TDS on Salary
Tax Deduction at Source is a mechanism where income tax is deducted at the time of releasing the salary by the employer to the employee. The TDS amount deducted shall be deposited to the government within the due dates specified. With the advancement in technology, TDS on salary can be paid through online mode easily.
To do the calculation ‘TDS for Salary’. It is imperative to define which earnings are part of the salary.
What is the salary?
Salary is a payment received on specific intervals and by a specific amount for serving in an organization according to the contract signed by two parties mainly employee and employer. If the relationship between the two parties connected only through payment terms and not because of ‘Employer’ and ‘Employee’, in that case, the concept of salary does not work. Such cases fall under the category of non-salary incomes.
Cases which falls under the category of non-salary incomes are as follows:
- Fee for technical or professional services
- Payment to Contractors and sub-contractors
- Payment of Dividends
- Interest earned on securities
- Interest on Bank Deposits
- Payment for repurchase of units by Unit Trust of India or a Mutual Fund
- Prizes from winning the lottery or crossword puzzles
- Commission and other profits on sale of lottery tickets
- Payment of Insurance Commission
- Commission or brokerage Rent and so on.
Income Tax Slabs on Salary
To calculate the income tax on salary, the first thing to consider is the Income Tax slabs decided by the Income Tax Department of India for the financial year.
For the current financial year of 2020-21, there two Tax slabs one is existing and other introduced recently in the budget 2020.
New Tax slab(optional)
Total Income (Rs) | Simplified, optional Tax rate |
Up to Rs 2.5 Lakh | NIL |
From 250,001- Rs 500,000 | 5% |
Rs 500,001- Rs 750,000 | 10% |
From Rs 750,001- Rs 10,00,000 | 15% |
Rs 10,00,001 – Rs 12,50,000 | 20% |
Rs 12, 50,001 – Rs 1500,000 | 25% |
Above Rs 1500,000 | 30% |
Existing tax slabs of previous financial year
Individuals who are less than 60 years old (either men or women): - If Income is up to Rs. 250,000, there is no tax
If Income is between Rs. 250,000 and Rs. 500,000 then Tax Rate is 5% - If Income is between Rs. 500,000 and Rs. 10,00,000 then Tax Rate is 20%
- If Income is Above Rs. 10,00,000 then Tax Rate is 30%
Surcharge: 10% of income tax, where total income is more than Rs.50 lakh but less than Rs.1 crore and 15% of income tax, where the total income exceeds Rs.1 crore. Education Cess: 3% of Income Tax.
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Individuals who fall under the age group of 60 – 80 years and those who are making payment of tax by Hindu Undivided Family (HUF), the initial bracket of exception is up to Rs. 300,000 for both men and women. The tax rate remains the same as above for all other income slabs. Surcharge: 10% of income tax, where total income is more than Rs.50 lakh but less than Rs.1 crore and 15% of income tax, where the total income exceeds Rs.1 crore.
Education Cess: 3% of Income Tax. |
Individuals who are above 80 years old, Tax exemption bracket set for them is up to the income of Rs. 500,000 for either men or women. And above that income level, the rates are the same as before for all the other categories. Surcharge: 10% of income tax, where total income is more than Rs.50 lakh but less than Rs.1 crore and 15% of income tax, where the total income exceeds Rs.1 crore. Education Cess: 3% of Income Tax. |
Surcharge applies when and how?
- A surcharge consisting of 10% of the Income Tax in case income is Rs. 50,000 lakhs and Rs. 1 Crore.
- A Surcharge consists of 15% of the Income Tax in case income is above Rs. 1 Crore.
- A Cess of 3% is collected on the sum of Income Tax and Surcharge combined in such cases.
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Process to calculate Income Tax on Salary
Salary made with several components which on combined known as CTC of the employee. The key parts of salary include are as follows:
The basic salary along with allowances like
- House Rent Allowance (HRA)
- Medical Allowance
- Travel allowance
- Dearness allowance
- Special allowance, other allowances and so on.
The privileges (in short ‘Perks’) include the benefits and facilities offered by the employer for expenses like Subsidized fuel and canteen facilities, travel allowance and expenses towards hotels if the employee needs to travel for work and so on.
Method of TDS Calculation
In the context of ‘Tax Calculations’, the first thing which comes up is the tax deductions and exceptions that are available in the Indian Tax Return contexts.
Both the exemptions and deductions in taxes are considered a way to reduce the tax burden and allow some benefits to the people.
There are certain tax exemptions allowed by the Government of India. While computing TDS for salary, these exemptions are deducted first from the total annual salary as per the guidelines of the Income Tax Department of India.
There are several provisions given by the Income Tax Department of India regarding the availing of tax exemptions.
If employees, submit proofs of exemptions along with the giving of the declaration to their employers, in that case, TDS could be computed properly.
Employer is responsible for computation of TDS based on the proofs and declaration, deducting the taxes from salary and depositing those with the authority.
What all include in TDS Exemptions?
HRA – If the employee lives on a rent basis and paying for the same, then he or she can claim for House Rent allowance deduction. A maximum deduction of Rs. 180,000 is allowed annually from tax as Allowance for House Rent (HRA).
Transport Allowance – Employer makes payment of the same to cover the travel expenses of the employees to and from the work. An annual deduction in this category is a maximum of Rs. 19,200.
Savings under Section 80C of IT Act –
Whole array of savings and investment options are being given under this section from where one can easily select tax saving options accordingly.
The total tax deduction under 80C is a maximum of Rs 150,000 invested in either single or combination of instruments. Some of the 80C instruments include:
- Public Provident Fund
- Contribution to Employers’ Provident Fund
- Premiums paid on Life Insurance Policy.
- Equity-Linked Saving Schemes (ELSS) – these are the Mutual Funds available for tax saving
- Bank Fixed Deposits – Of certain duration
- National Savings Certificates – issued by post offices
TDS Under Sections 80CCC and 80CCD– For contribution towards some annuity plan of any insurance company for receiving pension comes under 80CCC while 80CCD is for contribution towards Nation Pension Scheme (NPS) of Central Government.
Cumulative total for Sections 80C, 80CCC and 80CCD cannot exceed Rs. 200,000 i.e. Rs. 1.5 lakhs plus an additional Rs. 50,000 is tax deductible for NPS contribution.Repayment of the Principal amount for your Home Loan
TDS Under Sections 80CCC and 80CCD– For contribution towards some annuity plan of any insurance company for receiving pension comes under 80CCC while 80CCD is for contribution towards Nation Pension Scheme (NPS) of Central Government.
TDS under Section 80TTA– Up to Rs. 10,000 per annum is tax-deductible on the interest earned on the savings account of the bank.
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TDS under Section 80D– This section deals with tax deduction for medical expenditure and on payments of medical insurances.
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Medical Allowance – Employees can declare Medical Allowance by submitting all Medical bills for tax exemptions.
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Premium for the purchase of medical insurance for self, spouse and dependent children – This savings could be up to Rs. 25000 for resident taxpayers aged less than 60 years and Rs. 50,000 for senior citizens from FY 2020-21.
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TDS under Section 80U and 80DD– These sections deal with the deduction in case of physical disability of the taxpayer and their dependent(s) respectively. Based on the extent of disability, the deduction ranges from Rs. 75,000 to Rs. 125,000 per annum.
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TDS under Section 80DDB– This applies to expenses incurred in the treatment of certain specified diseases. This deduction is capped at Rs. 40,000 annually, even if the treatment expenses exceed these if less than Rs. 40000.
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- Exemption for Senior Citizen and super senior citizen is Rs 100,000.
- TDS under Section 80E– Interest paid at the time of making repayment of Education loan is tax-deductible. This Education loan can be for self, Spouse, or children. There is no upper limit for the claiming of deduction for this payment.
- TDS for the payment of interest on Home Loan – This comes under Section 80EE. Up to Rs, 50,000 interest payment towards home loan is tax exempted per annum. This deduction is also liable for above Rs. 2,00,000 limits under section 24 of the Income-tax act.
TDS under Sections 80G, 80GGA, 80GGB and 80GGC– These are applicable for donations:
- 80G is a general donation.
- 80GGA are donating to Development or scientific research.
- 80GGB and 80GGC are the donations towards political parties.
There are some other profession-specific sub-sections where the TDS is applicable. These Government supported tax-saving benefits include:
- A decrease in the taxable income of people resulting in more disposable income.
- A decrease in tax payment helps people in engaging the disposable income for generating savings and other investment opportunities.
- A reduction in taxable income many times results in a lowering of tax bracket which otherwise a person would not be eligible for.
- Tax exemptions available for charitable activities encourage people to be more engaged in various philanthropic activities.
How to calculated TDS on Salary
Gross Annual Salary
Less: Exemption under Section 10 which includes HRA, conveyance allowance or a medical allowance.
Income chargeable under the Salary Head
Add: Income from House Property
(Rental Income)
Less: Deduction under Section 24(b)
-30% of Rental Income
- Interest paid on housing loan
Add: Income from any other sources
Gross Total Income
Less: Chapter VI-A deduction
=TAXABLE INCOME
How to make payment of TDS on Salary
Steps are as follows:
Step 1
Visit the NSDL’s website at https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp for e-payment of taxes.
Step 2
Select “CHALLAN NO./ITNS281” under the TDS/TCS section. After clicking you will be redirected to the e-payment page.
Step 3
Select ‘Company Deductees’ under Tax applicable section, if TDS deducted is made for payment to the company. In any other case, select ‘Non- Company Deductees’.
Step 4
Enter your TAN and Assessment Year for which the payment is to be made. Fill in your ‘Pin Code’ and ‘State’ from the drop-down menu.
Step 5
Select between the two; payment is made for TDS deducted and payable by you or TDS on regular assessment.
Step 6
Make selection of nature and mode of payment for further processing of payment of TDS on salary and then click the ‘Submit’ button.
Step 7
After submission, a confirmation screen will be displayed, on confirmation of the data entered you will be redirected to the net banking portal of your bank.
Step 8
Enter your credentials for payment. On successful payment, a challan counterfoil will be displayed containing CIN, payment details, and bank name through which e-payment has been made. Keep this counterfoil with you as this acts as a proof for the payment made.
