Why Do Employers Deduct Income Tax Monthly? Understanding the Rules and Employee Concerns

Hi to all,

I am working in a public limited company. Every year at the beginning of the financial year, when I send employees forms for income tax declaration, many employees ask why they have to pay income tax every month. They suggest that they would prefer to pay the tax all at once at the end of the financial year.

Please send me the rules relating to the compulsory deduction of tax from salary income. :-D

Tax Deduction at Source is one of the primary obligations of the employer. Therefore, from the monthly salary of every employee who is expected to cross the required income exempted from income tax, TDS should be deducted. The amount of tax deducted shall invariably depend on the availability of proof of tax savings investments submitted by each employee. Therefore, for each financial year, you may collect a declaration from the employees of their tax-saving investments and proof thereof.

Regards,

Madhu.T.K

As per IT rules, an employer should deduct salaries every month, remit the deductions, and file them quarterly. Some big companies seem to deviate from this and deduct the total amount at year-end from January to March. This was the case a year ago.

Now, filling the e-filing acknowledgment numbers for Q1/Q2/Q3/Q4 in Form-16/16A is mandatory. With the compulsory mention of these numbers, they cannot avoid this requirement anymore. If they fail to comply, a late filing penalty will be levied.

Regards,
Chandru

Sir,

Please provide details on how to deduct the IT from employees' salaries and the process for filing the return of these deducted amounts at the income tax office.

Please take necessary action.

Regards,
sarmakpk1981@gmail.com

"As per IT rules, an employer should deduct taxes from salaries every month, remit them, and file quarterly. Some large companies may deviate from this practice and deduct the entire amount at year-end from January to March, as was the case last year.

Currently, it is mandatory to fill in the e-filing acknowledgment numbers for Q1/Q2/Q3/Q4 in Form-16/16A. Failure to mention these numbers will result in penalties for late filing. This requirement aims to ensure compliance and avoid any avoidance tactics.

Regards,
Chandru"

Dear Sarma,

Your Finance department will take care of the challan remittance and filing of returns, so you need not worry. However, being in HR, you may need to learn tax computation in detail. Unfortunately, it cannot be fully taught in this forum. I suggest seeking assistance from your colleague in the Finance department.

Regards,
Chandru

Sir,

Thank you for the reply. When processing payroll, I should be aware of the tax calculation and need to post the TDS deduction for every employee. Therefore, I would like to understand the TDS calculation.

I want to know if an employee joins the company in the middle of the year, is it required to add their income from the last company to calculate their tax.

Dear Balveer, if the employee who joins in the middle of the year files taxes annually, then you need his previous salary data. If he had paid his taxes each month at the previous company, you need not do it.

Tax Responsibilities Without a Finance Department

Well, I have my question too. I do not have a finance department, and I manage 40 employees. Now that there is a need for some of them to pay taxes, I have to gather data regarding how to go about this exactly the way some sarmakpk has asked. I have to do all of it myself. I wish to know what my responsibilities are in this regard and what the employees have to do on their own. I have no seniors, no HR manager. I have surfed the net and am still surfing. I have brought a book on Taxation that I had already read and loved at the time of my graduation. I know how to calculate income tax on a given salary, but because I have no experience in taxation, I do not know exactly where to start. I'll definitely get the required data from the net and the books I have, but I'm putting up my question here so that I can get help from someone who is experienced (a manager who could guide me on this). Knowledge from books and everywhere else cannot do what a mentor or teacher does. I don't have any and am looking for one here.

Thank you to whoever is going to help.

Dear Chandu and Madhu, How mandatory is it that we have to deduct TDS for an employee every month? As far as I know, Income Tax should be calculated based on the assumption that the employee will be present from April to March, and the tax amount will be spread out over 12 months. As an employer, we ensure that there are no pending liabilities for a particular employee by March 31st. The tax can be deducted in a single month, alternative months, or at any time during the financial year, providing flexibility for the employee to choose based on their earning capacity and money management. To avoid this hassle, we tend to shift the burden to the employee and label it as non-compliance.

Please correct me if I am wrong and share your thoughts on this matter. This approach aims to offer hope to employees rather than leniency, preventing the situation where excess tax is deducted, and they have to seek a refund from the Income Tax department, which can be a cumbersome process.

Regards, Raj

Understanding TDS Mechanism and Employee Responsibilities

To answer your query:

If your employee has a net taxable income of more than Rs. 250,000 in the financial year, the TDS mechanism kicks in. It is the duty and responsibility of the payer to deduct tax at source. If the payer fails to deduct tax at source, the payee will not face any adverse consequences. However, in such a case, the payee will have to discharge their tax liability. Thus, the failure of the payer to deduct tax at source will not relieve the payee from the payment of tax on their income.

Duties of the Person Deducting Tax at Source

Following are the basic duties of the person who is liable to deduct tax at source:

• They shall obtain a Tax Deduction Account Number and quote the same in all documents pertaining to TDS.

• They shall deduct the tax at source at the applicable rate.

• They shall pay the tax deducted by them at source to the credit of the Government by the due date specified in this regard.

• They shall file the periodic TDS statements, i.e., TDS return, by the due date specified in this regard.

• They shall issue the TDS certificate to the payee in respect of the tax deducted by them.

Every company provides the employee with an estimated income statement and monthly TDS deductions. It is up to the employee to declare proof of savings to avoid tax. To my knowledge, there is no flexibility for employees to decide which month and how much tax to be deducted.

Employees need to be advised to plan their taxes and savings. There is no point in railing against the TDS system or the company, as they are duty-bound to follow the Government's guidelines on the issue.

Regards

Dear Friends,

We need to deduct tax for our newly joined employees in our concern. They joined in the middle of the financial year, but they don't have the previous concern TDS documents. So, they are requesting to calculate the TDS from their date of joining. Is there any possibility for that process, or could we collect any letter from them for TDS deduction from the date of joining? If you have any format for the letter, kindly share it.

Thanks in advance.

Regards,
KARTHIKEYAN

You can collect a declaration of total earnings and TDS from previous employment and also a declaration that they need to effect TDS on the entire earnings from their present salary. Normally, whenever a new person joins, we should collect a declaration of their previous income and tax deducted thereon so that the Finance team can decide on their tax liability for the remaining period and make the deductions accordingly.

Madhu.T.K

Hi,

If we calculate tax only for the current employment neglecting the previous employment, then the tax calculation will be in error. For example, if his previous employment taxable income is Rs. 2,00,000 and his taxable income for the current employment is Rs. 4,00,000, then TDS with previous employment is Rs. 45,000, and TDS without previous employment is Rs. 15,000.

So, it is better to ask him/her to provide the previous employment tax computation sheet or ask for the declaration.