TDS Under Section 192 of Income Tax Act: When is TDS Applicable?
According to the Income Tax Department of India, “ Section 192 of the I.T.Act, 1961 provides that every person responsible for paying any income which is chargeable under the head ‘salary’, shall deduct income tax on the estimated income of the assessee under the head salaries.”
Meaning, employers are responsible for deducting TDS (Tax Deducted at Source) from their employee’s salary. The TDS amount is based on the estimated income and current tax slab rate. This amount is deducted every month, deposited in a government account and a certificate of deduction of tax at source, called Form No. 16 is issued.
This post takes you through all the details of Section 192 of the Income Tax Act – what is TDS, TDS rates, calculations and more. Keep reading!
When is TDS Under Section 192 Applicable
Section 192 applies when someone receives income under the head’ salary’. Hence, the existence of an ’employer-employee’ relationship is mandatory for such taxations. The following conditions must be fulfilled for this Act to be applicable:
- Employees must work under their employer’s direct control and supervision.
- The employer has the right to control how the instructions will be carried out.
- Payments must be made by the employer to the employee in nature of salary.
- The income must be above the maximum amount exempted from taxes.
The following are the basic exemption limits that do not require TDS deductions:
| Age Limit | Total Annual Income (Less Deductions under Chapter VIA) |
| Below 60 years | Rs. 2,50,000 |
| 60 years or above (senior citizens) | Rs. 3,00,000 |
| 80 years or above (super senior citizens) | Rs. 5,00,000 |
Who is Responsible for Deduction of TDS on Salary Under Section 192
An employee’s employer is responsible for deducting tax at source Under Section 192.
Here are the various categories of entities and persons responsible for the deduction of taxes:
- Individuals (resident or non-resident): Particular employer
- HUF (Hindu Undivided Family): Karta of the HUF
- Central or State governments and PSUs: Designated officers
- Companies (private and public): Company itself and its principal officer
- Trusts: Managing trustees
- Firm: Managing partners of the firm
- Proprietorship concern: Proprietor of a concern
It is important to note that though companies can designate officers/employees to make payments on their behalf, the statutory responsibility rests with them. The principal officer (as defined by Section 2(35) of the IT Act) is also responsible for deducting TDS.
TDS on Salary in Case of More than One Employer
Nowadays, it is not uncommon for employees to earn salary income from more than one employer. The new employer is required to calculate the average rate of income tax for deductions under Sub-section 2 of Section 192. The employee has to furnish the details or salary payments and TDS to the employer of their choice.
On change of employment, employees have to provide the above details in Form 12B as per Rule 26A of IT Rules. The employer will calculate tax liability based on salary information and the amount of tax deducted by the previous employer. Note that if you do not disclose details of your previous salary, there are no penalisations applicable.
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What is the Rate of TDS on Salary Income
Tax deducted at source is compulsorily deductible as well as payable from an extensive range of transactions and incomes. A person/entity paying salaries is responsible for deducting tax at the source and pays the amount to the government before the due date.
Salaried people have income tax applicable at regular tax slab rates based on their annual income. In 2020, a new tax regime was introduced so taxpayers would pay lower tax rates without the benefits of tax deductions under different sections.
This table describes the current tax slabs for individuals below 60 years of age.
| Annual Income | Tax Rates as Per Old Regime | Tax Rates as Per New Regime |
| Up to Rs. 2,50,000 | Nil | Nil |
| Rs. 2,50,001 to 5,00,000 | 5% | 5% |
| Rs. 5,00,001 to 7,50,000 | 20% | 10% |
| Rs. 7,50,001 to 10,00,000 | 20% | 15% |
| Rs. 10,00,001 to 12,50,000 | 30% | 20% |
| Rs. 12,50,001 to 15,00,000 | 30% | 25% |
| Above Rs. 15,00,000 | 30% | 30% |
Calculation of TDS for Salary Income
The employer calculates their employees’ tax liability based on applicable income tax slabs and the average income tax rate. This rate can be defined as total tax liability divided by the employee’s total income. All tax-savings investments are considered for deduction against the total tax liability.
If the employee wants to adopt the new tax regime, they may ask the employer to exercise the option every year. The tax calculation is done at the beginning of a financial year by one’s employer.
Let’s see an example:
Mr. Singh has an annual salary income of Rs. 10 lakh. He has invested in tax-saving instruments that can provide him deductions of Rs. 1.5 lakh. The calculation of his TDS on salary as per the old regime is as follows:
| Salary Income (Annual) | Rs. 10,00,000 |
| Deductions as per declarations submitted to employer | Rs. 8,50,000 |
| Net Taxable Income | Rs. 8,50,000 |
| Tax Payable {(5% of 2,50,000) + (20% of 2.50,000) + (20% of 1,00,000)} | Rs. 12,500 + Rs. 50000 + Rs. 20,000 = Rs. 82,500 |
| Health and Education Cess at 4% | Rs. 3,300 |
| Total Tax Liability | Rs. 82,500 + Rs. 3,300 = 85,800 |
| Average Rate of Income Tax | Rs. (85,800 ÷ 10,00,000) x 100 = 8.58% |
Penalty for Non-Compliance Under Section 192
If the employer does not deduct TDS or delay depositing TDS, they will be liable to pay a penalty. For not deducting TDS, the employer must pay 1% interest per month from the date on which the tax was to be deducted till the actual date of deduction. For not depositing TDS, the employer must pay 1.5% interest per month from the date of deduction till the date of payment.
Final Word
Under Section 192 of the Income Tax Act, employers are tasked with deducting TDS from an employee’s salary before crediting the same. Hence, employees need to understand how TDS on salary income works and furnish all details about deductions applicable to their income.
FAQs
Ans: Yes, deductors can make adjustments for excess/shortage of TDS in subsequent deductions as per subsection 3 of Section 192. For example, payment of advance salary, commission, bonus etc., will increase an employee’s tax liability. In such cases, the deductor can increase the tax deducted at the source.
Ans: The Finance Ministry introduced a standard deduction of Rs. 40,000 for salaried individuals. This replaced the previous transport allowance of up to Rs. 19,200 and medical reimbursement of up to Rs. 15,000 per year. This amount can be deducted from one’s gross salary to reduce the taxable income.
Ans: Yes, if TDS is deducted by a government employer, it has to be deposited within the same day. In case it is deducted by any other employer, and in any month other than March, they have to deposit the same within 7 days.
Ans: Yes, the deductor can claim a refund if excess TDS was deducted. The refund process needs to happen as per the procedure laid by Circular No.2/2011 dated 27.4.11. Under this, if the deductor discovers excess payment made in the current financial year, they can apply for credit of excess payment in the next quarter.
Ans: As per Section 203, the person deducting tax at source has to furnish a TDS certificate to the payee stating the deducted tax and other particulars. For employees receiving salary income, the certificate issued would be Form No. 16.
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