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The aim of Tax Deduction at Source (TDS) is to collect tax from the actual source of income. According to this concept, employers shall deduct tax at source from their employees’ salary and remit the same to the central government’s account.
Likewise, the employee or taxpayer is entitled to get a credit of the deducted amount based on Form 26AS or the TDS certificate issued by the employer.
Before proceeding with the technicalities of TDS calculation, you first need to know what TDS is calculated on.
Calculating TDS depends on various natures of payments.
Therefore, individuals wondering how to calculate TDS on salary, bill amount or fixed deposits first need to know the different TDS rates.
In the table given below, you will find the detailed list with the relevant sections and rates of TDS.
|
Nature of Payment |
Relevant Section |
TDS rate from 1 April 2021 |
|
Salaries |
Section 192 |
Normal slab-rate |
|
Premature PF withdrawal |
Section 192A |
10.00% |
|
Interest received on securities |
Section 193 |
10.00% |
|
Dividends received on the company's shares and on mutual funds |
Section 194 and 194K |
10.00% |
|
Interest other than interest on securities (fixed deposit interest) |
Section 194A |
10.00% |
|
Winnings from crosswords, lotteries or any game |
Section 194B |
30.00% |
|
Winnings from horse races |
Section 194BB |
30.00% |
|
Winnings from horse races |
Section 194BB |
30.00% |
|
Payment of contractors and sub-contractors |
Section 194C |
1% (individual/HUF), 2% (others) |
|
Insurance commission received by domestic companies |
Section 194D |
10.00% |
|
Insurance commission received by other others |
Section 194D |
5.00% |
|
Life insurance policies not exempt under Section 10(10D) |
Section 194DA |
5.00% |
|
Payment in respect of deposits under National Savings Scheme |
194EE |
10.00% |
|
Payments on account of repurchase of units by mutual funds or UTI |
194F |
20.00% |
|
Commission, prize etc., on sale of lottery tickets |
Section 194G |
5.00% |
|
Brokerage or Commission |
Section 194H |
5.00% |
|
Payment done while transferring immovable property except for agriculture land |
Section 194IA |
1.00% |
|
Rent payment by HUF or individual exceeding ₹50,000 per month |
Section 194IB |
5.00% |
|
Rent on machinery and plant |
194- I |
2.00% |
|
Rent for property that is immovable |
194-I |
10.00% |
|
Payment of professional fees, etc. |
194J |
2% (technical services, royalties, FTS, call centre), 10% (others) |
|
Payment made by HUF/individuals to professional or commission or brokerage of more than ₹50 lakh and above |
194M |
5.00% |
|
Cash withdrawal exceeding a specific amount |
194N |
2.00% |
|
TDS on e-commerce participants (w.e.f. 1.10.2020) |
Section 194-O |
1.00% |
Typically, the employer deducts TDS from his employee’s salary at the ‘average rate’ of his income tax.
The general formula is:
Average Income Tax Rate = Income Tax Payable (computed through slab rates) / Estimated income for the financial year.
Let’s say you receive a monthly salary of ₹1,00,000 during the financial year 2021-22.
|
Total income |
₹12,00,000 |
|
Estimated deduction (under Chapter VI A) |
₹1,00,000 |
|
Income chargeable to tax |
₹11,00,000 |
Under Section 192, TDS on your salary according to the current slab rate will be ₹1,42,500.
After adding 4% education and higher education cess (i.e. ₹5,700), your net payable tax becomes ₹1,48,200.
So, the average rate of TDS on your salary will equal to ₹1,48,200/12,00,000*100 = 12.35%.
Under Section 192, TDS on your salary deducted every month will be 12.35% of ₹1,00,000, i.e., ₹12,350.
As per the Income Tax Act, here are the scenarios where you are exempted from TDS.
Apart from the conditions mentioned above, TDS will be levied as per Section 194A of the Income Tax Act in all other cases. However, you can do few things to minimise your tax liability arising from TDS.
Every taxpayer should incur travel allowance expenses before claiming an exemption. So, if you don’t have travel allowances in your salary break-up, you can request your employer to include them.
You can provide an 80D tax certificate from insurance firms supporting the deduction of your paid premium. You may also have to provide copies of the bank statement, passbook, and routine health check-up receipts as proof.
In case your aggregate rent paid in that financial year exceeds ₹1,00,000, you can provide the name, address and PAN of your landlord to claim this allowance. If you don’t have the PAN of your landlord, you need to obtain a declaration in Form 60.
To claim this exemption, you need to provide the lender's name, address, and PAN and the bank certificate having the details like date of availing loan, instalment amount, and chargeable interest.
As per the Income Tax Act, a sum of ₹50 per meal can be exempted from meal vouchers. So, for a month with 25 working days, you can get a tax exemption of ₹2,500.
For this, you need to provide copies of your tuition fee receipts signed or stamped by the educational institution.
If you have provided certain funds to charitable institutions or authorised trusts, you can submit the receipt of your donation, including all the relevant credentials.
Here, you need to submit a copy of the deposit receipt for that financial year along with a copy of the relevant bank statement
You need to invest in Section 80C and utilise the entire amount to save TDS on your salary. In this regard, investing in Public Provident Fund (PPF) is a good option since it offers an annual tax rebate of around ₹1,50,000.
Under Section 201(1A), you will have to pay interest in case of late TDS payment. The interest on late payment of TDS is calculated at a rate of 1.5% per month from the due date.
Let’s say your payable TDS amount is ₹5,000, the due date is 13 January, and you pay it on 17 May. Then, as per the TDS late payment interest calculator, the interest you have to pay is ₹5,000 x 1.5% p.m. x 5 months = ₹375.
Keeping the above points in mind will aid in accurate and TDS calculation. For absolute accuracy, individuals can use an online TDS calculator.
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Disclaimer: This information is added only for informative purposes and collected from different sources across the Internet. Digit Insurance is not promoting or recommending anything here. Please verify the information before making any decisions.
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