Tax deducted at source on salary

Tax Deducted at Source on Salary

Gayathri R Iyyer, D.G.Vaishnav college

What is Tax Deducted at Source?

• Collection of revenue at the very source of income

• “Pay as you earn and collect as it is being earned” principle

• Rates being specified in the Income Tax Act, 1961, Income Tax rules and amendments


Salary

• Basis of Charge: Section 15• Section 17 of ITA,1961 provides for an inclusive definition

of the term Salary• Salary includes

Wages Annuity or pension Gratuity Fees, commission, perks, profits in lieu of salary Advance salary Leave encashment Provident fund and pension fund contribution

• Salary is taxable based on its receipt or accrual whichever falls earlier


TDS on Salary

• Section 192 of Income Tax Act, 1961 deals with TDS on salary

• The person responsible for paying any amount chargeable u/h Salaries shall deduct tax at the source base on the estimated income of the assessee.

• Deduction shall me made at the time of payment


Filing of TDS returns

• The deducted amount of tax shall be remitted to the government account

• Form 16 to be issued to the employee

• Employer to file TDS returns in FORM 26Q on quarterly basis


Structure of a Pay slip

• Basic Wages : All emoluments paid to an employee in cash in respect of his employment.

• Dearness Allowance: Paid to an employee to meet inflation effects

• House Rent Allowance

• Other allowances

• Perquisites – rent free accommodation, Car, Appointment of Servants and helpers, etc.


• Gross Salary: Aggregate of all amounts payable to the employee

• DeductionsProvident fund contribution

ESI contribution

Insurance

Tax

Interest on Loan repayable by the employee

Entertainment allowance(Govt. employees)

Professional Tax


Allowances-Taxability

S.No. Nature of Allowance Exempt Value of allowances

1 Transport Allowance Rs.800/- per month(Rs.1600 for differently abled employees)

2 Education Allowance Rs.100/- per month per child for two children

3 House Rent Allowance Least of the following is exempt1) 50% (in case of metro cities) and 40% (in

case of non metro cities) of Salary(Basic + DA + Turnover based commission)

2) Actual HRA received3) Actual rent paid



4 Leave Travel Allowance

The exemption shall be allowed subject to the following constraints1) Where journey is performed by air- Max up to

economy fair charged by a national carrier by the shortest route can be exempted

2) Where the place of origin of journey and destination are connected by rail and the journey is made by other means of transport, exemption is restricted to the fare of economy class of airways or first class of railways by the shortest route

3) Two journeys in a block of four years4) One journey in an year

5 Leave Encashment 1) Any payment received by the employees of central and state government are exempt

2) In case of other employees, the least of the following is exempt

• Cash equivalent of unutilized earned leave (can not exceed 30days)

• 10months average salary• Leave encashment actually received• Rs.300000(retirements after 02.04.1998)Gayathri R Iyyer, D.G.Vaishnav college


6 Medical Reimbursement Up to Rs15000/-

7 Medical Allowance Fully Taxable

8 Gratuity 1) Gratuity received by employees of central and state government, Defence employees and employees in local authorities are fully exempt

2) For employees covered under POGA,1972, exemption shall be

• Fifteen days salary for every completed year of service based on the rate of last drawn salary restricted to a maximum of Rs.10lakhs

3) In case of other employees, least of the following is exempt

• Half a month’s average salary (immediately preceding 10months) for every completed year of service

• 10lakhs


Motor CarSN Usage Expenses

incurredTaxable Value of Perks

Motor car is owned by the employer Up to 1600CC Above 1600CC

1. Official Employer Fully exempt

2 Personal Employer Actual amount of expenditure including remuneration to the driver plus depreciation @10%p.a

3

Partlypersonal

Employer Rs.1800 plus Rs.900(driver’s salary)

Rs.2400 plusRs.900(driver’s salary)

4 Employee Rs.600 plus Rs.900 Rs. 900 plus Rs.900


SN Usage Expenses incurred

Taxable Value of Perks

Motor car is owned by the employee Up to 1600CC Above 1600CC

1. Official Employer Fully exempt

2 Partlypersonal

Employer Actual expenditure incurred by the employer less the amount used for official [email protected] plus Rs.900(driver’s salary)

Actual expenditure incurred by the employer less the amount used for official [email protected] plus Rs.900(driver’s salary)


Chapter VIA-S80C

1) Contribution to LIC/ULIP/ELSS

• The insurance shall be taken in the name of the employee, spouse and children

• Late fee shall not be allowed as a deduction

• Deduction shall be restricted to 20% of Sum assured for policies taken before 01.04.12 and 10% for policies taken after 01.04.12


2) Investment in National Savings Certificate

• The investment should have been made in the current year

• The investment shall be made in the name of the employee, spouse or children

• Investment should have been made in VIII or IX issue of NSC

• Accrued interest shall be treated as income from other sources


3) Contribution to Provident fund

• Employee’s contribution towards employees’ provident fund or a recognized provident fund scheme shall be allowed as a deduction

• The account shall be in the name of the employee

• Interest can not be claimed as a deduction


4) Tuition Fee

• Tuition fees paid to two legitimate children are considered

• Only components relating to education like tuition fee, lab fee, library fee shall be allowed as a deduction

• Fees paid to a school/college/educational institution that provides full time education in India shall be considered

• Fees paid for the current year alone shall be allowed as a deduction


5) Investment in Mutual Funds/Fixed deposit/Tax advantage Funds

• Bank deposits shall not be for less than five years

• Only deposits relating to current year shall be allowed as a deduction

• Deposits must be made with a scheduled bank

• The deposit must hold an evidence for being eligible for tax deduction


6)Housing Loan Principal

• Repayment of Principal can be allowed as a deduction only if Income from House Property chargeable to tax

• Payment towards cost of house will not include admission fee, cost of share and initial deposit or Cost of addition/alteration/ renovation/repair incurred after the house is occupied/ let-out by the Employee

• Housing Loan Repayment to other than approved Institutions shall not be allowed

• Loan in Joint Names – Certificate should specify individual share of the employee’s principal repayment.

• If the employee owns more than one house property, principal shall be allowed in respect of one house property only


80CCC & 80CCD-Pension Schemes

• Contribution made by the employee shall be allowed as a deduction

• The fund shall be in the name of the employee

Note: The aggregate of deductions allowable u/s 80C 80CCC and 80CCD shall not exceed Rs.100000(amended to Rs.150000 w.e.f AY 2015-2016)


Mediclaim 80D

1) 80D

• The mediclaim policy shall be taken in the name of the employee spouse and children

• Mode of payment of premium should be other than in cash

• Deduction shall be restricted to Rs.15000

• Mediclaim taken in the name of the parents(senior citizens)-Deduction shall be restricted to Rs.20000


80DD and 80DDB

Disabled dependents(80DD)• Severe disablement-Rs.100000• Partial Disablement-Rs.50000Medical treatment of self/dependents• List of diseases are provided in the act• Application must be made along with FORM 10I• Should be certified by a specialist as specified in

the act• For senior citizens deduction shall be upto a max

of Rs.50000 and for other it shall be Rs.40000


80E-Interest on higher Education loan

• Only Interest amount can be allowed as deduction

• Interest amount shall be carried forward to eight assessment years

• Loan should be for the purpose of higher education of self, spouse or a dependent


80EE- Interest on loan for acquiring first residential house property

• Loan should have been sanctioned in the FY 2013-2014

• Loan amount shall not exceed Rs.25L

• Assessee must not own any Residential House Property on the date of sanction of loan

• The value of the house property should not exceed 40L

• This deduction shall be allowed only during AY 2014-15 and 2015-16

• Deduction limited to Rs.1,00,000/- per year


Donation-80G

• Not to be considered for TDS(192)

• Employee shall claim deduction at the time of filing of returns


80U-Disabled employees.

• Severe disability Rs.100000

• Partial Disability Rs.50000


Interest on Housing loan

• Deduction u/s 24

• Interest on Self Occupied property restricted to Rs.1,50,000/-

• Premium paid on Insurance of Building is not an allowable deduction in computing income from house property.

• Pre construction interest shall be allowed as a deduction in five equal installments.


Tax deducted at source on salary

Law

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