Need Help with Urgent TDS Calculation for Payroll – Any Advice?

Dear Friends,

Recently, I have been assigned the task to look after payroll, including TDS (Tax Deducted at Source) calculation. Can anyone help me with this urgently?

Best wishes,
Asha

If anyone's salary crosses Rs. 20,000 per annum, then we deduct TDS from that employee. In the case of a small unit with fewer than 20 employees, the TDS percentage deducted from the salary is 5.15%.

Hi Asha,

As a practice, organizations deduct provisional income tax on a monthly basis based on the expenses and savings declaration given by the employee at the beginning of every financial year. In January every year, they ask employees to submit the proof of their expenses and savings. If employees fail to submit the same, payroll recalculates the income tax based on the availability of proof and recovers more tax in the next two to three months. There is no hard and fast rule that income tax would be the same for all people drawing 2L or 3L or above. It all depends on their expenses and savings.

There are different slabs for income tax for the Financial Year 2007-08. For example:

Income up to 1.10L - Nil (for Male), 1.45L - Nil (for Female)

1.10 to 1.5L - 10% (For Male), 1.45 to 1.5L - 10% (for Female)

1.5 to 2.5 L - 20%

2.5L and above - 30%

Please note that income is not the gross salary.

Income = Gross salary - expenses (e.g., HRA, CCA, Children Allowance, Medical reimbursement, refreshment, etc.) - Savings (PF, PPF, LIC, Mutual fund, House loan, etc.) - Statutory Deductions (ESI, P.Tax).

Please refer to the computation of Income tax on salaries from the Income tax book for details.

Please remember that income tax rules change every year according to the Finance budget.

Regards,

Anup

Hi Asha,

You may visit the official website of the Income Tax Authorities for more details - http://incometaxindia.gov.in. Also, you may refer to the book "Tax Computation Made Easy" by Suhas Kulkarni for basic issues regarding Income Tax.

Thanks,
Sachin Dhavale

Hi Anup,

Is TDS deducted the same in every state? Is TDS implemented for contract employees?

Waiting for your reply.

Regards,
Malini.

Yes, because it is governed by the Central Finance Act. Across India, rates are the same except in a few States as defined under the Income Tax Act, e.g. J&K, NE region (refer to the Income Tax Act for more information).

TDS does not differentiate between whether an employee is on permanent roles or a contract. TDS shall be applicable to any kind of income. We are discussing income tax on salaries. Therefore, if you are paying a salary to contract employees from your end, it shall be deducted as per the act. If they are outsourced, it shall be deducted from the outsourcing agency's end through their payroll.

Again, I advise you to refer to the calculation of Income Tax on salaries for better understanding.

Regards,
Anup

As per Section 192 of the Income Tax Act, 1961, it is a statutory obligation of the employer to deduct tax at source before making the payment to the employee. For this purpose, he has to make an estimate of the salary which is likely to be disbursed to the employee and make a calculation of income tax. Now, this tax is to be recovered from the salary of the employee on a monthly basis and deposited with the central government.

While making the estimation of income tax to be deducted, savings which an employee is to make under Section 80C and other sections that qualify for exemption are to be taken into consideration. I am enclosing herewith the schedule of TDS rates for the assessment year 2007-2008, which the reader may find useful.

Deepak Thukral
Chandigarh

Dear Friends, recently, I have been assigned to look after payroll, including TDS (Tax Deducted at Source) calculation. Can anyone help me with this urgently?

Salary Details

Salary: $33,000

Please reply as soon as possible.

Thanks & Regards.