Section 192 of Income Tax Act

Under section 192, The TDS rate on salary depends on the income you receive from your employer, based on which you fall into different tax slab rates.
Section 192 of Income Tax Act
3 min
25-June-2024

Section 192 of the Income Tax Act includes the rules and regulations for employers paying a salary to their employees to deduct Tax Deducted at Source (TDS) from the salary amount. It means that if you are an employee receiving a monthly salary, your salary amount must have TDS deducted by the employer as per section 192 of the Income Tax Act. As such a provision affects your in-hand salary amount, it is important to have a proper understanding of the section.

This article will help you understand section 192 of the Income Tax Act, including its processes and provisions.

What is section 192 of the Income Tax Act?

Section 192 of the Income Tax Act details the provisions for employers to deduct TDS from the salaries of their employees added to the company payroll. Employers are required to deduct the TDS as employees' salaries are considered income and, under Indian laws, are liable to taxes.

Under section 192 of the Income Tax Act, employers are required to deduct TDS on employee salaries if the salary amount exceeds a specific minimum threshold. However, the employees get the TDS refund if the tax deducted by the employer is more than the tax owed by the employer to the Indian government.

The refund happens because of the deduction of TDS based on certain assumptions about your deductions and investments, which may differ from the actual amount of deductions or investments you declare by the end of the financial year.

Formula to calculate TDS on salary

The formula to calculate TDS on salary is:

TDS rate: Income tax payable (calculated as per tax slab) / Total revenue for the year

Who deducts TDS under section 192?

Here are the entities that are responsible for deducting TDS under section 192 of the Income Tax Act:

  • Individuals
  • HUFs
  • Public or private companies
  • Trusts
  • Partnership firms
  • Central/state government/PSUs
  • Proprietorship concern
  • Co-operative societies

When is TDS deducted under Section 192?

Under section 192 of the Income Tax Act, employers are required to deduct TDS from the salaries of employees every month and deposit the amount with the Indian government within a specified period. Employers are required to deduct the TDS amount at the time of actual salary payment, whether it is advance salary or late payment.

Employers are not required to deduct TDS if the salary doesn’t exceed the specific minimum limit, as no tax is payable by the employee. The basic exemption limit is based on age and is as follows:

Also read: Income tax slabs for FY 24-25

What is TDS computed on?

The salary amount for an employee is based on the Cost to the Company (CTC), which includes actual constant salary and variable perks. The variable perks include extra benefits such as travel allowance, house rent allowance, medical allowance, etc. However, as the TDS is deducted from the salary amount, employees use the deductions for such extra benefits to save tax.

For example, you can get a medical allowance if you submit medical bills and get an exemption for a house rent allowance if you attach monthly rent receipts. Hence, you can minimise your tax burden by making the most of your CTC.

How to calculate TDS on salary under section 192 ?

Here is how an employer can calculate TDS on your salary under section 192 of the Income Tax Act:

Calculate earnings

Determine the total amount an employee makes annually. This amount should include their basic salary and additional earnings through commissions, bonuses, perks, etc.

Collect and verify investment declarations

Communicate with the employees and ask them to submit investment proofs for investments such as insurance, mutual funds, etc.

Compute exemptions

Based on employees' investment declarations, determine if they are eligible for any tax exemption. Reduce the exemption amount from their total salary to calculate their taxable income.

Deduct TDS

Once you have calculated the taxable income for all the employees individually, calculate the TDS based on the applicable tax slabs. Deduct the TDS from the salary amounts afterwards.

Deposit TDS

Once you have deducted the TDS, ensure that you have deposited the TDS amount with the government before the due date.

Also read about: Long-term capital gains tax

Time limit to deposit the tax under section 192

TDS must be deposited on the same day if deducted by government employers. For all other employers, here is the time limit:

  • If TDS is deducted in March, the employer must deposit the TDS amount by 30th April.
  • If the employer has deducted the TDS in a month other than March, it must be deposited within 7 days from the date of deduction.

Consequences of non-compliance under section 192

If an employer fails to deduct and deposit TDS with the government, they may have to face the following consequences:

  • The employer is liable to pay a late fee of Rs. 200 per day as per section 234E. The penalty is capped at the total TDS amount liability.
  • If the employer fails to deduct TDS at the time of salary payment, an interest of 1% per month is levied on the amount of TDS not deducted from the day on which the TDS becomes deductible until the date it is actually deducted.
  • If the employer fails to deposit the TDS before the 7th of the following month, an interest of 1.5% is levied per month from the date of the TDS deduction until the TDS deposit date.

Also read about: Short term capital gains tax

Conclusion

Section 192 of the Income Tax Act includes provisions that require every employer to deduct TDS from the employees’ salaries and deposit it with the government before the due date. It is important for employers to understand how to deduct the TDS and how to submit it to the government to avoid penalties. Furthermore, employees should understand the provisions of the section to know their rights and the tax benefits they can claim to reduce their tax burden.

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Frequently asked questions

What is section 192 in income tax?
Section 192 of the Income Tax Act defines the rules and regulations for employers to deduct TDS from the salaries of employees every month and deposit it with the Indian government before the due date.
What is the time limit for depositing the tax under section 192?
If TDS is deducted in March, the employer must deposit the TDS amount by 30th April. If the employer deducted the TDS in a month other than March, it must be deposited within 7 days from the deduction date.
Who is responsible for deducting tax under Section 192?
Entities responsible for deducting TDS are individuals, HUFs, public or private companies, trusts, partnership firms, central/state government/PSUs, proprietorship concerns, and co-operative societies.
How is the tax amount to be deducted calculated under Section 192?
The employers can calculate the tax amount to be deducted by finding the total taxable income of the employee and dividing it by the total annual earnings.
Is Section 192 applicable to all types of income?
Section 192 is applicable to incomes that are chargeable under the head ‘salary.’ Apart from this head, no income is chargeable under section 192.
When should the tax be deducted under Section 192?
The employer is liable to deduct the TDS every month from the salary payments made to employees.
Are there any exemptions or deductions considered under Section 192?
Yes. There are multiple exemptions and deductions applicable under section 192 of the Income Tax Act. Some of the most common ones are HRA, dearness allowance, medical allowance, travel allowance, and children’s education allowance.
What is the due date for depositing the TDS deducted under Section 192?
The due dates are 30th April if TDS is deducted in March and 7th of the next month if TDS is deducted in any month other than March.
What are the consequences of non-compliance with Section 192?
The consequences of non-compliance with section 192 are a late fee of Rs. 200 and interest penalties of 1% and 1.5%, depending on the nature of non-compliance.
Can employees claim refunds if excess tax is deducted under Section 192?

Yes, employees can claim a TDS refund while filing their income tax return if excess TDS is deducted by the employer.

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