Tax Deduction at Source (TDS) or TDS on Salary is mandatory for the employers in India who pay salaries to their employees on which income tax is applicable. For any income which is chargeable under the “Salaries” classification, the employer is required to deduct the applicable income-tax on the estimated income of the employee and then deposit the same with the Government. In this article, we will cover the procedure which is to be followed for TDS on salary and the computation of TDS on Salary.
In case of TDS on salary, the employer is called as the Tax Deductor and the employee is called as the Tax Deductee. Prior to TDS on salary, the employer is firstly required to obtain TAN Registration. TAN number or the Tax Deduction and the Collection Account Number is a 10 digit alphanumeric number which is used for tracking all the TDS deduction and the remittance by the Income Tax Department.
TDS on salary is however mandatory for all the employees who are earning taxable income. TDS on salary is however NOT required only for the following persons for the AY 2016-17:
- Persons that are earning less than Rs.2.5 lakh of the estimated annual salary including the value of the perquisites.
- Persons who are earning less than Rs.3 lakh of the estimated annual salary including the value of the perquisites – Resident in India and who are over the age of 60 years.
- Persons who are earning less than Rs.5 lakh of the estimated annual salary including the value of the perquisites – Resident in India and who are over the age of 80 years.
For all other kinds of persons, TDS on salary must be deducted which is based on the estimated income-tax that is computed on the basis of the income tax rates that are in force. Therefore, the estimated annual income of the employee is first computed, then other income or the losses are deducted along with the allowed deductions that are declared by the employee, income tax is thus computed on the estimated annual taxable income, the estimated annual income tax is then divided by the number of months that are applicable and TDS is then deducted every month from the salary payment. TDS on salary is then remitted by the employer with the help of the Government Treasury.
After TDS, the employer is thus required to remit the TDS amount either through the internet banking facility or credit or debit card. TDS must however be remitted by the employer before the 7th day of the month; in April, and TDS on salary must however be remitted prior to the 30th day of the month.
Prior to 31st May of each year, the employer is then required to provide to the Employee a TDS certificate that is called as Form 16. Form 16 usually contains the PAN number of the employer, the TAN number of the employer, the TDS deposit details and the details of all the quarterly TDS statements.
If TDS on Salary has been deducted by the Employer but it is not deposited to the Government, then the employee is not supposed to be called to pay the tax himself, as it is the employer and not the employee who has defaulted in paying the tax deducted to the Government.
In case TDS on salary was NOT deducted by the Employer, then it is the employee who would be liable to pay the Income Tax which is due as per Section 191. Further, when TDS is not deducted and it is remitted by the employer, then the entire expenses that are relating to the salary payment would be disallowed as an expenditure for the Employer, thus increasing the income tax liability of the Employer.