How to Calculate TDS, Full Form & Interest Calculation Formula Explained

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 u/s192 from their employees’ salary (if the same exceeds the exemption limit) 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.

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As per the Income Tax Act, here are the scenarios where you are exempted from TDS.

• If you do not need to file IT returns under Section 139.
• In case you give a clear declaration at the beginning of that financial year under Section 15G/15H, and your employer verifies it as per the relevant rules.
• If you are particularly exempted under subsection 3 of Section 194A.
• In case you acquire a certificate under Section 197. This certificate instructs the employer to not deduct or to deduct tax at a lower rate as per its validity and conditions.

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.

Leave Travel Allowance

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.

Mediclaim Premium

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.

House Rent Allowance

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.

Residential Loan Interest

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.

Food Coupons

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.

Tuition Fees

For this, you need to provide copies of your tuition fee receipts signed or stamped by the educational institution.

Donations

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.

National Pension System (NPS)

Here, you need to submit a copy of the deposit receipt for that financial year along with a copy of the relevant bank statement

Section 80C Benefits

You need to invest in Section 80C and utilise the entire amount to save TDS on your salary. In this regard, investing in a 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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