As per Section 192, TDS on salary is deducted when the salary is actually paid, not when it accrues. This means tax is withheld at the time of payment—whether the salary is paid in advance, on time, or as arrears (delayed payment).
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, 1961, mandates that any person responsible for paying income under the head "salary" must deduct tax on the employee’s estimated salary income.
The tax is calculated based on the applicable income tax slab and deducted at the time of actual salary payment.
The deducted TDS must be deposited with the government, and a tax deduction certificate (Form 16) is issued to the employee. Additionally, the employer (or deductor) must file quarterly TDS returns in Form 24Q with the Income Tax Department.
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:
- Income up to ₹2.5 lakhs: No tax (Nil)
- Income between ₹2,50,000 and ₹5,00,000: 5% tax
- Income between ₹5,00,000 and ₹7,50,000: 10% tax
- Income between ₹7,50,000 and ₹10,00,000: 15% tax
- Income between ₹10,00,001 and ₹12,50,000: 20% tax
- Income between ₹12,50,001 and ₹15,00,000: 25% tax
- Income above ₹15,00,000: 30% tax
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.
Also read about: What is direct tax code
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.
Example of Section 192 deduction:
Consider an individual with the following income sources:
Particulars |
Amount |
Salary Income |
Rs. 4,00,000 |
Other Income |
Rs. 20,000 |
Interest on Self-Occupied Home Loan |
Rs. 2,15,000 |
In this scenario, taxable income is calculated as Rs. 2,20,000 (Rs. 4,00,000 + Rs. 20,000 - Rs. 2,15,000). Since this amount is below the basic exemption limit, no Tax Deducted at Source (TDS) is required by the employer.
Example of TDS Calculation on Salary:
Let's analyse the case of an individual with an estimated annual salary income of Rs. 9,60,000.
Particulars |
Amount |
Estimated Salary Income |
Rs. 9,60,000 |
Less: Standard Deduction |
Rs. 50,000 |
Estimated Gross Total Income |
Rs. 9,10,000 |
Less: Deductions under Chapter VI-A (e.g., Section 80C) |
Rs. 1,50,000 |
Estimated Total Income |
Rs. 7,60,000 |
Estimated Tax Liability |
Rs. 64,500 |
Add: Health and Education Cess (4% of Rs. 64,500) |
Rs. 2,580 |
Estimated Total Tax Liability |
Rs. 67,080 |
The monthly TDS to be deducted would be Rs. 67,080/12 = Rs. 5,590. Therefore, the employee's monthly in-hand salary would be Rs. 80,000 - Rs. 5,590 = Rs. 74,410.
Also read about: Difference Between Income Tax Act and Direct Tax Code
How is TDS deducted in case of multiple employers?
When an individual experiences a change in employment during a financial year or is engaged with multiple employers simultaneously, specific tax implications arise.
1. Change of employment
If an employee resigns from one position and accepts a new role within the same financial year, they must provide their previous employer's details in Form 12B to their new employer. This information enables the new employer to accurately calculate and deduct Tax Deducted at Source (TDS) based on the employee's combined income for the year.
2. Multiple employers
In cases where an employee works for multiple employers simultaneously, they are required to furnish details of their salary and TDS from each employer to one of those employers. The designated employer will then deduct TDS on the employee's aggregate income for the financial year.
Also read about: Long-term capital gains tax
What is the rate of TDS u/s 192?
Section 192 mandates the deduction of Tax Deducted at Source (TDS) on salary income based on an estimated average tax rate. Unlike other TDS sections, there's no fixed rate under Section 192. The TDS rate is determined by dividing the estimated total tax liability on the projected annual income by the duration of employment in months.
Calculation formula:
TDS on Salary = Estimated Total Tax Liability/Period of Employment (months)
TDS deposition timeline:
Month |
Quarter |
Date of Deduction |
Date of deposit |
Date of filling TDS return |
Apr-Jun |
Q1 |
Date of deduction should be the date of payment |
7th of every next month in which payment is made |
31st July |
July-Sept |
Q2 |
31st Oct |
||
Oct-Dec |
Q3 |
31st Jan |
||
Jan-Mar |
Q4 |
31st May |
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.
Also read about: What is dearness allowance
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
Some important points for TDS Deduction
- TDS on tips paid to waiters: When customers pay tips directly to waiters or via the employer (e.g., through a service charge), these tips are not considered part of the salary. Therefore, the employer is not obligated to deduct TDS on the tip amount.
- TDS on directors' remuneration: Remuneration paid to company directors does not fall under Section 192. Instead, TDS is deducted under Section 194J, provided there is no employer-employee relationship between the company and the director.
- TDS on payments to doctors: Payments made to doctors by hospitals are treated as professional fees, and TDS under Section 192 is not applicable. However, if the arrangement is a contract of service, TDS under Section 192 must be deducted.
- Tax on non-monetary perquisites: When the employer bears the tax liability on non-monetary perquisites, no TDS is required to be deducted from the employee's salary for that portion of the tax.
Key Takeaways
- TDS on salary is deducted at the time of payment, not accrual, ensuring timely tax collection.
- TDS is calculated based on the applicable tax slabs, ranging from 5% to 30% depending on the income level.
- Employers must deduct, deposit TDS with the government, and file quarterly TDS returns (Form 24Q).
- Employees receive Form 16 as proof of TDS deduction for filing their income tax returns.
- Employees can submit investment proofs to reduce their taxable income and claim deductions.
- Delayed or non-payment of TDS leads to interest and late fees under Sections 234E and 201.
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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