Precautions to be taken while deducting TDS from salary


When an employer pays salary to its employee and the amount of salary is more than the taxable income then deduction of TDS from salary is mandatory for employee. The precautions to be taken during deduction of TDS are detailed hereunder:-

Exemption Limit should be observed:

If any payment is made over the tax-free limit then TDS ought to be deducted. For the Financial Year 2013-14, the income on which the tax is not payable is as:

In case of persons over 65 years    - Rs. 2, 50,000/-
In case of persons over 80 years    - Rs. 5, 00,000/-
Other persons including women      - Rs. 2, 00,000/-

On payment of House Rent Allowance:

If any employer makes payment of house rent allowance to employee and the house rent allowance is less than Rs. 3,000/-, a declaration from employee is to be obtained stating that complete rebate on house rent allowance is available. If the house rent is more than Rs. 3,000/- then, the employer will obtain rent receipt issued by land lord of the employee. Along with this employee will provide name of the land lord and the address of the rented property and the rent paid.

Other Allowances:

If any allowance is given, which is exempted u/s. 10 then the employer should give rebate for the same on deduction of TDS. If the allowances are taxable then the TDS is deducted after adding them to income.

In case of perquisites:

If the employee is given certain perquisites as free housing etc. then the amount taxable as per provisions of I.Tax Act should be added before deducting TDS.

Donation given by employee u/s. 80G:

If the employee donates to a notified public charitable institution then the employer will not provide the rebate for the same in TDS. The claim for rebate for donation will be made in employee's return. This clarification is given by Central Board of Direct Taxes vide the circular number 1/2010 dated 11.01.2010. On donation made to Jawaharlal Nehru Memorial Fund, Prime Minister Drought Relief Fund, National Children Fund etc. the rebate shall be provided by the employer in TDS.

Other Rebates:

Employer can allow the rebates under sections 80C, 80CCC, 80CCD, 80D, 80DD, 80E, 80GG and 80U while calculating the income of employee.

in case of more than one employer:

If an employee is working with more than one employer then it is his responsibility u/s 192(2)to make a declaration with one of the employer in form 12B mentioning the amount of salary received from other employer. This form should be submitted to employer whom he wants to deduct TDS. Based on the form the employer will deduct and deposit the TDS on his salary as well from the salary paid by other employer. On the submission of form 12B by the employee, TDS is deductible on average basis from the month of submission.

Rebate of Section 89:

If payment of any arrear salary is made then according to the provisions of section 192(2A), employees of Government or Public sector undertaking, Company, Cooperative societies, Local Authority,Universities, Institutions, Association etc. will get rebate u/s. 89 on deduction of TDS. To avail this exemption the employee shall submit form 10E to the employer.

TDS on any other income of employee:

If an employee has any other income apart from salary, then it should be intimated to the employer on a plain paper and the employer will accordingly deduct TDS after clubbing that income with amount of salary. If there is any loss under the heading house property which occurs due to payment of interest on loan only then rebate for the same shall be given by the employer while determining TDS. Employer cannot claim rebate for any other loss except that of house property.

LTC or Conveyance Allowance:

If employer has made payment for any LTC or conveyance allowance to employee then there is no need for the employee to make a declaration regarding the same to employer. Hon'ble Supreme Court in CIT v/s. Larsen & Tubro (2009) 181 Taxman 71 and CIT v/s. ITI (2009) 183 Taxman 219 decided that there is no legal liability for employer to obtain any declaration from employee in this regard.

Responsibility of employer to issue Tax deduction certificate:

The employer has to issue a certificate regarding deduction of TDS in Form 16 to the employee. If the amount of payment made to employee exceeds Rs. 1.50 lakhs and instead of salary and perquisites, the employee is receiving share in profit then employer will issue form 12BA along with form 16.There is no need to issue form 12BA if the amount of salary is less than Rs. 1.50 lakhs. Additionally, the employer will have to file his own return in form 24. [Rule26A(2)(b)]

An employer will be treated as 'Asseessee in default' on less deduction of TDS. ;

If an employer does not deduct TDS from the salary of employee or deducts less TDS or by violating Income Tax rules allows rebate u/s. 80G or 80GG then he will be treated as 'Asseessee in default.' In this regard, there is a land mark decision of Allahabad High Court- Drawing and Disbursing Officer v/s. CIT (2008) 115 ITD 422.

TDS shall be deducted while making payment only:

TDS is deducted only on actual payment of salary. If the salary is accrued and is not paid, then no TDS deduction shall be made. If the salary has accrued and the actual payment is not made then no deduction of TDS shall be made under the provisions of section 192A. There is aland mark decision of Delhi High Court in CIT v/s. Quebecker Printing Ltd. (2006) 151 Taxman 210 where the ruling was that TDS is to deducted on actual payment.