Jigar M. Patel
International Tax Attorney
Broad Scheme of TDS from Salary
Section 192 of the Income-tax Act prescribes for tax deduction at source out of payments representing any income chargeable to tax under the head ‘Salaries’. The provisions for TDS from Salaries during each Financial Year are explained by the Central Board of Direct Taxes (CBDT) under a special Circular.
TDS is required to be calculated on the basis of the prevalent rates of income-tax on the estimated salary income and is required to be deducted on a proportionate basis at the time of each payment. No tax is required to be deducted at source unless the estimated taxable salary income including the value of taxable perquisites exceeds the basic exemption limit for the taxpayer. For the said purpose the employer is required to consider various exemptions and deductions as prescribed under the Circular while computing the actual amount of income-tax to be deducted.
TDS in case of Two Employments
Section 192(2) prescribes procedure for deduction of tax where the employee is employed simultaneously under more than one employer or where he has changed his employment and joined another employer during the Financial Year.
In the first case, the employee may choose, as to which of the employer may deduct tax from the salary payable by the other employer. In this case, the employee should give the information of the salary earned by him from the other employer to the employer who is to deduct tax at source. In the second case, the employee may furnish to the subsequent employer, the information regarding the salary earned by him from the earlier employer and tax, if any, deducted by that employer. In both such cases, the employer who has been given the relevant information in regard to the other employer would be required to consider the same and work out the tax deduction appropriately. Such information by the employee is required to be given to the employer in the prescribed Form No.12B.
Relief on Arrears or Advance of Salary
Section 192(2A) of the Income-tax Act provides that if the employee is a Government servant or an employee of a Company, Co-operative Society, Local Authority, University, Institution, Association or Body and if he is entitled to relief under Section 89(1) in respect of any arrears or advance of salary received by him, he may furnish information in this regard in the prescribed Form No.10E. The employer would then be required to compute the relief under Section 89(1) on the basis of such information and compute the tax deductible in respect of the same accordingly.
Adjustment of Tax Deductible during the year
The tax liability of an employee may undergo change keeping in view various developments which may occur during the financial year. To meet with this contingency, Section 192(3) provides that the employer may from time to time, at the time of making any deduction, increase or reduce the amount to be deducted as TDS from salary for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the financial year.
It needs to be borne in mind that if any adjustment is made as a consequence of the above in respect of the tax to be deducted in the remaining months of the financial year, the employer obviously cannot be held as being in default for short deduction of TDS under Section 201(1).
