What You Must Know About TDS on Salary in 2023

Summary

The blog explains how Tax Deducted at Source (TDS) is applied to employee salaries under Section 192 of the Income Tax Act. It details the TDS slab rates, calculation steps, and potential deductions available under various sections like 80C and 80D. Employers must ensure monthly deductions to avoid penalties while enabling employees to optimize their tax liability.

TDS on Salary: A Comprehensive Guide to Tax Deduction at Source

Employers compensate employees through salaries, governed by the Income Tax Act, where Tax Deducted at Source (TDS) plays a crucial role, especially under Section 192. Employers are required to deduct tax from salaries based on current rates.

Key Highlights:

TDS is applicable if salary surpasses the basic exemption limit.
Entities like individuals, HUFs, companies, trusts, and co-operative societies manage TDS deductions.
TDS is deducted monthly as salaries are paid.
Non-compliance with TDS regulations can lead to penalties and interest.

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), which includes salary and benefits.
Perquisites may encompass advantages like fuel and travel benefits.
Exemptions are available for HRA, travel, and medical allowances.

Steps to Calculate TDS:

Compute Earnings: Consider commissions, incentives, and bonuses.
Investment Declaration: Verify promised investments.
Determine Exemptions: Deduct qualified deductions from gross income.
Compute Taxable Income: Apply the tax slab for accurate TDS figuring.

Additional Tax Benefits:

Section 80C: Up to ₹1,50,000 on investments such as mutual funds and insurance.
Section 80CCG: Deductions up to ₹25,000 for specific tax saving schemes.
Section 80D: Deductions on health insurance premiums.

Summary:

TDS facilitates timely tax deductions from salaries.
Employers deduct based on employees' taxable earnings.
Employees can decrease taxable income via strategic investments.
Form 16 assists with detailed TDS calculations.

Grasping the intricacies of TDS supports adherence to tax norms while optimizing deductions.
TDS Terms: NEFT - National Electronic Funds Transfer, RTGS - Real Time Gross Settlement, IMPS - Immediate Payment Service, UPI - Unified Payments Interface, NRIs - Non-Resident Indians.