Know about TDS on Salary u/sec. 192.

Any person responsible for paying any income chargeable under the head “Salaries” is required to deduct income tax, at the time of payment, on the estimated income of the employee under the head “Salaries” for the financial year, in which the payment is made.

W.e.f. 01.06.2002, under sub section (1A) of sec 192, the employer may, at his option, pay the whole or part of the tax payable on non-monetary benefits [being perquisites u/s 17(2)] provided to the employee. Tax so paid by employer is not liable to be grossed up u/s 195A. The particulars of tax so paid by employer is required to be furnished in TDS certificate (Form 16), to enable the payee (assessee/ recipient of income) to claim credit for the same.

RATE AT WHICH TDS IS TO BE MADE:

The amount of income tax deductible is required to be calculated at the average rate of income tax computed on the basis of rates in force [Rates are given in the finance Act, Part III, Paragraph-A for the relevant Financial Year]. No tax is required to be deducted at source in any case unless estimated salary income including value of perquisites and/or profit in lieu of salary paid or allowed during the financial year exceeds the maximum amount not chargeable to tax for the individual relevant for the Financial Year.

COMPUTATION OF ESTIMATED INCOME AND AVERAGE RATE OF INCOME TAX:

Income from “Salaries” is required to be computed on estimated basis at the beginning of each financial year, taking into account salaries or remuneration paid or allowed. Income tax payable on the basis of such estimated salary income should also be calculated. Necessary adjustment is required to be made to arrive at the net tax liability, after considering specific allowable deductions, rebates & relief. Such estimation of salary income and net tax liability may require revision periodically, depending upon change in income of the employee or investment made by him in the form of deposit, subscription or payment. Every month 1/12th of the net tax liability is required to be deducted.

For the purpose of computation of making payment of tax, tax liability is to be determined at the average of income tax computed on the basis of rates in force for the financial year, on the income chargeable under the head ‘Salaries’ including value of non-monetary perquisites for which employer has opted to pay the tax himself.

Illustration:

Suppose for the financial year 2011-12 income chargeable under the head ‘Salary’ inclusive of all perquisites is Rs.4,75,000 out of which Rs. 50,000/- is on account of non-monetary perquisites on which the employer has opted to pay tax.

Income chargeable under the head salary inclusive of all perquisites = Rs. 4,75,000
Tax on total salaries = Rs. 29,500
Total tax including Education Cess & higher education cess = Rs. 30,385
Average rate of tax [(30,385 /4,75,000) *100 = 6.39%
Tax payable on Rs. 50,000 (6.39% of 50,000) = Rs. 3,195
Amount of tax to be deposited each month by employer (3,195/12) = Rs. 266
Tax payable on balance Rs. 4,25,000 (9.775% of 4,25,000) = Rs. 27,190
Amount of tax to be deducted each month by DDO (27,190/12) = Rs. 2,266

NOTE: Tax so paid by employer shall be deemed to be TDS made from salary of the employee and shall be reflected in TDS certificate [Form 16].

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