How to calculate TDS of an employee ?

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What is TDS (Tax Deducted at Source) ?

TDS is a medium of collecting Income Tax in India under the Indian Income Tax Act of 1961. According to the Income Tax Act, if any organization or a person is providing salary / payment have to deduct tax at source, it the payment exceeds certain threshold limits.

TDS can be deducted on various sources: like Salaries / interests / commission / rent / consultation fee / Professional tax.

Example: Roushan is an employee of employer COTOCUS… COTOCUS offered Rs.70,000/- basic salary per month and now it’s responsibility of the company to calculate and deduct TDS on the salary offered.

Now, question arises What would be the amount from Roushan’s salary which COTOCUS has to deduct?

For Individuals or NRIs tax slab would be:

Income Threshold Tax Applicable
Up to ₹ 2,50,000 NIL
₹ 2,50,001 to ₹ 5,00,000 5% on income exceeding ₹ 2.5 lakh (max. ₹ 12,5000)
₹ 5,00,001 to ₹ 10,00,000 20% on income exceeding ₹ 5 lakh (Max. ₹  1 lakh) + ₹ 12,500/-
Over ₹ 10,00,000 30% on income exceeding ₹  10 lakh + ₹  1 lakh + ₹  12,500

Table-A

Roushan’s earnings Per month No. of months paid Annually Income
Basic (offered by COTOCUS per month) 70000/- 12 months 840000/-
Travelling (per month) 1500/- 12 months 18000/-
Incentives (on performance basis every month) 3000/- 12 months 36000/-
Medical 1000/- 12 months 12000/-
HRA (Per month) 2400/- 12 months 28800/-
Per Month Income 77900/- Annual Income 934800/-
(-) Travelling 18000/-
(-) Medical 12000/-
(-) HRA 28800/-
Total Taxable Income 876000/-

Calculation:

To make the calculation more easy, I have inserted a Table-A for ready reference. So please keep looking at it.

  1. Roushan’s Gross Monthly Income (Basic + Travelling + Incentive + Medical + HRA) which comes to ₹ 77,900/- a month.
  2. Calculate exemptions under Section 10 of Income Tax Act, 1961, (Travel + Medical + HRA) which comes to ₹ 4,900/-.

*  If Roushan has made investments or contributing towards insurance, Mutual Funds and various categories that fall under Section 80C exemptions, the amount can be exempted under GST.

*  Max of 1,50,000 can be shown  under investments and can be exempted under GST.

* There are several deductions you can claim from your total income to bring down the taxable income and thereby reduce the tax outgo.

  1. Subtract exemption amount from gross monthly income (gross monthly income – exemption amount) i.e ₹ 77900 – ₹ 4900 = ₹ 73000.

Quest- Why Incentive is not exempted under GST?

Ans- Incentive is a gift from employer on various perspective which is any way an income source. So, If the gifts, from an employer exceeding ₹ 5000, it a taxable amount. You can’t have the rebate / exemption on that. Similar, Bonus is also an income source which also taxable.

  1. Well, everyone knows that TDS calculated on yearly basis, so multiply the figure comes in Step 3 to 12 (XYZ x 12) i.e. ₹ 73000 x 12 = ₹ 876000 is Roushan’s yearly taxable income.

If Roushan has other income sources like interests from bank of various savings / rents / dividend income / lotteries etc, would be under taxable income which will be gets added in it for final taxable income.

  1. So, Roushan’s the taxable income is ₹ 876000 falls under 3rd slab i.e. ₹ 5,00,001 to ₹ 10,00,000 and tax applicable 20% on income exceeding ₹ 5 lakh (Max. ₹ 1 lakh) + ₹ 12,500/-. (Here you will see the maximum tax amount would be 1 lakh only) plus ₹ 12,500/-.

If the TDS is deducted by any employer other than the government –

  • If the salary is credited and TDS is deducted in the month of march – On or before 30 April
  • If the salary is credited and TDS is deducted in any month other than March- Within seven days from the end of the month in which the deduction is made.

How to file Income Tax Return (ITR) – For Individual users?

Important Information – Before filing the ITR, you will have to keep in mind that the employer (you are working for) will issue a Form 16 (at the end of the Financial Year for ITR filing), a TDS certificate which certifies that the tax amount deducted and deposited. According to the Income Tax Act, when an employer deducts TDS on salaries, a certificate is issued by them which is From 16.

 TDS can be filed from the official website https://www.incometaxindiaefiling.gov.in.

  1. If you have not registered before then you have to register yourself first.
  2. Click on REGISTER YOURSELF Tab.
  3. Select the type of user either Individual or Tax Deductor and Collector as per your category.
  4. If you have selected Individual user, Please keep the PAN Card with yourself. It is the foremost and important details which will be used to create the account.

Step 1 – Enter your PAN and other basic details.

Step 2 – is registration form, fill it up as desired.

Step 3 – is Registration Verification process. It this part, the website will verify your details and send code of both email address and mobile.

Step 4 – will show the status of the registration process whether is successful or not.

Throughout the Registration Process, you will have to keep it mind that each and every steps and each and every desired information is very important for the user and e-filling. The data base of you’re the website is very secured and strong.

After successful verification & registration process, you can login (You are login using PAN & Password which your entered at the time of registration followed by captcha verification) to your account and can be able to file Income Tax Return can be file by different authorized persons:

  • If you are Individual, you can file yourself or by any of your guardian or any other person authorized by you.
  • If you are registered as a Firm, Managing Director or any Director verify and sign the return for any unavoidable reason.

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