TDS on Salaries – Procedure to deduct TDS – Compliances

CA C. Maheshwar Reddy

TDS on Salaries – Section 192- Procedure to deduct TDS – Compliance with Income Tax Act and rules there under

Back Ground: Under Section 192, the employer is required to deduct income-tax while making the payment of salary during financial year to the employees, at the rate of the income-tax applicable to the individuals. For deduction of Tax at source (TDS), the tax has to be calculated according to slab wise rate. The applicable slab wise rate for deduction of tax at source will be informed through the Finance Act.

Applicable rate of Tax on income chargeable under the head “Salaries” for the financial year 2013-14 (i.e., Assessment Year 2014-15) is as follows:

Sl.No.	Total Income	Rate of Tax
	Where the total income does not exceed Rs. 2,00,000/-	NIL
	Where the total income exceeds Rs. 2,00,000 but does not exceed Rs. 5,00,000/-	10 % of the amount by which the total income exceeds Rs. 2,00,000/-
	Where the total income exceeds Rs. 5,00,000/- but does not exceeds Rs. 10,00,000/-.	Rs. 30,000/- +20% of the amount by which the total income exceeds Rs. 5,00,000/-.
	Where the total income exceeds Rs. 10,00,000/-.	Rs. 1,30,000/- + 30% of the amount by which the total income exceeds Rs. 10,00,000/-

TDS should be deducted at applicable rates as above alongs with 3% on incometax as additional deduction towards Education Cess, Secondary & Higher education cess (2% & 1% respectively).

Every person who is paying salary has to comply with the provisions of the Income tax Act and the rules made there under. The following are the steps / Points that may be following in complying with the same:

1. Declaration from Employees: Take a declaration from the employees at the beginning of the financial year i.e., April with regard to their savings, investments or sums qualified for deduction or exemption under salaries.

Points to be considered by the employer at the time of taking declarations from employees for TDS purpose:

a. Salary from more than one employer:

• Section 192(2) deals with situations where an individual is working under more than one employer or has changed from one employer to another.
• In Such circumstances it provides for deduction of tax at source by such employer (as the taxpayer may choose) from the aggregate salary of the employee who is or has been in receipt of salary from more than one employer.
• The employee is now required to furnish to the present/chosen employer details of the income under the head “Salaries” due or received from the former/other employer and also tax deducted at source therefrom, in writing and duly verified by him and by the former/other employer
• The present/ chosen employer will be required to deduct tax at source on the aggregate amount of salary (including salary received from the former or other employer).

b. Income under any other Heads:

• Section 192(2B) enables a taxpayer to furnish particulars of income under any head other than “Salaries”. If the employee furnishes the details of any other income, then the same need to be considered at the time of deduction of TDS under salaries.
• Not being a loss under any such head other than the loss under the head income from house property received by the assessee for the same financial year and of any tax deducted at source thereon.
• Employee has to declare if he has gained any other income should be intimated to employee through declaration form.

2. Calculation of Taxable Salary:

Calculate the taxable salary by giving the effect of the following:

A. Allowable exemptions under Salaries

B. Deduction under Section 24(a) – Interest on Housing Loan

A. Allowable Exemptions under Salaries:

i. House Rent allowance: If the employee is receiving the House Rent allowance (HRA) and paying the Rent, then least of the following amount is to be allowed as exemption under HRA.

a)	HRA Received		XXX
b)	40% of Basis plus DA if it is part of retirement proceedings.		XXX
c)	Rent Paid Less: 10% of Basic plus DA if it is part of retirement proceedings.	XXX XXX ___	XXX

 The lower of the above three will be allowable as exemption from HRA allowance.

Note: The Employer has to take the lease deed / rental agreement or rent paid receipt from the employee for giving the above exemption

ii. Conveyance Allowance: If the employee is receiving the Conveyance allowance for commuting between the place of residence and duty (coming to office and going back to home), a sum of Rs.800 per month or actual conveyance allowance received whichever is lower is allowable as exemption.

iii. Medical Allowance: If the employee is receiving the medical allowance is exempted Rs.1,250 per month or actual expenditure whichever is less.

iv. Uniform Allowance: When the employee is receiving the uniform allowance to meet the terms and conditions of the working culture, then the actual allowance amount or expenditure incurred on buying of the Uniform whichever is lower is exempted.

The above allowances are illustrative only. The allowances would be based on the HR policy on providing the allowances to the employees as part of salary and the exemption would be based on the provisions of the Income Tax Act and the rules made there under.

B. Deduction under Section 24(a) – Interest on Housing Loan: Section 24(b) of the Act allows deduction from income from house property on interest on borrowed capital as under:-

• The deduction is allowed only in case of house property which is owned and in the occupation of the employee for his own residence.

• However, if it is not actually occupied by the employee in view of his place of the employment being at other place, his residence in that other place should not be in a building belonging to him

• The quantum of deduction allowed as per table below:

Sl. No.	Purpose of Borrowing Capital	Date of Borrowing Capital	Maximum Deduction Allowable
1	Repair or renewal or reconstruction of the house	Any time	Rs. 30,000/-
2	Acquisition or construction of the house	Before 01.04.1999	Rs. 30,000/-
3	Acquisition or construction of the house	On or after 01.04.1999	Rs. 1,50,000/-

•  The house so acquired or constructed should be completed within3 years from the end of the financial year in which the capital was borrowed. Hence it is necessary to acquired completion certificate of the house property against which deduction is claimed either from the builder or through self-declaration from the employee.

• Further any prior period interest for the financial years up to the financial year in which the property was acquired and constructed shall be deducted in equal installments for the Financial year in which it was completed and subsequent four Financial years.

• The employee has to furnish to the Employer a certificate from the person to whom any interest is payable on the borrowed capital specifying the amount of interest payable. In case a new loan is taken to repay the earlier loan, then the certificate should also show the comprehensive picture of Principal and Interest of the loan so repaid.

3. Calculation of Tax deducted at Source:After calculating the Taxable Salary as mentioned in previous steps, give the allowable deduction as given below:

Allowable Deductions under Sec. 80C to 80U

i. SEC 80C:

Section 80C, entitles an employee to deductions for the whole of amounts paid or deposited in the current financial year in the following schemes, subject to a limit of Rs. 1,00,000/-.

a. Investments in capital issues of equity shares and/or Debentures and/or Units of Mutual Funds/Public limited Companies, Engaged in developing, maintaining or operating an infrastructure/power generation or distribution/Telecom facility, approved by Central Board of direct taxes (CBDT)

b. Interest accrued on National Savings Certificates, (VIII Issue) is eligible for tax relief under Section 8OC of the Income Tax Act, 1961. The rates of interest are given behind the certificate.

c. Life insurance Premium paid

d. Contribution to statutory PF and recognized PF

e. Contribution to 15 years P.P.F.

f. Contribution towards approved superannuation fund

g. Any sum paid as subscription to Home Loan Account Scheme of the National Housing Bank

h. Any sum paid as subscription to National Saving Certificate issues

i. Contribution to ULIP of UTI

j. . Contribution to Equity – Linked Saving Scheme of a Mutual Fund/UTI

k.  A) Any installment as part payment of the amount due under any self financing or other scheme of any development authorities, Housing Board engaged in the construction and sale of the house property

B) Any installment as part payment of the amount due to any company or co-operative society of which the individual is a scheme holder or member towards the cost of the house Properties.

C) Repayment of the amount borrowed by the individual from 1. Central or State Government, 2. Any Bank including Co-operative Bank, 3. LIC, 4. National Housing Bank, 5. Any Public Company with the main object of providing long term finance for Construction/purchase of houses..

l. Any amount deposited in scheduled bank fixed deposit scheme for a period exceeding 5 years.

m. Any contribution by an individual to any notified pension fund setup by notified mutual fund or UTI

n. Tuition Fees:subject to the following conditions

1) The taxpayer is an individual.

2) He has paid tuition fees. It does not include payments towards any development fees or donation or payment of similar nature

3) Such fee is paid at the time of admission or thereafter.

4) It is paid to a university, college, school or other educational institutions situated in India

5) It is paid for full time education.

6) It is paid for any two children of the taxpayer. Children may (or may not) be dependent upon the taxpayer; moreover, children may (or may not) be minor.

If the aforesaid conditions are satisfied, then the tuition fees paid per child subject to a maximum of 2 children. (Only those payments, which were made between 1st April to, 31st March has to be considered and proper receipt for the same has to be produced to the concerned disbursing officer)

ii. SEC 80CCG:

Newly inserted Section 80CCG provides deduction w.e.f. assessment year 2013-14 in respect of investment made under notified equity saving scheme. The deduction under this section is available if following conditions are satisfied.

ü  The assessee is a resident individual (may be ordinarily resident or not ordinarily resident)

ü  His gross total income does not exceed Rs. 10 lakhs

ü  He has acquired listed shares in accordance with a notified scheme

ü  The assessee is a new retail investor as specified in the above notified scheme

ü  The investment is locked-in for a period of 3 years from the date of acquisition in accordance with the above scheme

ü  The assessee satisfies any other condition as may be prescribed

Amount of deduction:

The amount of deduction is at 50% of amount invested in equity shares. However, the amount of deduction under this provision cannot exceed Rs. 25,000. If any deduction is claimed by a taxpayer under this section in any year, he shall not be entitled to any deduction under this section for any subsequent year.

A scheme named “Rajiv Gandhi Equity Savings Scheme (RGESS)” is being notified for the purpose of this deduction.

iii. SEC 80D:

Section 80D provides for deduction available for health insurance premia paid, etc. which is calculated as under:

Sl.No.	Persons for whom payments made	Nature of payment	Mode of payment	Allowable Deduction
	Employee or his family	any mode other than cash	Aggregate allowable is Rs. 15,000/{For Senior Citizens it is Rs. 20000/-}
	Parent or Parents of employee	any mode other than cash	Aggregate allowable is Rs. 15,000/ than {For Senior cash Citizens it is Rs. 20000/-}

 Here the employee must ensure that the medical insurance referred to above shall be in accordance with a scheme made in this behalf by-

• the General Insurance Corporation of India formed under section 9 of the General Insurance Business (Nationalization) Act, 1972 (57 of 1972) and approved by the Central Government in this behalf; or
• any other insurer and approved by the Insurance Regulatory and Development Authority established under sub -section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999(41 of 1999).

4. Arriving of Total Income:  After giving the deduction under Section 80C to 80U, as mentioned above, from the taxable salary the arrived amount would be treated as Total Income on which the TDS need to be deducted.

5. Calculation of Tax: After giving the deduction under Section 80C to 80U, as mentioned above, calculate the tax according to slab wise.

6. Rebate under section 87A: After arriving the tax liability, if the net income of the employee does not exceed Rs.5,00,000, a rebate of Rs.2,000 before adding Secondary and Higher Education cess or tax liability whichever is lower need to be given as rebate.

7. Deduction of TDS from Salaries: The TDS as calculated according to the previous steps, deduct the TDS by calculating average for 12 months, then deduct the TDS on monthly basis.

8. Obtain Confirmations / Proofs for investments or Savings: During the month of December or January, the employer has to obtain the proofs for the savings or investments made by the employee. If the employee has not submitted or not invested as given in his declaration, then calculate the Tax assuming the employee has not invested or done any savings and accordingly deduct the balance TDS from his salary before the payment of Salary.

9. Depositing of TDS deducted: The employer has deposit the TDS which was deducted from the Salaries. The due date for the same are, for the month of April to Feb of the Financial year the due date is 7th of the subsequent month in which the TDS was deducted.   For example in the month of April 2014 if TDS was deducted the same should be remitted to the Government account by before 7th of May 2014. 30th April with respect to TDS for the month of March.

10. Filing of E-TDS Returns: The Employer has to file the E-TDS return in Form-24Q for each quarter. The following are the due dates for filing of the online E-TDS returns.

11. Issue of Form-16 to the Employees: The Employer has to issue the Form-16 along with Form – 12BA to the respective employees on or before 31st May (after ending of the financial year).