TDS ON SALARY-Easy Process to claim Refund FY2024- ACCOUNTS PROFESSION

TDS on salary is the tax that is deducted from an employee’s salary by the employer before the salary is paid to the employee. TDS (Tax Deducted at Source) is a tax that is deducted from an individual’s income at the time of payment.

TDS on salary is deducted by the employer as per the provisions of the Income Tax Act, 1961. The amount of TDS to be deducted on salary is determined based on the employee’s salary, tax-saving investments, and other deductions. The TDS is calculated based on the income tax slab rates for the financial year.

The employer is required to deposit the TDS with the government and issue Form 16 to the employee, which shows the amount of TDS deducted on salary and other details. The employee can use the Form 16 to file their income tax return and claim any refunds due.

It is important to note that TDS deducted on salary is not the final tax liability of the employee. The employee may be required to pay additional tax or may be eligible for a refund, depending on their income and other factors.

When it comes to taxes, most people know that they will have to pay them. But what many may not be aware of is the concept of TDS (Tax Deducted at Source). This is a form of taxation in which the tax payable on certain types of income is deducted from the source itself, instead of being paid by the individual or business receiving it. In this blog post, we will discuss TDS on salary and how it works. We will also provide some tips on how you can ensure that your TDS deductions are being made correctly and how you can use them to save money on your taxes.

Table of Contents

What is TDS?

TDS stands for Tax Deducted at Source and it is a system introduced by the Income Tax Department wherein taxes are deducted from the income of an individual at the source itself. This means that the taxes are deducted before the income is paid to the individual. TDS is applicable on various incomes such as salary, professional fees, interest income, commission, etc.

Why is TDS deducted from salary?

The tax deducted at source (TDS) is a means of collecting income tax in India. It is deducted from an individual’s salary at the time of payment. The amount of tax to be deducted is determined as a percentage of the person’s salary. The TDS deduction is made by the employer on behalf of the employee and is deposited with the government.

TDS deductions are made on salaries to ensure that taxes are paid on income earned. As per Indian Income Tax laws, TDS must be deducted by employers if an employee’s monthly salary exceeds Rs. 2,50,000.

The main purpose of deducting TDS from salary is to prevent individuals from evading taxes. By deducting tax at source, the government ensures that taxpayers pay their fair share of taxes. TDS also helps to improve compliance with tax laws and reduces the burden on taxpayers who would otherwise have to file annual tax returns.

Who is liable to pay TDS on salary?

As per the Income Tax Act, any person responsible for paying salary to an employee is liable to deduct TDS on salary. The liability to deduct TDS on salary arises when the amount of salary payable to the employee exceeds Rs. 2,50,000 in a financial year. The employer is responsible for withholding tax at source and remitting it to the government.

TDS on salary is deducted by the employer at the time of payment of salary to the employee. The employer deducts TDS from the employee’s salary and pays it to the government. The employee can claim credit for the tax deducted at source while filing his/her income tax return.

The rate of TDS on salary depends on the amount of salary paid and the income tax slab applicable to the employee. The rates are as follows:

For employees falling under Normal Slab: TDS @ 10%
For employees falling under Higher Slab: TDS @ 20%

What are the rates of TDS on Salary?

The rates of TDS on salary vary depending on the amount of salary earned and the applicable tax slab. For example, if you earn a salary of Rs. 5 lakhs per annum and fall in the 20% tax bracket, the TDS deduction will be Rs. 10,000 (20% of Rs. 5 lakhs). However, if you earn a salary of Rs. 10 lakhs per annum and fall in the 30% tax bracket, the TDS deduction will be Rs. 40,000 ((30% of 10 lakhs).

How is tds calculated on salary / TDS calculation on Salary

TDS is calculated on the basis of the tax slab to which the assessee (employee) belongs. The employer deducts TDS from the salary and pays it to the government. The employee can claim a refund of any excess TDS deducted, if any, at the time of filing their income tax return.

The Tax Deducted at Source (TDS) on salaries is governed by the Income-tax Act, 1961 and is deducted by employers from salaries payable to employees.

The amount of TDS depends on the employee’s tax slab. For example, for an employee in the 20% tax slab, TDS will be 20% of their salary.

The employer is responsible for calculating and deducting TDS from the employee’s salary and paying it to the government. The employee can claim a refund of any excess TDS deducted, if any, at the time of filing their income tax return.

TDS (Tax Deducted at Source) is a system in India where the employer deducts a certain percentage of tax from the employee’s salary and deposits it with the government on the employee’s behalf. The amount of TDS depends on the employee’s income and the tax slab they fall under. Here’s how to calculate TDS on salary:

Determine your Gross Salary: This includes your basic salary, allowances, bonuses, and any other benefits you receive from your employer.
Deduct any exemptions and allowances: Certain allowances and exemptions such as HRA (House Rent Allowance), LTA (Leave Travel Allowance), and medical expenses can be deducted from your gross salary to arrive at your taxable income.
Calculate Taxable Income: Taxable Income is arrived at by deducting exemptions and allowances from gross salary.
Determine your Tax slab: Check your income tax slab rate for the relevant financial year.
Calculate TDS: Use the income tax slab rate to calculate the TDS that needs to be deducted from your salary.

For example, let’s say your gross salary is Rs. 6,00,000 and you have claimed Rs. 1,50,000 as exemptions and allowances. So your taxable income will be Rs. 4,50,000. Assuming that you fall in the 10% tax bracket, your TDS will be 10% of Rs. 4,50,000, which comes out to be Rs. 45,000. Therefore, your employer will deduct Rs. 45,000 as TDS from your salary and deposit it with the government.

Relief on receipt of salary arrears or advance salary

Under the Indian Income Tax Act, relief on receipt of salary arrears or advance salary is provided to taxpayers. This relief is called the “relief under section 89” and is available to salaried individuals who receive salary arrears or advance salary in a financial year.

The purpose of this relief is to reduce the tax burden on taxpayers who receive salary arrears or advance salary in a lump sum, which would otherwise have been taxed at a higher rate if it had been received in the year in which it was due.

To claim relief under section 89, you need to file Form 10E with the Income Tax Department. Here are the steps to calculate the relief under section 89:

Calculate tax payable on your total income including the arrears/advance salary.
Calculate tax payable on your total income excluding the arrears/advance salary.
Calculate the difference between the tax payable in step 1 and the tax payable in step 2.
Calculate the tax payable on your total income in the year in which the arrears/advance salary was due.
Calculate the tax payable on your total income in the year in which you received the arrears/advance salary.
Calculate the difference between the tax payable in step 4 and the tax payable in step 5.
Subtract the amount calculated in step 3 from the amount calculated in step 6.

The resulting amount is the relief under section 89 that you can claim. This relief is available for up to 10 years preceding the year in which you received the arrears/advance salary. It is important to note that this relief is only available to salaried individuals and not to individuals who receive income from other sources.

Reporting of other income by the employee to the employer

As an employee, you are required to report any other income you earn to your employer. This is necessary for the employer to calculate the correct TDS (Tax Deducted at Source) on your salary and to comply with tax regulations.

Other income includes income from sources other than your salary, such as income from investments, rental income, or income from freelance work. Here are the steps you can follow to report your other income to your employer:

Compile a list of all your sources of income for the financial year.
Determine the total amount of income earned from each source.
Inform your employer of your other income sources and provide them with the total amount earned from each source.
Submit the necessary documents or proof of income, such as bank statements or receipts, to your employer.
Your employer will then calculate the TDS on your salary along with the TDS on your other income.

It is important to report your other income to your employer accurately and in a timely manner. Failure to do so can result in incorrect TDS deductions, which can lead to penalties and legal consequences. Additionally, if you fail to report your other income to your employer, you may be required to pay additional tax at the time of filing your income tax return. Therefore, it is advisable to be transparent and truthful in reporting your income to your employer.

Requesting for Deduction of tax at lower rates by employee

As an employee, you can request your employer to deduct tax at a lower rate by submitting a declaration in Form 15G or Form 15H, as applicable. Here are the steps you can follow to request for deduction of tax at lower rates:

Determine your eligibility for a lower TDS rate by ensuring that your total income for the financial year is below the taxable limit or that you have made tax-saving investments eligible for deduction under section 80C of the Income Tax Act.
Obtain the relevant form from the Income Tax Department website or from your employer.
Fill out the form with the necessary details, including your name, PAN number, and details of tax-saving investments, if any.
Submit the form to your employer.
Your employer will review your declaration and determine whether you are eligible for a lower TDS rate.
If your employer approves your request, they will deduct tax at the lower rate or not deduct tax at all, as applicable.

It is important to note that if you provide a false declaration, you may be subject to penalties and legal consequences. Additionally, if you are not eligible for a lower TDS rate and you still request for it, you may be required to pay additional tax at the time of filing your income tax return. Therefore, it is advisable to be truthful and transparent when submitting your declaration for a lower TDS rate.

In summary, employees can request for deduction of tax at lower rates by submitting a declaration in Form 15G or Form 15H to their employer. It is important to ensure that the eligibility criteria are met before submitting the declaration to avoid any legal consequences.

TDS Penalties

Under the Indian Income Tax Act, there are several penalties for non-compliance with TDS (Tax Deducted at Source) provisions. Here are the main penalties related to TDS:

Late payment of TDS: If the TDS deducted by the deductor is not paid to the government on time, the deductor is liable to pay interest at the rate of 1.5% per month or part thereof until the TDS is paid in full.
Late filing of TDS returns: If the deductor fails to file the TDS returns on time, they are liable to pay a penalty of Rs. 200 per day for the period of delay.
Late issue of TDS certificate: If the deductor fails to issue the TDS certificate to the deductee within the prescribed time, they are liable to pay a penalty of Rs. 100 per day for the period of delay.
Non-deduction or short deduction of TDS: If the deductor fails to deduct TDS or deducts TDS at a lower rate, they may be liable to pay interest at the rate of 1% per month or part thereof until the TDS is deducted in full. Additionally, they may also be liable to pay a penalty equal to the amount of TDS that should have been deducted.
False information or statement: If the deductor furnishes false information or statement in any document required under the Income Tax Act, they may be liable to pay a penalty of up to Rs. 10,000.
Failure to deduct TDS on payment to non-residents: If the deductor fails to deduct TDS on payment made to a non-resident or deducts TDS at a lower rate, they may be liable to pay a penalty equal to the amount of TDS that should have been deducted.

It is important for deductors to comply with TDS provisions and file the necessary returns on time to avoid penalties and legal consequences. Additionally, it is important for deductees to ensure that the TDS deducted by the deductor is reflected in their Form 26AS and to claim credit for the same while filing their income tax returns.

If the employee receives salary from more than one place

If an employee receives salary from more than one employer during a financial year, they are required to report the details of such salaries to the respective employers to enable the employers to calculate the tax liability and deduct TDS (Tax Deducted at Source) accordingly. This is because the total income of the employee from all sources is subject to tax.

Here are the steps an employee can take to ensure proper reporting of salary from multiple employers:

Obtain salary slips from all the employers: The employee should obtain salary slips from all the employers to ensure that the correct amount of salary is reported.
Calculate total income: The employee should calculate their total income by adding the salary received from all the employers.
Submit Form 12B: The employee should submit Form 12B to the new employer, which contains details of the salary received from the previous employer. This will enable the new employer to calculate the correct amount of TDS to be deducted.
Declare all income while filing tax returns: The employee should declare all the income received from all the employers while filing their income tax returns.

It is important for the employee to ensure that they report all their income from all sources to avoid any penalty or legal consequences for non-compliance with the tax laws. Additionally, the employers should also ensure that they deduct TDS on the correct amount of salary paid to the employee to avoid any penalties or legal consequences for non-compliance with the TDS provisions.

How to claim TDS on salary?

In order to claim TDS on salary, an individual must submit a duly filled and signed Form 16 to their employer. The individual’s PAN number must also be mentioned on the form. The employer will then deduct TDS from the individual’s salary and deposit it with the government.

Tds Refund Process

If a taxpayer has paid more TDS (Tax Deducted at Source) than their actual tax liability, they can claim a refund of the excess amount. Here are the steps to claim TDS refund:

Check Form 26AS: The taxpayer should check their Form 26AS to ensure that the TDS deducted by the deductor is reflected in the form.
File income tax return: The taxpayer should file their income tax return for the relevant financial year, including details of TDS deducted.
Wait for intimation: After filing the income tax return, the taxpayer should wait for the intimation from the Income Tax Department regarding the processing of the return and the refund due.
Rectify errors: If there are any errors in the return filed or any mismatch between the TDS details in Form 26AS and the return filed, the taxpayer should rectify them to avoid delay in the refund process.
Track refund status: The taxpayer can track the status of their refund online using the Income Tax Department’s website or by contacting the relevant authorities.
Receive refund: Once the refund is processed, the taxpayer will receive the refund amount either by direct credit to their bank account or by a cheque sent to their registered address.

It is important to note that the refund process can take some time, and taxpayers should be patient and ensure that they have provided all the required information accurately to avoid any delays or rejections in the refund process. Additionally, taxpayers should also ensure that their bank account details and address are updated with the Income Tax Department to receive the refund without any hassle.

Conclusion

TDS on salary is a very important thing to keep in mind when you are paid your monthly or yearly wages. This process helps the government collect its taxes and also ensures that individuals comply with their tax obligations. It is always wise to check your payslip regularly for any deductions, as this will help you remain aware of how much tax you need to pay and when it needs to be paid by. Understanding TDS on salary can save you from a lot of trouble related to unpaid taxes and other penalties, so make sure that you stay up-to-date on everything that applies.

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