Every Employer who is paying salary to his employee which is more then maximum amount exempt from tax has to deduct TDS on such Salaries Under section 192 of the Income tax Act,1961. How to calculate TDS on Salary is an important part of every salaried person life.
TDS, or Tax Deducted at Source, is a type of tax levied by the Indian government wherein taxes are collected on the basis of ‘pay as you get’. The taxes are deducted at the source of payments such as salary paid to an employee or commission earned by a broker. TDS provides a way for the government to ensure steady collection of taxes throughout the year, while a taxpayer’s year-end tax calculations become simpler.
How to Calculate TDS and What Rate TDS needs to be deducted, is a popular query.
You can calculate TDS on your income by following the below steps:
- Calculate gross monthly income as a sum of basic income, allowances and perquisites.
- Calculate available exemptions under Section 10 of the Income Tax Act (ITA). Exemptions are applicable on allowances such as medical, HRA, travel.
- Reduce exemptions according to step (2) for the gross monthly income calculated in step (1).
- As TDS is calculated on yearly income, multiply the corresponding figure from above calculation by 12. This is your yearly taxable income from salary.
- If you have any other income source such as income from house rent or have incurred losses from paying housing loan interests, add/subtract this amount from the figure in step (4).
- Next, calculate your investments for the year which fall under Chapter VI-A of ITA, and deduct this amount from the gross income calculated in step (5). An example of this would be exemption of up to Rs.1.5 lakh under Section 80C, which includes investment avenues such as PPF, life insurance premiums, mutual funds, home loan repayment, ELSS, NSC, Sukanya Samriddhi account and so on.
- Now, reduce the maximum allowable income tax exemptions on a salary.
Salary From More Than One Employer:
Section 192(2) deals with situations where an individual is working under more than one employer or has changed from one employer to another. It provides for deduction of tax at source by such employer (as the tax payer may choose) from the aggregate salary of the employee, who is or has been in receipt of salary from more than one employer.
The employee is now required to furnish to the present/chosen employer details of the income under the head “Salaries” due or received from the former/other employer and also tax deducted at source therefrom, in writing and duly verified by him and by the former/other employer. The present/chosen employer will be required to deduct tax at source on the aggregate amount of salary (including salary received from the former or other employer).
Importance of filing correct tax returns:
It is imperative that you are honest about the details of all your income and expenses for a fiscal for tax calculation purposes. Sometimes, you may miss a few details such as income from previous job when switching to a new job, or additional income from a contractual opportunity. This should not happen as hiding or misrepresenting income sources will be heavily penalised by the respective tax authorities. You have to ensure that all your data is in order and will hold up to any cross verification at a later stage to avoid problems with the taxman.
