount while computing his income.
FAQ's related to TDS on Salary under Guidelines Framed By the Office of the Income Tax
What constitutes salary income?
Under section17 (1) of income tax act salary is defined as income received by an employee from an employer.
What constitutes allowances and are they taxable?
Fixed amounts other than salary paid by the employer at various intervals for purpose of essential requirements of an employee such as Food, transport and uniform. These are totally or partially exempted from tax.
Are reimbursements for household essentials such as groceries and education taxable?
Yes, being perquisites they are valued under rules stated in respect of such reimbursements.
If I have worked for different companies in a financial year where no tax was deducted from my salaries and if all the amounts totaled beyond the exemption limit, do I need to file returns?.
Yes, you will need to assess the amount calculated on the basis of existing salaried slabs and pay the taxes on your own
My salary has not been deducted for income tax. Will I still need to be issued form-16 by my employer?
No there is no need for your employer to issue form-16 however he should furnish a salary certificate
Is income from pension taxable?
Yes, unless it has been received from the United Nations Organization
Is Family pension taxed similar to a salaried income?
No family pension is taxable under different sources
Will amounts received under PF and gratuity be taxable?
For government employees, Pf and gratuity is exempt from taxes. But for non government employees, gratuity will be exempt under specified limits. Pf is exempted only when received from recognized and registered PF bodies after service of more than 5 years.
Will arrears of salary remain taxable?
Yes but relief can be claimed on the amount under u/s 89 of the income tax act.
Under what circumstances can relief be granted u/s 89 when calculating TDS from salary?
For government employees and employees of a cooperative society, PSU company, educational institution, local authority, or association. However the employer will need Form 10E for furnishing income details under section 89(1).
Is income received from maturity on LIC policy taxable?
U/s 10(10D), LIC maturity amounts and bonuses are exempted from tax under certain conditions where certain receipts are taxable. Refer to sections regarding LIC receipts rules and guidelines under the same section
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