ANJALI JAIN AND COMPANY

Chartered Accountants

H-25, SECTOR 27, NOIDA

+91 9811817687

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–------TDS ON SALARY

INTRODUCTION

Section 192 of the Income Tax Act, 1961 provides that every person responsible for paying any income which is chargeable under the head ‘salary’ shall deduct income tax on the estimated income of the assessee under the head salaries. The tax once deducted is required to be deposited in government account and a certificate of deduction of tax at source (also referred as Form No.16) is to be issued to the employee. Finally, the employer/deductor is required to prepare and file quarterly statements in form No.24Q with the Income-tax Department.

TIME FOR DEDUCTION OF TDS

The employer shall deduct the TDS at the time of payment. In case of Advance salary and arrears of salary the employers have to consider these amounts as well.

EXEMPTION OF PAYMENT

If the total income of the employee under the head salary doesn’t exceed
Rs.250000- in case of residential senior citizen (Age: 60 years or more)

Rs.500000- in case of residential super senior citizen (Age: 8 years or more)

200000- in case of other residential citizen (Age: Below 60 years)

HOW TO CALCULATE TDS ON SALARY

The TDS on Salary is required to be deducted on the basis ofaverage rate of income tax of the taxpayerfor that financial year.

HOW TO REDUCE TDS ON SALARY

1. Salary Restructuring

  • Include medical allowance for Rs.15,000, transport allowance for Rs.9,600, education allowance, uniform expenses (if any), and telephone expenses as part of salary. Produce bills of actual expenses incurred for these allowances to reduce tax.
  • For HRA (House Rent Allowance), Salary can be split between Basic and HRA. See separate note below.
  • For Leave travel Allowance, see separate note below.

2. Utilizing Section 80C

Section 80C offers a maximum deduction up to Rs.100,000.

  • Public Provident Fund (Limit Rs.70,000); Return: 8.8% Tax free
  • Life Insurance Premium
  • Mutual Funds; Return tax free
  • National Savings Certificate; Return: 8.9%
  • Equity Linked Savings Scheme; Return Tax free
  • 5 year fixed deposits with banks and post office
  • Tuition fees paid for children's education, up to a maximum of 2 children

3. Options beyond Section 80C

If you have exhausted your limit of Rs.1,00,000 under section 80C, here are a few more options:

  • Medical Insurance Premium Under Section 80D

Section 80D provides for tax deduction from the taxable income for the payment (by any mode other than cash) of medical insurance premium paid by an individual or a HUF. This deduction is available over and above the deduction of Rs.100,000 under Sec.80C.

Quantum of deduction:

  • Infrastructure Bonds Under Section 80CCF

Investment up to Rs 20,000 in these bonds is eligible for income tax deduction under Section 80 CCF of the Income-Tax Act. These are long-term secured bonds which mature in 10-15 years.

  • Donations Under Section 80G

4. House Rent Allowance

If HRA forms part of your salary, then the minimum of the following three is available as exemption:

  • The actual HRA received from your employer
  • The actual rent paid by you for the house, minus 10 per cent of your salary (this includes basic dearness allowance, if any)
  • 50 per cent of your basic salary (for a metro) or 40 per cent of your basic salary (for non-metro).

Now, check your salary slip for split of Basic and HRA

  • Compare your monthly rent, basic pay and HRA
  • If you live in your own house, request your employer to restructure your salary, so that most of it is Basic and very less is treated as HRA. This will give you other benefits associated with a higher Basic Pay.
  • If you pay more rent than your monthly HRA, check whether HRA is 50% of Basic. If it is not, request your employer to increase your HRA and decrease your Basic, so that HRA is 50% of Basic. If HRA is already 50% of Basic, you are already getting the best possible benefit of HRA exemption
  • If you pay less rent than your monthly HRA, again request your employer to reduce HRA and make it equal to rent; increasing your Basic Pay instead.

If Are you paying rent, yet not receiving any HRA from your company. The least of the following could be claimed under Section 80GG:

  • 25 per cent of the total income or
  • Rs.2,000 per month or
  • Excess of rent paid over 10 per cent of total income

This deduction will however not be allowed, if you, your spouse or minor child owns a residential accommodation in the location where you reside or perform office duties.

5. Tax Savings from Home Loans

Use your home loan efficiently to save more tax. The principal component of your loan, is included under Section 80C, offering a deduction up to Rs.1,00,000. The interest portion offers a deduction up to Rs.1,50,000 separately under Section 24.

6. Leave Travel Allowance

Use your Leave Travel Allowance for your holidays, which is available twice in a block of four years. In case you have been unable to claim the benefit in a particular four- year block, you could now carry forward one journey to the succeeding block and claim it in the first calendar year of that block. Thus, you may be eligible for three exemptions in that block.