we shall discuss Indian Income Tax Deducted at Source on Salaries as
per Section 192 of the Indian Income Tax Act.
- Any person responsible for paying any income
chargeable under the head “Salary” is required to deduct tax at source
on the amount payable.
responsible for paying:
the employer himself. If the employer is a company, the company itself
including the principal officer thereof. If the employees are of
Central/State Governments, the person responsible for paying would be
the concerned disbursing officer.
- Tax is to be calculated on the
basis of rates applicable for the financial year in which such payment
- No tax is required to be
deducted at source unless the estimated salary exceeds the maximum
amount not chargeable to tax for the financial year in which the salary
- Tax is to be deducted on the
estimated income under the head “Salaries” calculated as per the
provisions of the Act.
- Tax is required to
be deducted from salary income only when it is actually paid to the
employee. No need to deduct tax at the time of making a provision.
- The person responsible for
payment may choose to pay the tax on the following non-monetary
perquisites instead of deducting tax from the employee: 1. Value of
rent-free accommodation provided to the employee by the employer. 2.
Value of any concession in rent in respect of any accommodation
provided to the employee by the employer.
Note: As per section 206AA, with effect from 1.4.2010, every person who
receives income subject to TDS under chapter XVIIB (covers all TDS
cases) shall furnish to the deductor, his PAN. If PAN is not so
furnished, the rate of TDS will be at the rates specified in the Act or
at the rates currently in force or at 20% whichever is higher. Please
note that this applies to non residents also.
- If a person is employed by more
than one employer during the financial year, tax will be deducted on
the aggregate salary by one of the employers chosen by the employee by
submitting the information in Form No.12B.
- In respect of salary payments to
an employee of the Government, Public Sector Undertaking, company,
co-operative society, local authority, university, institution,
association or body, tax deduction at source is to be made after
allowing relief under section 89, if any. To avail this benefit, the
concerned employee should furnish particulars in Form No. 10E to the
- If the employee has income under
any other head, he may choose to declare to the employer. He can do so
by providing information about his other sources of income on a plain
paper to the employer.
- If the employee has declared
details of his income under any other head, the employer has to take
into account the other incomes also in computation of tax to be
deducted from such employee. But, this should not result in reducing
the tax deductible from the employee except in the case where loss
under the head “Income from House Property” has been taken into account.
- Even if the declaration contains
other income and tax deducted at source from such other income, the tax
to be deductible at source from salaries should not be reduced from
what it would have been if there was no other income and tds for the employee. Except for
the loss under the head “Income from house property”, income/loss and
TDS under no other head of income shall have the effect of reducing TDS
If the employee has not declared
details of his other income, the employer cannot take into account such
other income even if the quantum of other income is otherwise known to
- For the purposes of deduction of
tax at source on salary payable in foreign currency, the value in
rupees of such salary shall be calculated at the prescribed rates of
- The person responsible for
payment should take into consideration the amount deductible under
sections 80C, 80CCC, 80CCD, 80D, 80DD, 80E, 80GG and 80U. Deduction
under section 80G has to be taken into account only in respect of funds
specified as per Circular No.11/2006 dt.16/11/2006. Except
for the above, other deductions under Chapter VIA cannot be taken into
account by the employer.
- From the tax calculated on the
estimated taxable salary, tax rebate under section 88E (in respect of
Securities Transaction Tax) should be deducted.
- If tax is deducted at source,
TDS certificate in Form No.16 is to be issued to the employee within
one month from the close of the financial year. If the income from
salaries does not exceed Rs.1,50,000/-,
the employer can issue TDS certificate in Form No.16AA.
- If the salary payable during the
financial year exceeds Rs.1,50,000/-, the person responsible for
payment shall furnish to the employee the complete particulars of
perquisites or profits in lieu of salary provided to him in Form No.
12BA. This is in addition to the Form No.16 given to the employee. If
the salary does not exceed Rs.1,50,000/-,
such information can be provided in Form No.16 itself.
- If Form No.16 and Form No.12BA
are not issued within one month from the end of the financial year, the
employer shall pay by way of penalty, Rs.100 for every day during which
the failure continues. [Section 272A].
- The deductor
has an option to issue Form No. 16 in digital form provided that his
digital signature is used to authenticate such forms. The employer
should maintain control numbers with log of such certificates issued
with digital signatures.
- Where an employee claims that
his salary is not chargeable to income tax and therefore, no tax should
be deducted from his salary, the employer should advise the employee to
obtain a certificate under section 197(1) from the concerned Income Tax
Officer authorising no
deduction or deduction at a lower rate. (Circular No.
- The liability of the employer to
deduct and pay tax is absolute. Failure to do so would attract interest
and penal provisions under the Act. (F.No.237/4/75-A & PAC
- The tax deducted shall be
remitted within 7 days from the last day of the month in which the tax
there is delay in remitting
or deducting or shortfall in remitting or deducting, interest of 1
percent per month or part thereof shall be paid from the date on which
tax is deductible to the date
on which the tax is actually deducted as per Section 201(1A). From the
date of deduction till the date of payment, interest shall be leviable
at the rate of 1.5 percent per month or part thereof. Hence, for
delay in remittance also, interest is payable from the date of tax
deduction. Such interest has to be paid before furnishing the quarterly
- The TDS return in Form 24Q has
to be furnished quarterly on or before 15th
July(I quarter), 15th Oct(II quarter), 15th
Jan(III quarter), 15th June(IV quarter). There
is no requirement of filing annual TDS return. The quarterly return
filed for the March quarter shall be treated as the annual return. If
the TDS return is not filed in time, a penalty of Rs.100 shall be
payable for every day during which the default continues.
- The TDS returns should be filed
in the electronic format by Govt. departments, companies and persons
who are required to get their accounts audited u/s 44AB in the
immediately preceding financial year. For other deductors,
electronic filing is compulsory if the number of deductees in any quarter of the
immediately preceding financial year is equal to or exceeds 50.
- The quarterly return should
contain at least 95% of correct PAN data.
- Failure to deduct tax at source
would also attract penalty u/s 271C of an amount equal to the amount of
tax not deducted.
- Failure to remit the tax
deducted at source would attract imprisonment and fine as per section
1. Ship owner required to deduct tax at source from seamens salaries
Ship-owners are liable to deduct tax at source under section 192(1) of
the Act. There is no bar in the Merchant Shipping Act, for such a
deduction. Under section 125 of the Merchant Shipping Act, the master
of every ship has to deliver to the seaman a full account of seamans
wages and of all deductions to be made therefrom on any account
whatsoever. The deduction of tax from the wages of seaman may be shown
in a separate column in the statement to be given to the seaman by the
master of the ship to comply with the section.
For the purpose of determining the rate of tax applicable, the total
salary of the seamen for the year may be estimated as the amount of
wages due for a period of ten months on the basis of the monthly wages
fixed as per articles of agreement. In cases, where the agreement
itself covers a period of more than ten months, the estimated income of
such actual period would have to be taken into account for the purpose
of tax deduction. If an agreement starts towards the later part of the
year and any seaman satisfies his employer that his income for the year
as a whole would not be above that taxable limit, no tax need be
deducted for that financial year.
The return of salaries may be made by the Indian employer or the agent
of the foreign employer within the time mentioned in section 206 of the
Considering that the ships would be on the high seas for weeks, payment
of the tax may be made quarterly as provided in rule 30 of the IT
Rules, 1962. However, the employer will have to ensure that before
wages are paid to the seaman at the time of discharge, the tax
liabilities are properly calculated and final recovery effective from
such wages paid at the time of discharge.
In respect of Indian seaman engaged on foreign owned ships the agents
in India of the foreign principal will be responsible for deduction of
tax at source under section 192(1) of the Act.--Vide Letter F. No.
12/71/65-IT(B), dt. 5-3-1966.
2. Deductibility of TDS on conveyance payments--Clarification regarding
If the disbursing authority is satisfied that the conveyance allowance
granted to the employees are covered by section 10(14), then the
obligation to deduct tax thereon may not arise. In such contingency tax
is not liable to be deducted at source from this allowance. However, at
the same time it will have to be ensured that a certificate in terms of
section 10(14) is endorsed on the tax deduction bills, by the
disbursing authority. The employees who are in receipt of conveyance
allowance would also have to furnish the necessary certificate before
the assessing authorities in support of the fact that conveyance
allowance is only a reimbursement of expenses laid out wholly,
necessarily and exclusively for the performance of the duties of an
office. Such satisfaction of the disbursing authority would still be
liable for scrutiny by the ITO during regular assessment proceedings
before him.--Vide Circular No. 196, dt. 31-3-1976.
3. Requirement of obtaining no deduction or deduction at lower rate certificate under section 197(1)
In any case where an employee claims that his salary is not chargeable
to income-tax and, therefore no income-tax should be deducted at source
from the salary receivable by him, the employer should require the
employee to obtain from the concerned ITO a certificate under section
197(1) authorising no deduction or deduction at such lower rates as m
ay be prescribed in the said certificate. In the absence of such a
certificate from the employee, the employer should deduct income-tax on
the salary payable at the normal rates.--Vide Circular No. 147, dt.
4. Relief under section 80U
An employer would give a deduction of Rs. 5,000 from the income
assessable under the head "Salaries" while deducting the tax at source
thereon in any financial year on the production of a certificate from
the ITO authorising such deduction. The certificate will be issued by
the ITO in the name of the employer on a request made by the resident
individual entitled to this deduction in the course of his assessment
for the first assessment year or laterule The certificate will be
issued on completing the first years assessment if such an individual
is held entitled to the deduction of Rs. 5,000 under section 80U of the
A certificate once issued will continue to be in force till it is
withdrawn by the ITO or till the resident individual leaves the
employment of the employer in whose favour the certificate is
issued.--Vide Circular No. 272, dt. 27-5-1980.
5. Refund of amount paid in excess of tax deducted and/or deductible--Procedure to regulate the same
Excess payment can be refunded, independently of the Act, to the person
responsible for making such payment subject to necessary administrative
The excess payment would be the difference between the actual payment
made by the deductor and the tax deducted at source or that deductible,
whichever is more. This amount should be adjusted against the existing
tax liability under any of the Direct Tax Acts. After meeting such
liability, the balance amount, if any, should be refunded to the
Where the tax is deducted at source and paid by the branch office of
the assessee and the quarterly statement/annual return (in case of
salaries) of tax deduction at source is filed by the branch, such
branch office would be treated as a separate unit independent of the
head office. After meeting any existing tax liability of such a branch,
which would normally be in relation to the deduction of tax at source,
the balance amount may be refunded to the said branch office. The ITO,
who will refund the amount, would be the one who receives the quarterly
statement/ annual return (in case of salaries) of tax deduction at
source from that branch office and keeps record of the payments of TDS
made by that branch.--Vide Circular No. 285, dt. 21-10-1980.
6. No actual rent receipt to be demanded in rent payment does not exceed Rs. 3000 per month
It has to be noted that only the expenditure actually incurred on
payment of rent in respect of residential accommodation occupied by the
assessee subject to the limits laid down in Rule 2A, qualifies for
exemption from income-tax. Thus, house rent allowance granted to an
employee who is residing in a house/flat owned by him is not exempt
from income-tax. The disbursing authorities should satisfy themselves
in this regard by insisting on production of evidence of actual payment
of rent before excluding the House Rent Allowance or any portion
thereof from the total income of the employee.
Though incurring actual expenditure on payment of rent is a
pre-requisite for claiming deduction under section 10(13A), it has been
decided as an administrative measure that salaried employees drawing
house rent allowance upto Rs. 3,000 per month will be exempted from
production of rent receipt. It may, however, be noted that this
concession is only for the purpose of tax-deduction at source, and, in
the regular assessment of the employee, the assessing officer will be
free to make such enquiry as he deems fit for the purpose of satisfying
himself that the employee has incurred actual expenditure on payment of
rent.--Vide Circular No. 1/2010, dt. 11-1-2010.
7. Clarification regarding
tax deduction at source on arrears of salary paid to Government
Servants on Account of implementation of the recommendations of Sixth
Central Pay Commission
The Implementation Cell of the Department of Expenditure, Ministry of
Finance vide its Office Order F.No. 1/1/2008-IC, dt. 30-8-2008 has
stated at para 2(v) "Bills may be drawn separately in respect of the
arrears of pay and allowances for the period from 1-1-2006 to
31-8-2008. The aggregate arrears, computed after deduction of
subscription at enhanced rates of GPF and NPS with reference to the
revised pay, may be paid in two installments, the first installment
being restricted to 40% of the aggregate arrears. DDOs/PAOs will ensure
that action is taken simultaneously in regard to Governments
contribution towards enhanced subscription. Orders in regard to the
payment of the second installment of arrears will be issued separately."
2. A number of representations have been received by Central Board of
Direct Taxes (CBDT) seeking clarification as to whether TDS need to be
deducted on 40% of arrear to be paid during 2008-09 or on the entire
arrear payable to the government servant. The matter has been examined
by the CBDT and the issue is clarified as under :
Salary is as defined under section 15 of Income Tax Act, 1961 :
(a) any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not;
(b) any salary paid or allowed to him in the previous year by or on
behalf of an employer or a former employer, if not charged to
income-tax for any earlier previous year.
3. It is clear from the Office Memorandum issued by the Department of
Expenditure that 60% of the pay arrears neither fall in the category of
due nor are allowed. Moreover, section 192 of Income Tax Act, 1961,
inter alia, requires any person responsible for paying any income
chargeable under the head "Salaries" to deduct income-tax on the amount
payable at the stipulated rate at the time of payment. Therefore it is
clarified that income tax at source would be deducted under section 192
only from the arrears of salary actually paid during financial year
2008-09. On the balance, tax would be deducted during the financial
year in which these pay arrears are actually paid.--Vide Press Release
No. 402/92/2006-MC (46 of 2008), dt. 30-9-2008.
8. TDS from payment of second
installment of arrears to Government employees on account of
implementation of Sixth Central Pay Commissions recommendations
Under the provisions of Section 192 of the Income-tax Act, an employer
is required to deduct tax at source from any payments in the nature of
salary, which inter alia also includes any arrear payments. The
Implementation Cell of the Department of Expenditure, Govt of India,
vide its Office Order dated 30th Aug 08 had stated that 40% of the
aggregate arrear (first installment of arrears) would be payable during
FY 2008-09. In Circular No. 09/2008 dated 29th Sept. 2008 issued from
this office it was stated that during 2008-09 the tax has to be
deducted at source on this 40% of aggregate arrear during FY 2008-09.
The OM,F.No-1//1/2008-IC, of the Implementation Cell of the Department
of Expenditure, Govt of India, vide its order dated 25th August, 2009
has stated that the remaining 60% of the aggregate arrear ( second
installment of arrears) would be paid to the concerned Government
servants during FY 2009-10. Such arrangements could be followed by
State Governments also.
In this regard, all the DDOs and PAOs as the case may be, in the
Central/State Government and various organizations under them are
advised to compute the correct tax liability of every employee on
second installment of arrears drawn by him and immediately recover the
full tax liability along with education cess thereon at the rates in
force. The deduction of tax at source on such arrear payment should not
be deferred in any circumstance. They should further ensure that the
tax so recovered is paid to the account of Central Government account
immediately as per the Income Tax Rules, 1962. The DDOs/PAOs are
further advised that they should ensure that the PAN details of the
deductees (recipient of arrears) are correctly quoted in the relevant
quarterly e-TDS returns filed by them so that the Government Servants
get proper credit of their tax deducted in their respective income tax
DDOs/PAOs who fail to comply with the provisions of Section 192 of the
of the Income-tax Act, 1961 would be liable to pay interest under
section 201(1)/(1A) of Income Tax Act along with other penal
consequences.--Vide Circular No. 6/2009, dt. 31-8-2009.
All the information provided above is for informative purposes only.
You are advised to consult your tax consultant before you act upon any
of the above information. In spite of this, if any person acts upon
this information and suffers any loss, we are not to be held liable.
Though all efforts have been made to provide latest information, you
are advised to check latest circulars, latest changes in law etc from
the Indian Income Tax Department.
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