How Do You Accurately Calculate TDS on Employee Salaries in HR?

Hi, I'm a Senior HR Executive. I want to know about TDS calculation on the salary.

Thank you for your inquiry. Understanding tax deduction at source (TDS) on employee salaries is an essential aspect of payroll management. TDS is deducted as per the applicable income tax slab rates based on the employee's total income. It is crucial to ensure accurate calculations and timely deposits of TDS to comply with tax regulations and avoid any penalties.

To calculate TDS on an employee's salary, you need to consider various components such as basic salary, allowances, deductions, exemptions, and tax-saving investments. Using the correct formulas and staying updated with the latest tax laws will help you calculate TDS accurately.

If you require further assistance or detailed information on TDS calculation or any other HR-related queries, feel free to reach out. I am here to help.

First of all, you need to identify the employees whose salaries are taxable under the Income Tax regulations. Then, calculate all their earnings from your company, including salary, bonuses, allowances, perquisites, etc., and also determine their PF contribution.

Next, gather information from the employee regarding any additional contributions such as LIC or other savings deposits allowed under the IT Act. Seek advice from the Accounts Department personnel to determine the amount of tax payable by the employee.

Finally, begin deducting the tax from the employee's salary in a manner agreeable to them, after consulting with them on the most feasible approach.

Mr. Omvir Singhji,

Please follow the steps given by Mr. P. Ramchandran.

Up to Rs. 1,60,000, there is no income tax. Beyond Rs. 1,60,000, there are different slabs for the calculation of income tax.

However, please remember that an employee may save up to Rs. 1,00,000 in PF, PPF, LIC, and similar other schemes and get a rebate under section 89. One may also be eligible for further rebate of Rs. 20,000 if one invests in infrastructure bonds. Savings in PPF are allowed up to Rs. 70,000 only. Savings made in the name of a spouse, if she is not employed and does not have her source of income, are also exempt for computing income tax of an employee. Similarly, savings made in the above schemes in the name of children below 18 years of age are also exempt.

After considering these rebates subject to the production of documentary evidence by the concerned employee, calculate income tax and start recovery as early as possible. It is the responsibility of the employer, that is of the HR in other words, to recover the income tax and remit it to the government on or before 31st March every year. Failure to do so attracts penal action.

All employees must have their PAN card numbers. Remittances of IT to the IT department are to be made against PAN only. If any employee does not have a PAN, ask him to get it immediately.

Thanks.

Shyam Agrawal

I shall insert an Excel worksheet for Income Tax Calculation on salary for the Financial Year 2010-11 (Assessment Year 2011-12). Prior to that, I wish to explain some details to get an idea to enter the inputs.

On gross salary, the following deductions are applicable:

1) Professional Tax
2) House Rent in excess of 1/10th of salary subject to ceiling equivalent to HRA
3) Interest on Housing loan subject to ceiling Rs. 1,50,000.
4) Refund on Housing loan, savings, tuition fee for 2 children, etc. altogether subject to ceiling Rs. 100,000.
5) In addition, savings on infrastructure bonds up to Rs. 20,000.
6) Other than the above, one lakh, 15000 to 20000 towards mediclaim premium, 40000 to 60000 towards treatment on specified diseases like Motor Neuron disease, 75000 to 100,000 towards disability, etc. are also admissible for deduction.

The details can be obtained from the following website: CENTRAL GOVERNMENT EMPLOYEES NEWS: New Income Tax Slab for FY 2010-11

Now, taxable income can be calculated as follows:

Gross salary - total deductions = Taxable income

Tax payers can be categorized into 3 groups:

1) Non Seniors - Male
2) Non Seniors - Female
3) Senior Citizens (65 years old & above)

If the taxable income is Rs. 2,40,000, a Senior Citizen is fully exempted from paying tax. Non-Senior Female has to pay in excess of Rs. 1,90,000 & Non-Senior Male in excess of Rs. 1,60,000.

Beyond the above income, one has to pay 10% up to Rs. 5,00,000, 20% thereafter up to Rs. 8,00,000 and 30% in excess of Rs. 8,00,000. In addition, an education cess @ 3% will be charged on Total Tax.

I shall provide an example:

Gross income of a Non-Senior Male - Rs. 12,00,000

Deductions (actual): Professional Tax - 12000, Housing loan interest - 2,00,000, Total savings/deductions - 2,50,000, Savings on Infrastructure bond - 25,000, other deductions over 1,00,000 - 50,000.

Admissible total deductions (subject to ceiling limits) - 12000 + 150000 + 100000 + 20000 + 50000 = 332000

Taxable income, 1200000 - 332000 = 868000

For Non-Senior Male:

Rs. 1,60,000 is exempted.
For the next 340000 (500000-160000), 340000x10% = 34000 -(1)
For the next 300000 (800000-500000), 300000x20% = 60000 -(2)
For the next 68000 (868000-800000), 68000x30% = 20400 -(3)

Tax - (1) + (2) + (3) = 114400

Also For Non-Senior Female Tax is, 114400-3000 = 110400

and Senior Citizens Tax is, 114400-8000 = 106400

Education Cess, 114400 * 3% = 3432.

Total Tax - Rs. 1,17,832

See Excel Sheet. Enter gross salary and deductions/savings applicable in the green color column. Results will occur in the yellow color. The red color is used for static data.

ABBAS.P.S,
Secretary,
ITI Employees' Association,
ITI Ltd, PALAKKAD - 678 623,
KERALA, INDIA.
Ph. +91 9447 467 667

Dear Mr. Abbas,

Thank you for shedding light on the calculation. May I request you to provide some more examples with a lower salary band?

Thanks!
Maya

I shall insert an Excel worksheet for Income Tax Calculation on salary. Prior to that, I wish to explain some details to give an idea for entering the inputs.

On gross salary, the following deductions are applicable:
1) Professional Tax
2) House Rent in excess of 1/10th of salary subject to a ceiling equivalent to HRA
3) Interest on Housing loan subject to a ceiling of Rs. 1,50,000.
4) Refund on Housing loan, savings, tuition fee for 2 children, etc., altogether subject to a ceiling of Rs. 100,000.
5) Additionally, savings on infrastructure bonds up to Rs. 20,000.
6) Other than the above one lakh, 15,000 to 20,000 towards mediclaim premium, 40,000 to 60,000 towards treatment for specified diseases like Motor Neuron disease, 75,000 to 1,00,000 towards disability, etc., are also admissible for deduction.

The details can be obtained from the following website: CENTRAL GOVERNMENT EMPLOYEES NEWS: New Income Tax Slab for FY 2010-11

Now, taxable income can be calculated as follows:

Gross salary - total deductions = Taxable income

Taxpayers can be categorized into 3 groups:
1) Non-Seniors - Male
2) Non-Seniors - Female
3) Senior Citizens (65 years old & above)

If the taxable income is Rs. 2,40,000, a Senior Citizen is fully exempted from paying tax. A Non-Senior Female has to pay in excess of Rs. 1,90,000 and a Non-Senior Male in excess of Rs. 1,60,000.

Beyond the above income, one has to pay 10% up to Rs. 5,00,000, 20% thereafter up to Rs. 8,00,000, and 30% in excess of Rs. 8,00,000. Additionally, an education cess at 3% will be charged on the Total Tax.

Allow me to provide an example:

Gross income of a Non-Senior Male: Rs. 12,00,000

Deductions (actual): Professional Tax - 12,000, Housing loan interest - 2,00,000, Total savings/deductions - 2,50,000, Savings on Infrastructure bond - 25,000, other deductions over 1,00,000 - 50,000.

Admissible total deductions (subject to ceiling limits) - 12,000 + 150,000 + 100,000 + 20,000 + 50,000 = 3,32,000

Taxable income: 12,00,000 - 3,32,000 = 8,68,000

For Non-Senior Male:

Rs. 1,60,000 is exempted.
For the next 3,40,000 (5,00,000 - 1,60,000), 3,40,000 x 10% = 34,000 -(1)
For the next 3,00,000 (8,00,000 - 5,00,000), 3,00,000 x 20% = 60,000 -(2)
For the next 68,000 (8,68,000 - 8,00,000), 68,000 x 30% = 20,400 -(3)

Tax: (1) + (2) + (3) = 1,14,400

Also, for Non-Senior Female, Tax: 1,14,400 - 3,000 = 1,10,400
and Senior Citizens Tax: 1,14,400 - 8,000 = 1,06,400

Education Cess: 1,14,400 * 3% = 3,432

Total Tax: Rs. 1,17,832

Please refer to the Excel Sheet. Enter gross salary and applicable deductions/savings.

ABBAS.P.S,
Secretary,
ITI Employees' Association,
ITI Ltd, PALAKKAD - 678 623,
KERALA, INDIA.
Ph. +91 9447 467 667[/QUOTE]

Understanding TDS on Salaries

In my view, salaries don't come under TDS because TDS is applicable for those who are providing services on a contract basis, such as consulting charges, service charges, etc. Salaries will attract Income Tax because earnings are received through the employer on a monthly basis, component-wise.

Not all salaried individuals will attract income tax; those who earn more and have investments that exceed the limit will be subject to Income Tax as per the rules.

I welcome any additional suggestions.