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How to Calculate (Tax Deducted at Source) TDS on Salary

How to Calculate (Tax Deducted at Source) TDS on Salary. In the previous article, we have given Rebate u/s 87A Increased to Rs 5000 and How to Register and File Income Tax Return Online. Today we are providing the complete details of calculation of TDS on salary. TDS, or Tax Deducted at Source, is a type of tax levied by the Indian government wherein taxes are collected on the basis of ‘pay as you get’. The taxes are deducted at the source of payments such as salary paid to an employee or commission earned by a broker. TDS provides a way for the government to ensure steady collection of taxes throughout the year, while a taxpayer’s year-end tax calculations become simpler.

How to Calculate TDS on Salary

How do you define Salary?

Salary is defined as the remuneration that a person receives periodically for rendering services based on an implied or express contract. If you are in an employee-employer relationship, you belong to the salaried class of individuals.

However, not all income is termed as salary. If a professional is being paid for his/her expertise in a professional capacity, it is termed as ‘Professional/Technical Fees’. Similarly, a partner earning salary from his/her company is charged taxes under ‘Profits & Gains from Profession or Business’. Other examples include the salary paid to a Member of Parliament or a Member of Legislative Assembly.

According to the Indian Income Tax Act (ITA), 1961, a salary includes pension or annuity, wages, commission or fees, gratuity, profits or perquisites on salary, salary advance etc.

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.

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.

PeriodDue Date Of Filing
April To June15th July
July To September15th October
October To December15th January
January To March15th May

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).

How do I calculate TDS on my salary? (Section 192)

While the basic salary is fully taxable according to respective tax bracket, some exemptions are available for payments made as allowances and perks. You can calculate TDS on your income by following the below steps.

  • Calculate gross monthly income as a sum of basic income, allowances and perquisites.
  • Calculate available exemptions under Section 10 of the Income Tax Act (ITA). Exemptions are applicable on allowances such as medical, HRA, travel.
  • Reduce exemptions according to step (2) for the gross monthly income calculated in step (1).
  • As TDS is calculated on yearly income, multiply the corresponding figure from above calculation by 12. This is your yearly taxable income from salary.
  • If you have any other income source such as income from house rent or have incurred losses from paying housing loan interests, add/subtract this amount from the figure in step (4).
  • Next, calculate your investments for the year which fall under Chapter VI-A of ITA, and deduct this amount from the gross income calculated in step (5). An example of this would be exemption of up to Rs.1.5 lakh under Section 80C, which includes investment avenues such as PPF, life insurance premiums, mutual funds, home loan repayment, ELSS, NSC, Sukanya Samriddhi account and so on.
  • Now, reduce the maximum allowable income tax exemptions on a salary. Currently, income up to Rs.2.5 lakhs is fully exempt from paying taxes, while income from Rs.2.5 lakhs to Rs.5 lakhs is taxed at 10%, and Rs.5 lakhs to Rs.10 lakhs income bracket is taxed at 20%. All income above this amount is taxed at 30%.
  • Do note that senior citizen have different tax slabs and receive higher exemptions than those discussed above.

The significance of TDS lies in the fact that it facilitates the following five things –

  • Regulates the collection of taxes
  • Ensures a regular income to the government
  • Lightens the burden of one-time tax payment and instead spreads the whole tax over several months making it easier for the tax-payer
  • Provides a convenient mode of tax payment to the payer
  • Spreads the reach of income tax collection without the Income Tax Department having to do it all by itself

What is TDS Refund?

Many a times it is seen that investment projections declared during the start of a financial year do not match with the actual investments made at the end of that year.

If there is a mismatch between the total tax deducted at the end of a financial year and the income tax you are supposed to pay for that particular year, a TDS refund arises.

TDS Refund Example:

krish works at an MNC in Bangalore. Last year he was late submitting his documents for LIC premium exemption under section 80C. As a result, his company deducted around Rs.5,000 extra as TDS.

Total tax payable by krish for year 2013-2014 = Rs.20,000

Tax deducted by employer from krish’s salary = Rs.25,000

Tax refund krish is eligible for = Rs.25,000 – Rs.20,000 = Rs.5,000

These are typical situations that are faced by a lot of people almost every financial year. The only way to get back this extra tax is to file your income tax return. The sooner you file your income tax return, the faster the returns are processed.

Interest on TDS Refund:

Under Section 200A of the Income Tax Act, if the income tax department is late in paying you the tax refund applicable to you, then you are entitled for a simple interest of 6% p.a. on your refund amount. This interest starts accruing from the first month i.e. April of any financial year. However, interest is not paid out if the tax refund is less than 10% of the total tax payable in a year.

The interest earned on tax refund is also taxable since it is considered under ‘income from other sources’.

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