Dear Swathi & Vaishali,
As you are aware, the tax at source for salary gets deducted at the average rate. However, the incentive pertaining to the financial year may be paid during the year based on the performance criterion. Since this incentive is based on performance, it may not have been considered while calculating the average rate of TDS. Hence, once such incentives are paid, 2 points need to be considered
1. TDS shall be applied upfront on such incentive
2. If any impact is on the average rate of TDS, it needs to be taken in to account (e.g. impact of surcharge)
Example: If the taxable salary of the person is Rs. 3,50,000 for the average rate of TDS. The total yearly tax is Rs. 25,750 (Rs. 25,000 tax plus Education cess & SHE of Rs. 750). This tax will be deducted at source monthly at average rate i.e. around 2146 per month. Now if the employee is paid Rs. 1,00,000 incentive in the month of July 2008, TDS on the same will be Rs. 20,600 (Rs. 20,000 Tax plus Education cess & SHE of Rs. 600). This TDS will be in addition to the monthly average
Hope this had clarified your query.
Regards
Jai