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TDS ON SALARY [SECTION 192]

Overview of Section 192: TDS on Salary

Who is responsible to deduct tax

Any person responsible for paying any income chargeable to tax under the head “Salaries” (i.e. employer) is required to deduct tax at source on the amount payable.

When tax shall be deducted

Tax shall be deducted at the time of payment of such income.

Rate of TDS

Tax shall be deducted at the average rate of tax, computed on basis of prescribed rates in force for the relevant financial year in which payment to employee is made on the estimated total income of the assessee.

Maximum exempted limit

Tax shall not be deducted if taxable salary is less than basic exemption limit.

Payment of tax by employer

The employer paying any income in the nature of non-monetary perquisite may pay, at his option, tax on such income without making any deduction therefrom at the time when such tax was otherwise deductible.

For this purpose, tax shall be determined at the average of incometax computed on the basis of the rates in force for the financial year, on the income chargeable under the head “Salaries”.

It is to be noted that tax paid on non-monetary perquisites by the employer shall not be considered as income of the employee.

Particulars of perquisites

The employer shall furnish a statement to the employee (whose salary exceeds Rs 1,50,000) giving correct and complete particulars of perquisites or profits in lieu of salary provided to employee and the value thereof in Form 12BA provided salary of such employee exceeds Rs 2,00,000.

Salary from more than one source

As per Section 192(2), where assessee is working simultaneously with more than one employer, he may furnish to any one employer at his choice, details (in Form No. 12B) of income taxable under the head “Salaries” due to or received by him from other employer(s) and such employer shall deduct tax on aggregate salary.

Treatment of other income

As per Section 192(2B), where an assessee who receives any income chargeable under the head “Salaries” has, in addition, any income chargeable under any other head of income for the same financial year, he may (or may not) furnish to employer the particulars (in plain paper) of –

  • such other income (only income and not loss)
  • tax deducted on such other income ;
  • the loss, if any, under the head “Income from house property” (Losses under any other head are not to be considered)

Tax deducted u/s 192 shall be higher of the following

  • Tax deductible from income,that would be so deductible, if loss under the head ‘Income from House Property’, other income (only income) and the tax deducted thereon had been taken into account.
  • Tax deductible from income under the head “Salaries”, that would be so deductible (after adjusting loss under the head Income from house property), if the other income (or loss) and the tax deducted thereon had not been taken into account.

Salaries payable in a foreign currency

For purposes of deduction of tax out of salaries payable in a foreign currency, the value of salaries in terms of rupees should be calculated at the prescribed rate of exchange as specified in Rule 26 of the Income-tax Rules, 1962.

Evidence of claim

The responsible person shall, for the purposes of estimating income of the assessee or computing tax deductible, obtain the evidence or proof or particulars of prescribed claims (including claim for set-off of loss) from the assessee in such form and manner as may be prescribed.

Deferring TDS in respect of income pertaining to Employee Stock Option Plan (ESOP) of start ups:

For the purposes of deducting or paying tax under section 192, a person, being an eligible start-up referred to in section 80-IAC, responsible for paying any income to the assessee being perquisite of the nature specified in Section 17(2)(vi) i.e. sweat equity shares/ESOP ,in any previous year relevant to the assessment year, beginning on or after the 1st day of April, 2021, shall deduct or pay, as the case may be, tax on such income within 14 days—

(i) after the expiry of forty-eight months from the end of the relevant assessment year; or

(ii) from the date of the sale of such specified security or sweat equity share by the assessee; or

(iii) from the date of the assessee ceasing to be the employee of the person,

whichever is the earliest, on the basis of rates in force for the financial year in which the said specified security or sweat equity share is allotted or transferred. [As amended by Finance Act, 2020]

Illustration

Mr. A non-resident working in X Ltd. furnishes the following, compute the tax to be deducted at source by X Ltd.

Taxable salary Rs 4,00,000
Loss from House Property Rs 5,000
Loss from Business Rs 10,000
Gross Interest Income (TDS Rs 5,000) Rs 60,000
Investment in PPF Rs 10,000

Computation of tax to be deducted at source by Y Ltd

Particulars Tax on income including other income Tax on income excluding other income
Salary income 4,00,000 4,00,000
Loss from House Property (5,000) (5,000)
Interest Income 60,000 Nil
Gross Total Income 4,55,000 3,95,000
Less: Deduction u/s 80C [Investment in PPF] 10,000 10,000
Total Income 4,45,000 3,85,000
Tax on above 9,750 6,750
Less: Rebate u/s 87A (not allowed to non-resident) Nil Nil
Tax after rebate 9,750 6,750
Add: Health and Education cess @ 4% 390 270
Tax and cess payable 10,140 7,020
Less: Tax deducted at source on other income 5,000 Nil
Balance 5,140 7,020
Tax to be deducted by Y Ltd. (Higher of Rs 5,140 or Rs 7,020) 7,020

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