The salary income of an individual is chargeable to tax under the head “Income from Salary”. Usually the employer deducts tax every month and only disburses the balance salary net of tax to employees’ account. This process of deducting tax is followed for all employees who have salary income more than the maximum income not chargeable to tax. TDS on salary is covered under section 192 of the Income tax Act. The Tax rate enforceable this financial year are the once that were notified in Budget for Financial year 2017-18. Following are the tax rate for individuals for income earned in financial year 2017-18.
- Total Income does not exceed 250,000 – Nil tax
- Total Income is more than Rs. 250,000 but does not exceed Rs. 500,000- 5% of the amount by which Income exceeds Rs. 250,000.
- Total Income exceeds Rs. 500,000 but does not exceed Rs. 10,00,000- 20% of the amount by which income exceeds Rs. 500,000
- Cases where Income exceeds 10,00,000- 30% of the amount by which income exceeds Rs. 10,00,000.
For senior citizens the maximum amount of Income not taxable is Rs. 300,000 and rest of the slab remains same except for non-taxable limit.
How to Compute TDS on Salary
Since tax on salary is deducted for an entire year in 12 installments i.e. from every month’s salary, the computation should be done keeping in gross salary for the entire financial year.
Step 1: Take your total salary including basic, DA, perquisites and allowances for the month and multiply it with 12. If you are eligible for bonuses whose amount cannot be determined then leave them for the time being. You can revise the computation when you receive such a bonus. In fact employees can observe a surge in TDS upon receipt of bonus, incentives etc as the employer adjusts the increase in income.
Step 2: Reduce exemptions on account of HRA, medical and travel allowances. Add any other income like income from house property, investments etc.
Step 3: Next compute and consider deductions under chapter VI A as follows:
- Section 80C: Premium paid towards life insurance, certain Fixed deposits, ULIP, PPF, NSCs etc.
- Section 80CCC and CCD: Investment in pension plans
- Section 80D, 80DD and DDB: Medical Insurance and medical expenses of certain categories of individuals.
- Section 80E: Repayment of Education loan
- Section 80G: Donations to certain specified and eligible charities
- Section 80GG: Deduction towards rent where an individual is not in receipt of HRA and does not own a residential property.
- Section 80TTA: Interest on deposits in savings account
- Section 80U: Treatment of employee suffering from physical disability
- Section 24: Interest repayment of home loan
After deducting the above, one would arrive at the net salary and income chargeable to tax.
Step 4: Apply the Income Tax slab as applicable. This will give you an approximate yearly figure which can be divided by 12. The resultant figure would be the tax deducted at source every month.
Form no. 16
Form no. 16 is the TDS certificate issued by the employer giving complete details of income disbursed and tax deducted at source. This is an important document as the amount and details of TAN etc are required to be mentioned by the tax payer in his or her income tax return. If a tax payer does not have form no. 16 then he or she can get details of tax deducted online in form no. 26AS which is available on the Income Tax India’s website.
It is not only the employer who is responsible for deducting tax at source. In this section we are discussing the nature of payments other than salary that attract TDS. We shall also specifically give the rates that are applicable on such incomes:
- Salary income: As per the rates discussed above;
- Interest on securities and fixed deposits: 10% except in case of income from lottery, games and horse races, where TDS is to be deducted at 30%.
- TDS on Insurance Commission- 5%
- Payment towards NSC proceeds- 10%
- Payment on account of repurchase of unit by Mutual Fund of India- 20%
- TDS on commission or brokerage and sale of lottery tickets- 5%
These were the important points to be followed while computing TDS on salary. The last day of filing income tax returns for individuals is 31st July’2017. If you have not filed your return then we would suggest that you don’t wait any longer. Get your documents together and file the return today with letzbank. We have tie up with Clear Tax which has a wonderfully simple return computation and submission platform. They guide you through the way and if you have bigger doubts and confusion, services of Chartered accountants are just a click away on Clear Tax. So visit us today and file your return before the big rush starts!