TDS Calculation On Salary

TDS Calculation On Salary

What is TDS?

Tax Deducted at Source (TDS) is applicable for individuals and businesses, the payee is required to collect tax at source before making certain types of payments for rendering specific services. The types of payments include salary, fees, interest, rent, commission, etc. The payee is directed to collect a certain percentage of TDS that is sent to the Central Government.

How do you define Salary?

Salary is defined as the remuneration that a person receives periodically for rendering services based on an implied or express contract. If you are in an employee-employer relationship, you belong to the salaried class of individuals.

However, not all income is termed as salary. If a professional is being paid for his/her expertise in a professional capacity, it is termed as 'Professional/Technical Fees'. Similarly, a partner earning salary from his/her company is charged taxes under 'Profits & Gains from Profession or Business'. Other examples include the salary paid to a Member of Parliament or a Member of Legislative Assembly. According to the Indian Income Tax Act (ITA), 1961, a salary includes pension or annuity, wages, commission or fees, gratuity, profits or perquisites on salary, salary advance etc.

What is TDS Calculated on?

The CTC quoted to you at the time of joining includes components such as basic salary, travel allowance, house rent allowance, medical allowance, dearness allowance, special allowances and other allowances. The CTC is divided into two major categories : salary and perquisites. Perquisites, or perks as they are popularly called, include facilities and benefits provided by the employer towards expenses such as travelling, canteen and fuel subside, hotel expenses and so on.

TDS Rate Chart :

Rates for Tax Deduction at Source for FY 2017-18

Particulars	TDS Rates (in %)
Section 192: Payment of salary	According to Income Slab as specified above
Section 192A: Payment of accumulated balance of provident fund which is taxable in the hands of an employee (with effect from 01.06.2015).	10
Section 193: Interest on securities
a)any debentures or securities for money issued by or on behalf of any local authority or a corporation established by a Central, State or Provincial Act;	10
b)any debentures issued by a company where such debentures are listed on a recognized stock exchange in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and any rules made there under;	10
c)any security of the Central or State Government;	10
d)interest on any other security	10
Section 194: Dividend other than the dividend as referred to in Section 115-O	10
Section 194A: Income by way of interest other than "Interest on securities"	10
Section 194B: Income by way of winnings from lotteries, crossword puzzles, card games and other games of any sort	30
Section 194BB: Income by way of winnings from horse races	30
Section 194C: Payment to contractor/sub-contractor
a)HUF/Individuals	1
b)Others	2
Section 194D: Insurance commission	5 (10% till Assessment year 2016-17)
Section 194DA: Payment in respect of life insurance policy	1 (2% till 31-5-2016)
Section 194EE: Payment in respect of deposit under National Savings scheme	10 (20% till 31-5-2016)
Section 194F: Payment on account of repurchase of unit by Mutual Fund or Unit Trust of India	20
Section 194G: Commission, etc., on sale of lottery tickets	5 (10% till 31-5-2016)
Section 194H: Commission or brokerage	5 (10% till 31-5-2016)
Section 194-I: Rent
a) Plant & Machinery	2
b) Land or building or furniture or fitting	10
Section 194-IA: Payment on transfer of certain immovable property other than agricultural land	1
Section 194J: Any sum paid by way of  a)Fee for professional services,  b)Fee for technical services  c)Royalty,  d)Remuneration/fee/commission to a director or  e)For not carrying out any activity in relation to any business  f)For not sharing any know-how, patent, copyright etc.	10
Section 194LA: Payment of compensation on acquisition of certain immovable property	10
Section 194LBA(1): Business trust shall deduct tax while distributing, any interest received or receivable by it from an SPV or any income received from renting or leasing or letting out any real estate asset owned directly by it, to its unit holders.	10
Section 194LBB: Investment fund paying an income to a unit holder [other than income which is exempt under Section 10(23FBB)]	10
Section 194LBC: Income in respect of investment made in a securitization trust (specified in Explanation of Section 115TCA)	25% in case of Individual or HUF 30% in case of other person
Any Other Income	10

TDS Deduction Rate for Financial Year 2017-18


Tax applicable for individuals below 60 years

Annual Income	Tax Rates	Education Cess	Secondary and Higher Education Cess
Upto Rs.2,50,000	Nil	Nil	Nil
Rs.2,50,001-Rs.5,00,000	5%	2% of income tax	1% of income tax
Rs.5,00,001-Rs.10,00,000	Rs.12,500 + 20%	2% of income tax	1% of income tax
Above Rs.10,00,000	Rs.1,12,500 + 30%	2% of income tax	1% of income tax

Tax applicable for individuals over 60 years and under 80 years

Annual Income	Tax Rates	Education Cess	Secondary and Higher Education Cess
Up to Rs.3,00,000	Nil	Nil	Nil
Rs.3,00,001-Rs.5,00,000	5%	2% of income tax	1% of income tax
Rs.5,00,001-Rs.10,00,000	Rs.10,00 + 20%	2% of income tax	1% of income tax
Above Rs.10,00,000	Rs.1,10,000 + 30%	2% of income tax	1% of income tax

Tax applicable for individuals over 80 years and above

Annual Income	Tax Rates	Education Cess	Secondary and Higher Education Cess
Up to Rs.5,00,000	Nil	Nil	Nil
Rs.5,00,001-Rs.10,00,000	20%	2% of income tax	1% of income tax
Above Rs.10,00,000	Rs.1,00,000 + 30%	2% of income tax	1% of income tax

TDS should be deducted at applicable rates as above along with surcharge and Education Cess.

How is TDS calculated?

The government allows tax exemption under Section 80C and 80D. This allows an individual to seek for exemption on tax based on various types of investment he/she is making for that particular financial year. The TDS on salary can be calculated by reducing the exemption from total annual earning as specified by the Income Tax department. The employer is required to obtain a declaration and proof from individuals to approve tax exemption. The following categories are considered for exemption:

• House Rent Allowance - If an employee is paying towards accommodation as rent and entitled for HRA from the employer, the employee can declare this amount for tax exemption.
• Conveyance or Travel Allowance - If an employee is provided with conveyance allowance, the employee can declare them for tax exemption.
• Medical Allowance - If an employee is entitled to a medical allowance, he/she can declare and produce medical bills for tax exemption.

There are limits to the maximum amount that can be considered for exemption.

TDS Deductions

The following process is involved in the deduction of TDS:

• Calculating total earning - The employer is required to calculate the total earning of the employee.
• Calculating total amount eligible for the exemption - The employer is accountable for calculating the total amount that is considered for tax exemption. The employee needs to declare the type of amount that is eligible for exemption.
• Obtaining declaration and investment proof - The employer is required to collect investment and proofs from employees.
• Depositing TDS deductions - The employer will require depositing the collected TDS to the central government.

Section 80C

An employee can declare for a maximum of Rs.1,50,000 for tax exemption. The following investments schemes are considering for exemption under 80C:

• Investment in mutual funds and equity shares, such as ULIP, Linked Saving Scheme of a Mutual Fund/UTI.
• Life insurance Premium paid.
• Contribution to statutory PF, 15 years P.P.F., and superannuation funds.
• Payments towards subscription for National Saving Certificates and Home Loan Account Scheme.
• Interest earned through few of the National Savings Certificates are eligible for a certain amount of tax.
• Fixed deposit scheme for a period of minimum 5 years.

Section 80CCG

An employee is eligible for a maximum of Rs.25,000 annual exemptions if the employee has made an investment under certain equity saving schemes. The investment should be made for at least 3 years from the date of scheme acquisition.

Section 80D

The section 80D offer exemption for the premiums paid for a Medical Insurance. The exemption is also extended to the individual's dependants.

There are various other Sections that regulate many other types of exemptions.

How do I calculate TDS on my salary?

While the basic salary is fully taxable according to respective tax bracket, some exemptions are available for payments made as allowances and perks. 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. Currently, income up to Rs.2.5 lakhs is fully exempt from paying taxes, while income from Rs.2.5 lakhs to Rs.5 lakhs is taxed at 10%, and Rs.5 lakhs to Rs.10 lakhs income bracket is taxed at 20%. All income above this amount is taxed at 30%.
• Do note that senior citizen have different tax slabs and receive higher exemptions than those discussed above.

EXAMPLE

As per the steps outlined above, let’s consider a numeric example for better understanding.

Steps (1) & (2)

Suppose your monthly gross income is Rs.80,000. This figure may contain divisions as - basic pay Rs.50,000, HRA of Rs.20,000, travel allowance of Rs.800, medical allowance of Rs.1,250, child education allowance (CEA) of Rs.200 and other allowances totalling 12,750.

Steps (3) & (4)

Assuming that you stay at your own property, your monthly exemption from allowances equals Rs.2,250 (medical + travel + CEA). Therefore, your yearly taxable amount comes to (Rs.80,000 - Rs.2,250)*12, which comes to Rs.9,33,000.

Step (5)

Let's say you just experienced a loss of Rs.1.5 lakhs on house loan interest repayments over the year. Reducing this exempted amount from the taxable income, your taxable income becomes Rs.7,83,000.

Step (6)

Suppose you have invested Rs.1.2 lakhs in various categories that fall under Section 80C exemptions, and made another Rs.30,000 investment in categories falling under Section 80D. So, the resulting Rs.1.5 lakhs is exempted from taxes according to Chapter VI-A. Deducting this amount from the gross taxable income calculated above, your taxable income becomes Rs.6,33,000.

Step (7)

Finding out your tax slab

Your final tax breakup according to income slabs listed by the IT department is as follows:

Income Tax Slab	TDS Deductions	Tax Payable
Upto Rs.2.5 lakhs	NIL	NIL
Rs.2.5 lakhs to Rs.5 lakhs	10%  of (Rs.5,00,000-Rs.2,50,000)	Rs.25,000
Rs.5 lakhs to Rs.6.33 lakhs	20%  of (Rs.6,33,000-Rs.5,00,000)	Rs.26,600

Therefore, the final TDS to be deducted on your yearly income is Rs.25,000 + Rs.26,600, which comes to Rs.51,600 for current year's income, or Rs.4,300 per month for the current fiscal.

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.

Courtesy: bankbazaar