Section 192

Employers deduct tax from your salary before paying it to you depositing it with the government on your behalf called TDS, is governed by Section 192 of the Income tax Act, 1961. It ensures tax is deducted if your salary exceeds the exemption limit.

What is Section 192?

When you receive your salary from your employer they deduct a portion of it as tax as TDS on salary, regulated by Section 192 of the Income Tax Act. This deduction is because your salary counts as income and the government requires a portion of it as tax.

Employers are required by law to deduct TDS on salary if the salary exceeds a certain minimum limit. However, this deduction is refundable if the tax deducted is more than what you owe. This happens when the tax deducted is based on certain assumptions about your investments and deductions which may not match up with what you actually declare or invest in by the end of the financial year.

Formula to Calculate TDS on Salary

Income Tax Rate = Income Tax Payable (computed with slab rates) / Estimated Revenue for the year

Who Deducts TDS Under Section 192?

• Companies (Private or Public)
• Individuals
• HUF (Hindu Undivided Families)
• Trusts
• Partnership firms
• Co operative societies

Employers are required to deduct TDS from their employees salaries every month and deposit it with the government within a specified timeframe. Whether the employer is an individual, a partnership or a company doesn't matter for TDS deduction what matters is the relationship between the employer and the employee. This rule is outlined in section 192 of the Income Tax Act. Regardless of how many employees a company has TDS must be deducted if there is an employer employee relationship.

When is TDS Deducted under Section 192?

Under Section 192 of the Income Tax Act tax deducted at Source means is deducted from your salary at the time it's actually paid to you not when it's accrued. This means your employer deducts tax when they pay your salary, whether it's in advance, on time or in arrears or late payment. If your estimated salary doesn't exceed the basic exemption limit no tax is payable and hence no TDS is deducted. This rule applies even if you don't have a PAN. Basic exemption limit varies based on age.

The table below lists the age-based basic exemption limits where TDS isn't deducted
 

What is TDS Computed on?

when we talk about salary, we usually refer to CTC or Cost to Company. This includes two main parts the actual salary and perks. Perks are extra benefits provided by an employer like fuel subsidies, travel expenses or meals.

CTC is made up of various components like basic salary, house rent allowance, travel allowance, medical allowance, dearness allowance and special allowance. Now, why does this matter? Well, because some of these components can help employees save on taxes.

If you're renting a place you can get an exemption on your house rent allowance. If you spend money on commuting, you can claim an exemption on travel allowance. Similarly, medical allowances can be exempted if you submit relevant bills. So, understanding these components can help employees make the most of their salary package while also minimizing their tax burden.
 

How to Calculate TDS on Salary under Section 192

It's important to note that the number of employees in a company doesn't affect the calculation of how much tax is deducted from each employee's salary, known as TDS.

Here are the steps to compute TDS on a salary:

Calculate Earnings: Add up all the money an employee makes in a year. This includes not just their basic salary but also any additional earnings like bonuses, commissions and perks.

Collect and Verify Investment Declarations: Ask employees to provide information about their planned investments for the year. This could include things like investments in tax saving instruments like insurance or mutual funds. At the end of the year ensure they provide proof of these investments.

Compute Exemptions: Consider any tax exemptions the employees are eligible for based on their declared investments. Subtract these exemptions from their total earnings to find their taxable income.

Deduct TDS: Once you have the taxable income, apply the appropriate tax rates based on the income tax slabs set by the government. Deduct the calculated tax amount from the employee's salary.

Deposit TDS Collected: As an employer you must deposit the TDS amount you've deducted from employees salaries to the Central government within the specified timelines.

For ease and accuracy in these calculations you can use reliable online TDS calculators. Just remember to input the correct details to get accurate results.

Time Limit to Deposit the Tax under Section 192

If a government employer deducts TDS it must be deposited on the same day. For non government employers:

• If TDS is deducted in March it should be deposited by April 30th.
• If TDS is deducted in any month other than March it must be deposited within 7 days of that perticular month.
   

Consequences of Non Compliance under Section 192?

Levy of Interest: If an employer forgets to take out TDS from employee salaries or takes it out but doesn't send it to the government, they'll have to pay interest on that amount.

Disallowance of expenses: Employers can only deduct salary expenses from their PGBP income if they've timely deducted TDS.

Disallowed expenses breakdown:

• 30% of resident salary payments.
• 100% of non-resident salary payments.
   

Conclusion

Section 192 is all about making sure employers take out the right amount of taxes from their employee's paychecks and report it accurately to the government. It's important because it helps keep our tax system fair and makes sure everyone pays their fair share to support things like schools, roads, and healthcare.