Section 192 of the Income Tax Act, 1962 deals with the provisions related to TDS in the case of Salary. Highlights of this section are listed below:
- This section casts an obligation on every person responsible for paying any income chargeable to tax under the head ‘Salaries’ to deduct income-tax on the amount payable.
- Such TDS has to be calculated at the average rate of income-tax computed on the basis of the rates in force for the relevant financial year in which the payment is made. Such calculations have to be done on the estimated total income of the assessee. It is, therefore, the liability to deduct tax at source in the case of salaries arises only at the time of payment.
- The average rate of TDS means the rate arrived at by dividing the amount of income-tax calculated on the total income, by such total income.
- Deduction at a rate lower than that prescribed is possible. For deducting at such reduced rate, a certificate has to be obtained under section 197, from the Assessing Officer.
- Every year, the Central Board of Direct Taxes issues circular giving details and directions to all employers for the purpose of deduction of TDS from salaries payable to the employees during the relevant financial year. Those instructions are mandatory.
- Section 192(1A) and (1B) provides for the payment of tax on non-monetary perquisites. These sections provide that the employer may pay this tax, at his option in lieu of deduction of tax at source from the salary payable to the employee. Such tax should be calculated on the average rate basis as mentioned in point no. 2 above.
Payment of TDS deducted from Salary
TDS deducted should be paid to the credit of the Central Government –
- on the same day where the tax is paid without production of an income-tax challan, or
- on or before seven days from the end of the month in which the deduction is made or income-tax is due under section 192(1A), where the tax is paid accompanies by an income-tax challan.
For the month of March, TDS can be paid on or before 30th April. For other months, it should be paid on or before seven days from the end of the month for which TDS is to be paid.
Assessing Officer can on special cases allow payment of TDS under section 192/194A/194D/194H on a quarterly basis. He can do so only with the prior approval of the Joint Commissioner. In case he allows such payment on a quarterly basis, TDS should be paid on or before seven days from the end of the quarter for which TDS is being paid. However, for the quarter ending on 31st March, the last date of payment without interest and penalty will continue to be 30th April.
Some Important Points
- In case an employee changes his job and is employed under a new employer, he should furnish details of his income to his new employer. On receiving such details, the new employer should calculate the amount of TDS.
- Determination of Rate of exchange for salary paid in foreign currency is provided by Rule 26 of the Income-tax Rules, 1962. Accordingly, as per this rule, the rate of exchange for the calculation of the value in rupees of such income payable to an assessee outside India shall be the telegraphic transfer buying rate of such currency as on the date on which the tax is required to be deducted at source. While this rule tied the rate to the telegraphic transfer rate, it also created a big issue. Exchange rates are volatile and vary from Banking channels used to buy such currency. Hence, an explanation was added to this Rule. The explanation provides that for the purpose of this rule, “telegraphic transfer buying rate” in relation to a foreign currency means the rate or rates of exchange adopted by the State Bank of India on that date.
- For salaries received as arrears or advance, relief is available under section 89(1). You can know more about it from the link below:
Computation of TDS
The employee should send the details of income other than his salary to his employer. Such details should consist of –
- Particulars of such other income.
- Particulars of any tax deducted under any other provision.
- Loss, if any, under the head ‘income from house property’.
After taking in account such details, the employer should calculate the tax liability. However, except for the cases where loss from house property has been adjusted against the salary income, TDS should not be reduced as a consequence of making above adjustments. Sub-section (2D) inserted by the Finance Act, 2015, casts responsibility on the employer to obtain proof of particulars for claims submitted by the employee for the purpose of –
- Estimating income of the assessee; or
- Computing tax deductible under section 192(1)
Sub-section (2C) requires the employer to furnish to the employee, a statement giving correct and complete particulars of perquisites or profits in lieu of salary provided to him and the value thereof. Such details should be in prescribed form and manner. This requirement is applicable only where the salary paid/payable to an employee exceeds ₹ 1,50,000. For other employees, such details can be given in the Form 16 itself.
To encourage savings into Provident Funds, a new section has been inserted. It requires deduction at the rate of 10% on premature taxable withdrawal from employees provident fund. Below mentioned points should be considered on such taxation.
- Withdrawal of accumulated balance by an employee from the RPF is exempt from taxation.
- Pre-mature withdrawal where the employee makes a withdrawal before continuous service of five years (other than the cases of termination due to ill health, contraction or discontinuance of business, cessation of employment, etc.) and doesn’t opt for transfer of accumulated balance to a new employer, the withdrawal would be taxable.
- For trustees of the Private fund, the information regarding past income of the assessee is generally available. They can recompute such income from past year to calculate taxes. However, this information is generally not available to trustees of RPF. This section allows TDS at a flat rate of 10% if such amount being withdrawn is more than ₹ 30,000.
- Where a person entitled to receive any amount on which TDS is deductible under this section but doesn’t furnish his PAN, the TDS should be deducted at the maximum marginal rate.
- A relief should be given and no TDS should be deducted under this section if an employee submits a self-declaration in
- FORM 15G – that his total income is not chargeable to tax including such withdrawal amount.
- FORM 15H – self-declaration by employees of the age of 60 years or more receiving pre-mature withdrawal.
Returns by Employers
After paying such TDS, employers should file TDS returns on Form 24Q. It contains the details of salary paid and TDS deducted from the employees.
Note – In the following cases this quarterly return must be submitted online –
- Deductor is an office of the government
- Deductor is the principal officer of the company
- Deductor is a person whose accounts are required to be audited under section 44AB in immediately preceding Financial year
- When the number of record of deduction in a statement for any quarter of the financial year contains 20 or more such records.