TDS on Salary: Comprehensive Guide to Tax Deduction at Source

The compensation given by employers to employees, known as salary, falls under the ambit of the Income Tax Act, wherein Tax Deducted at Source (TDS) plays a crucial role, governed specifically by Section 192. Employers are obligated to deduct tax from the salary based on prevailing rates.

Essential Insights:

• TDS is applicable if the salary surpasses the basic exemption limit.
• Various entities, including individuals, HUFs, companies, trusts, and co-operative societies, are responsible for TDS deductions.
• Monthly TDS deduction occurs during salary disbursal.
• Penalties and interest arise if TDS is not deducted as required.

TDS Slab Rates:

• Up to ₹2,50,000: Nil
• ₹2,50,001 – ₹5,00,000: 5%
• ₹5,00,001 – ₹7,50,000: 10%
• ₹7,50,001 – ₹10,00,000: 15%
• ₹10,00,001 – ₹12,50,000: 20%
• ₹12,50,001 – ₹15,00,000: 25%
• Above ₹15,00,000: 30%

Scope of TDS:

• TDS is calculated on the Cost to Company (CTC), including salary and perquisites.
• Perquisites encompass benefits such as fuel subsidy and travel expenses.
• Exemptions are available for HRA, travel, and medical allowances.

Steps to Calculate TDS:

• Compute Earnings: Consider commissions, perks, and bonuses.
• Investment Declaration: Collect and verify prospective investments.
• Determine Exemptions: Subtract eligible deductions from gross salary.
• Compute Taxable Income: Apply the relevant tax slab for accurate TDS computation.

Additional Tax Benefits:

• Section 80C: Avail investments up to ₹1,50,000, including mutual funds and life insurance premiums.
• Section 80CCG: Avail of exemptions up to ₹25,000 for selective tax-saving schemes.
• Section 80D: Get exemptions for medical insurance premiums.

In Conclusion:

• TDS ensures that taxes are deducted promptly from salaries.
• Employers deduct based on the employee’s taxable income.
• Employees can reduce their taxable amount through planned investment strategies.
• Form 16 aids in detailed and precise TDS calculations.

Grasping the nuances of TDS on salary helps in adhering to tax laws effectively while optimizing available exemptions.

* TDS Terms Explained: NEFT - National Electronic Funds Transfer, RTGS - Real Time Gross Settlement, IMPS - Immediate Payment Service, UPI - Unified Payments Interface, NRIs - Non-Resident Indians