Income Tax Act directs specified persons to deduct tax from payments which has been specifically required to deduct income tax at the rates specified there in.
Different rates are specified for different type of payments to deduct TDS. TDS from salary is deducted by an employer from the salary of employee and deposited in the central government account against the PAN of the employee.
An employer based on the tax rate applicable to the employee deduct income tax on a monthly basis and deposit it with the Tax department before due date.
TDS from Salary
An employer while making payment of Salary to employee should consider certain points and deduct correct Income Tax from the payment being made.
In the first step, employer need to calculate expected annual Salary of the employee based on the salary paid till the date of TDS calculation and to be paid for rest of the year.
Based on the IT declaration of employee, incomes and loss from house property if any need to be considered for the purpose of TDS calculation.
Gross Total Income should be calculated after considering Salary, other incomes and house property loss. From this amount you need to deduct allowed deductions declared by the employee under Section 80C, 80D, 80G, etc to arrive at Taxable Salary. On the taxable Salary employer need to calculate Tax, Surcharge and cess as per the rate applicable to employee for the financial year.
Deduction of rebate U/s 88E or Relief U/s 89 is to be done as applicable to the employee to arrive at the net tax payable by the employee to IT department.
Keeping it as total tax, now the employer need to deduct the TDS made till last month. The balance tax to be paid after such deduction need to be divided by remaining number of months in the financial year including the current month for which you are calculating income tax for arrive at the monthly deduction of TDS. Deduct this amount from employees Salary and deposit the TDS amount with IT department against the PAN of the employee.
At the end of the financial year, before 31st may of the assessment year, the employer need to issue Form 16 in the specified format of Tax department as a certificate of deducting income tax from employee’s salary. Employee based on form 16 and the additional data available with him file ITR with the IT department before the due date.
TDS for Non Salaries
For non salary deductions IT department has categorized certain payment from which TDS need to be deducted before making payment to the party. A deductor (the person who is making payment) according to the provision of IT act should follow the certain points while making payment to any person
The tax deductor (the person who is making the payment) should categorize each payment to relevant “type of Payment” or “Section” as mentioned under Income Tax act 1961. Then as per IT act, they have to check whether TDS needs to be deducted from such payment or not.
The deductor should refer the threshold limit specified for such section or Type of Payment and consider that limit before deducing income tax. If the payment is more than the threshold limit then the employer need to deduct income tax based on the income tax rate as applicable to the financial year in which he is making the payment.
Before deducting TDS, the deductor need to consider the declaration as submitted by the assessee (party to whom you are making payment) under Section 197A for non-deduction of TDS. [Only for payment of Interest (Securities and Other than securities), Dividends and Interest on NSC, Viz: sections 194, 194A, 193, 194EE].
The employer also needs to check, in case the Assessee [party] has submitted a certificate from Assessing Officer under Section 197 for non-deduction of TDS or deduction at a Lower Rate. If such certificate under section 197 has been submitted then the employer need to deduct TDS based on such lower rate as mentioned in the certificate or will not deduct TDS if it is specified so.
To deduct TDS the deductor need to check the relevant income tax rate of TDS under respective type of payment including Surcharge and Cess if any. The employer needs to deduct the amount as per the effective rate of TDS from the amount being paid.
Every quarter the deductor needs to issue Form 16A to each party for deducting income tax. Form 16A should specify all the details of tax deducted and deposited including the PAN and TAN.
