Have you ever wondered why your in-hand salary is less than the CTC?
One of the main reasons is tax amongst others. Your employer deducts some tax from your salary every month, and deposits it to the government on your behalf; hence, you receive the balance salary. This concept of deducting tax before you receive the salary is called TDS: Tax Deducted at Source.
TDS is deducted from salary, if the salary exceeds the basic exemption limit, i.e., ₹2,50,000 in a financial year and an employee-employer relationship exists.
When does the employer calculate TDS?
The employer calculates the TDS at the beginning of the financial year after taking into consideration the deductions and exemptions disclosed by the employee.
How is TDS on salary calculated?
TDS u/s 192 is calculated by reducing the amount of exemption from the total annual salary income. The employer calculates the salary and TDS on the basis of the proofs disclosed by the employee for the amount of deduction (such as 80C, 80D, home loan interest etc) to be claimed.
You can, then, calculate your tax liability at the end of the financial year and then adjust the TDS to pay either the differential liability or to claim a tax refund.
Let’s understand TDS on salary with an example
Muskan works in an MNC and the salary break up is as follows for FY 2022-23. She has disclosed to her employer that she has invested in PPF of ₹1,50,000, and also paid a medical insurance premium of ₹50,000 for herself (₹25,000) and her family (senior citizen parents ₹25,000). She is opting for the old regime.
Basic salary: ₹10,00,000
Bonus: ₹2,00,000
HRA: ₹1,50,000
LTA: 1,50,000
Answer: So, the gross salary (CTC) is ₹15,00,000. Let’s understand the TDS calculation.
| Particulars | Amount (in ₹) |
|---|---|
| Gross Salary | 15,00,000 |
| Less: HRA | 1,50,000 |
| Less: LTA | 1,50,000 |
| Less: Standard deduction | 50,000 |
| Net Salary | 11,50,000 |
| Less: 80C | 1,50,000 |
| Less: 80D | 50,000 |
| Net Taxable Salary | 9,50,000 |
| Tax Payable | 1,06,600 |
| Monthly TDS | 1,06,600/12 = 8,333.33 |
This means she will receive ₹8,333.33 less every month from her salary.
How do I know that my TDS has been deducted?
You can view the same in Form 26AS. You can also verify the amount of TDS on salary deducted from Form 16 which is issued by the employer at the end of the financial year.
How can I claim the TDS on my salary?
As such there is no form or specific process to claim the TDS on salary. You just need to file your ITR and the TDS deducted is reflected in your Form 26AS is to be added as your tax credits to reduce the amount of taxes already paid on your behalf.
Is PAN mandatory for TDS on salary?
Yes, you must disclose your PAN to your employer for the TDS calculations. If you fail to do so, TDS would be deducted at a flat rate of 20%.
Even if the employer has deducted TDS, do I still need to file a return?
Yes, you should file your income tax returns if your income is above the threshold even when your company deducts TDS from your salary. However, when you file your income tax returns, you can determine your actual tax liability and make tax payments, if any, after claiming credit for the TDS that has already been paid on your behalf.
Conclusion
So, if you are a salaried employee, understand what TDS is on salary, how it is deducted, and when it is submitted to the income tax department. Make sure you submit the proofs of the deductions to your employer so that the TDS can be accurately calculated and deducted.