Section 192 - TDS on Salaries - Income Tax - Ready Reckoner - Income Tax

TDS ON SALARIES Deductor Any person Deductee Resident or Non-resident Time of Deduction At the time of payment Rate of TDS Slab Rate applicable to the estimated income of the employee. Any person responsible for paying any income chargeable under the head Salaries shall, at the time of payment, deduct income-tax on the estimated income of the employee under the head salaries for that financial year. The tax is to be deducted at the average of income tax computed on the basis of rates in force for that financial year in which the payment is made. [ Section 192(1) ] An employer shall have the option to pay tax on behalf of an employee, without making any deduction from his income, on the income in the nature of perquisites, which are not provided by way of monetary payment. However the employer shall also continue to have the option to deduct the tax on whole or part of such income. [ Section 192(1A) ] For the purpose of paying tax by the employer u/s 192(1A), tax shall be determined at the average of income tax computed on the basis of the rates in force for the financial year, on the income chargeable under the head Salaries including the income referred to in u/s 192(1A), and the tax so payable shall be construed as if it were, a tax deductible at source, from the income under the head Salaries as per the provisions of u/s 192(1), and shall be subject to the provisions of this Chapter. [ Section 192(1B) ] Deferring TDS in respect of Income pertaining to employee stock option plan (ESOP) of start-up - [ Section 192(1C) ] As per section 192(1C) of the Act, a person, being an eligible start-up referred to in section 80-IAC , responsible for paying any income to the assessee being perquisite of the nature specified in section 17(2)(vi) in any previous year relevant to Assessment year 2021-22 and thereafter, shall deduct or pay, as the case may be, tax on such income within 14 days- a) after the expiry of 48 months from end of the relevant assessment year; or b) from the date of sale of such specified security or sweat equity share by the assessee; or c) from the date of the assessee ceasing to be the employee of the person, whichever is the earliest, on the basis of rates in force for the financial year in which the said specified security or sweat equity share is allotted or transferred. Any employee intending to opt for the concessional rates of tax under section 115BAC of the Act, may intimate the deductor, being his employer, of such intention for each previous year and upon such intimation, the deductor shall compute his total income, and make TDS thereon in accordance with the provisions of section 115BAC. If such intimation is not made by the employee, the employer shall make TDS without considering the provision of section 115BAC of the Act. The intimation so made to the deductor shall be only for the purpose of TDS during the previous year and cannot be modified during that year. ( CBDT Circular No. C1 of 2020 dated 13.04.2020 ) No tax, however, will be required to be deducted at source in a case unless the estimated salary income including the value of perquisites is taxable after giving effect to the exemptions, deductions and relief as applicable. (Some typical illustrations of computation of tax are given at Annexure-I). Payment of Tax on Perquisites by Employer Perquisite may be defined as any casual emolument or benefit attached to an office or position in addition to salary or wages. Perquisites may be in the form of cash or in the form of kind, but will always form part of the salary. Perquisites are divided in two parts i.e. monetary perquisites and non-monetary perquisites. Monetary perquisites are taxable for all employees and non-monetary perquisites are taxable in the hands of specified employees. The following employees are deemed as specified employees: 1) A director-employee 2) An employee who has substantial interest (i.e. beneficial owner of equity shares carrying 20% or more voting power) in the employer-company 3) An employee whose monetary income under the salary exceeds Rs.50,000. The taxable value of perquisites can be determined on the basis of specific rules for valuation of certain perquisites as laid down in Rule 3 of the Income-tax Rules An option has been given to the employer to pay the tax on non-monetary perquisites given to an employee. The employer may, at its option, make payment of the tax on such perquisites himself without making any TDS from the salary of the employee. As per Section 10(10CC) of the Act, the tax paid on such non-monetary perquisites by the employer is exempt from tax in the hands of the employee. However, the employer will have to pay the tax at the time when such tax was otherwise deductible i.e. at the time of payment of income chargeable under the head salaries to the employee. Computation of Average Income Tax For the purpose of making the payment of tax on the payment of any income in the nature of non-monetary perquisites, tax payable is to be determined by calculating the average rate of tax on the income chargeable under the head salaries , including the value of perquisites for which tax has been paid by the employer himself. Illustration: The income chargeable under the head salaries of an employee below sixty years of age during the Financial Year 2021-22, is Rs. 6,00,000/- (inclusive of all perquisites), out of which, Rs. 50,000/- is on account of non-monetary perquisites and the employer opts to pay the tax on such perquisites. Income Chargeable under the head Salaries inclusive of all perquisites Rs. 6,00,000/- Tax as per normal rates on Total Salary (including Cess) Rs. 33,800/- Average Rate of Tax [(33, 800/6,00,000) X100] 5.63% Tax payable on Rs.50,000/= (5.63% of 50,000) Rs. 2815 Amount required to be deposited each month Rs. 235= 2815/12 The tax so paid by the employer shall be deemed to be TDS made from the salary of the employee. Salary from more than one employer Where during the financial year, an assessee is employed simultaneously under more than one employer or has changed the employment during the previous year, then he may furnish to the employer of his choice or the subsequent employer such details of salaries due or received by him from other employers as may be prescribed, in Form No. 12B . In this case the employer so chosen shall take into account these details while making deduction of tax at source. [ Section 192(2) ] For the purposes of deduction of tax out of salaries payable in a foreign currency, the value of salaries in terms of rupees should be calculated at the prescribed rate of exchange as specified in Rule 26 of the Income tax Rules, 1962. [ Section 192(6) ] Relief under section 89 - [ Section 192(2A) ] In respect of salary payment to employees of government or to employees of companies, co operative societies, local authorities, universities, institutions, associates or bodies, deduction of tax at source should be made after allowing relief [ Sub-section(1) of omitted vide Finance (No. 2) Act, 2024 ] Section 89 , where eligible. The Income Tax Department has made it mandatory to file Form 10E if a taxpayer wants to claim relief under Section 89(1). As per Section 89(1), tax relief is provided by recalculating tax for both the years, the year in which arrears are received and the year to which the arrears pertain. The taxes are adjusted assuming arrears were received in the year in which they were due. Rule 21A of the Rules provide the manner for computation of such relief. [ Section 192(2B) substituted vide Finance (No. 2) Act, 2024 w.e.f. 01.10.2024 Where an assessee who receives any income chargeable under the head Salaries has, in addition, (i) any income chargeable under any other head of income (not being a loss under any such head other than the loss under the head Income from house property ); or (ii) any tax deducted or collected under the provisions of Part B or Part BB of this Chapter, as the case may be, for the same financial year, he may send to the person responsible for making the payment referred to in section 192(1), the particulars of (a) such other income; (b) any tax deducted or collected under any other provision of Part B or Part BB of this Chapter, as the case may be; and (c) the loss, if any, under the head Income from house property , in such form and verified in such manner as may be prescribed, and thereupon the person responsible as aforesaid shall take into account the particulars referred to in clauses (a), (b) and (c) for the purposes of making the deduction under section 192(1): It is also provided that except in any case have the effect of reducing the tax deductible from income under the head Salaries , except where the loss under the head Income from house property and the tax deducted in accordance with other provisions of Part B and tax collected in accordance with the provisions of Part BB, of this Chapter, has been taken into account. A tax payer having salary income in addition to other income chargeable to tax for that financial year, may send to the employer, the following particulars of (a) such other income and particulars of any tax deducted under any other provision (b) Loss, if any, under the head Income from House property, If assessee intimated to the employer his intent to exercise the option of shifting out of the default tax regime provided u/s 115BAC(1A) ; The employer shall take the above particulars into account while calculating tax deductible at source. It is also provided that except in case where loss from house property has been adjusted against salary, the tax deductible from salary should not be reduced as a consequence of making the above adjustment. Loss from house property would be adjust against salary where assessee intimated to the employer this intent to exercise the option of shifting out the default tax regime provided u/s 115BAC(1A) . However, loss under the head Income from house property shall be allowed to be set off against salary and income under any other head subject to maximum of Rs. 2,00,000/- . ] CBDT Notifies Amendments in Income-tax Rules for Ease in Claiming Credit for TDS Deducted for Salaried Employees Section 192(2B) of the Income-tax Act, 1961 was amended vide the Finance (No. 2) Act, 2024 to include any tax deducted at source under the provisions of Chapter XVII-B for the purpose of making tax deductions in the case of salaried employees. Vide CBDT Notification No. 112/2024 dated 15.10.2024, the Income-tax Rules, 1962 have been amended, introducing Form No. 12BAA as the prescribed statement of particulars required under section 192(2B). Employees must provide these particulars to their employers, who are responsible for making payments under section 192(1). The employer, in turn, shall deduct TDS on salary after taking into account the furnished particulars. [ Press Release ] As per Rule 26B Statement of particulars of income under heads of income other than Salaries or details of tax deducted at source or tax collected at source The assessee may submit to the person responsible for making payment under section 192(1), the details of (a) any income chargeable under any head of income other than Salaries received in the same financial year; or (b) any tax deducted at source or tax collected at source under the provisions of Part B or Part BB of Chapter XVII, for the same financial year; or (c) loss, if any, under the head Income from house property in the same financial year, (Losses under other heads not to be considered) in Form No. 12BAA, for the purpose of computing the tax deduction at source under section 192(1). Furnishing of statement of particulars of perquisites or profit in lieu of salary by employer to employee - [ Section 192(2C) read with Circular no. 20/2015 date 02.12.2015 ] A person responsible for paying any income chargeable under the head Salaries shall furnish to the person to whom such payment is made a statement giving correct and complete particulars of perquisites or profits in lieu of salary provided to him and the value thereof in Form No. 12BA and manner as may be prescribed. The statement shall be in the prescribed form and manner. This requirement is applicable only where the salary paid/payable to an employee exceeds Rs.1,50,000/-. for the employee, the particulars of perquisites/profit in lieu of salary shall be given in Form 16 itself. Requirement to obtain evidence/proof/particulars of claims from the employee by the employer [ Section 192(2D) read with Rule 26C ] The person responsible for making the payment referred to in section 192(1) shall, for the purposes of estimating income of the assessee or computing tax deductible under section 192(1), obtain from the assessee the evidence or proof or particulars of prescribed claims (including claim for set-off of loss) under the provisions of the Act in form No. 12BB and manner as may be prescribed in the Rule 26C has been inserted w.e.f. 06.06.2016. Employee earning salary in foreign currency [ 192(6) and Rule 26 ] TDS on salary payable in foreign currency shall be calculated in rupees on the basis of prescribed rate of exchange. Under Rule 26 , the rate of exchange shall be the telegraphic transfer buying rate of such currency as on the date on which the tax is required to be deducted at source by employer. Salary Paid in Foreign Currency - For the purposes of deduction of tax on salary payable in foreign currency, the value in rupees of such salary shall be calculated at the Telegraphic transfer buying rate of such currency as on the date on which tax is required to be deducted at source ( see Rule 26 ). [ As per para 3.8 of Circular No. 20/2015 dated 02.12.2015 ] Note: Income from previous employer may be considered. Relief u/s 89(1) shall also be considered while deducting TDS. Income from all sources may be considered. And any TDS thereon shall also be considered. Only loss under the head house property shall be taken into account for the purpose of TDS and not any other loss. The employer may deposit from his own pocket tax on the non-monetary perquisites to employees. Such tax is exempt income in hands of employee and is disallowable expenditure to employer. The liability to deduct tax at source in case of salary is on all persons, whether individual, HUF, Firm or a company irrespective of the fact whether the person is carrying on business or not. If the employee does not have Permanent Account Number, TDS shall be deducted @ 20% without including education cess, if the normal tax rate in this case is less than 20%. Issuance of TDS certificate - The employer is required to issue TDS certificate in Form No. 16 . The deductor is required to verify the contents of Part A and Part B of the TDS certificate before issuing them to the deductee. Form 16 is required to be issued by the employer up to 15th June of the financial year immediately following the financial year in which the amount was paid and tax has been deducted. [ Rule 31 ] Important Notification, Circular or Instruction Clarification regarding deduction of TDS under section 192 under old regime or new regime, read with section 115BAC(1A) With effect from A.Y. 2024-25 , employer shall ask employees having income under section 192 regarding their intended tax regime and each employee shall inform the employer regarding his intended regime for each year and upon intimation, the employer shall compute his total income, and deduct tax at source thereon according to the option exercised. If intimation is not made by the employee , it shall be presumed that the employee continues to be in the default tax regime i.e Section 115BAC(1A) . Accordingly, the employer shall deduct TDS in accordance with the rates under Section 115BAC(1A) . However, the employee may change while furnishing return of income the regime following which employer has deducted tax. Example If employee has intimated employer to deduct tax according to optional tax regime, the employer may do so but he is not bound to pay tax under the optional tax regime and can still opt to pay tax under default tax regime. [ Circular No. 04/2023 Dated 05.04.2023 ] CASE LAWS- Some of the important judgements under section 192 are mentioned below which can be referred to Harshdip Singh Dhillon Versus Union Of India Through The Commissioner Of Income Tax TDS - 2024 (1) TMI 275 - DELHI HIGH COURT Shri Ajit Chandrashekar Dighe Versus The DCIT Thane - 2024 (11) TMI 381 - ITAT MUMBAI The Great Eastern Shipping Co. Ltd., M/s. Kalyaniwalla And Mistry LLP Versus DCIT, TDS Circle 2 (3) MTNL Bldg, Mumbai - 2024 (12) TMI 30 - ITAT MUMBAI Drawing Disbursement Officer, LIC of India Versus Asst Commissioner of Income Tax (TDS.) And Others - 2014 (1) TMI 1592 - ALLAHABAD HIGH COURT