New to TDS Deductions? Need Urgent Help Understanding and Managing It at Work

Understanding TDS and Its Implications

Please help me with TDS. I have joined a new company last month. There is no salary structure, and the company wants to deduct TDS from employees every month. The Director has instructed me to provide details of employees who are subject to TDS.

So, please help me with the following:

1. What is TDS?
- Explanation of Tax Deducted at Source (TDS) and its purpose.

2. Salary Breakdown for TDS
- What breakdown should be made for each employee's salary?

3. Determining TDS Coverage
- How can I determine who is covered under TDS deduction?

4. Saving on TDS Deductions
- How can an employee save on their TDS deduction from salary?

Please reply soon as this is very urgent.

Thanks in advance for your response.

Regards,
Lokesh

1. What is TDS? It's a professional tax on services.

2. What breakup should be made of each employee's salary? The breakup varies by state, and there are monthly deductions.

3. How can I know who is covered under TDS deduction? TDS deduction is based on gross earnings, and even workers are eligible for TDS deductions.

4. How can an employee save on TDS deductions from salary? Income tax can be saved, but TDS as a professional tax must be deducted from working employees and contract workers as well.

Understanding TDS and Salary Structure

1) TDS is tax deducted from an employee's salary for those employees who cross the below tax exemption limit. For male employees for this year FY 2011-2012, it is Rs. 180,000/-. For female employees, it is Rs. 190,000/-.

2) You can make a simple breakup as follows:
- Basic: 50% of gross
- HRA: 25% of basic
- Conveyance: Rs. 800/-
- Medical: Rs. 1,250/-
- Other allowance: Remaining figure from gross

3) Take the salary of each employee from April 2011 till December 2011. Consider the salary for January, February, and March 2012 to be the same as for December 2011. After doing this, you will get the total gross. From this gross, you deduct HRA, conveyance, medical, PF, and other deductions to get the remaining gross. If this gross is more than the exemption limit, then the employee will come under TDS.

4) Suppose from the above calculation, Rs. 1,50,000/- is the TDS deduction. If the employee has made investments in LIC, PPF, home loan principal repayment, etc. (this will come under section 80C), or in LIC pension fund under section 80CCC, the maximum investment can be Rs. 1,00,000/-. Under section 80D for mediclaim, it is Rs. 15,000/- per year. Under section 80G for donations, if the employee's investment in all this is Rs. 1,25,000/-, then Rs. 25,000/- (remaining amount) plus 3% cess will be deducted from their salary either together in the remaining months of January and February, or if the company and employee have made the calculation at the beginning of the year, then from April 2011 itself proportionately.

Hope the above explanation has somewhat given you the idea. Do confidently; everyone new to this is confused. Take help from Cite HR, or after talking to your MD, hire any tax consultant for this year.

Regards,

Use this calculator for TDS calculation.

Answers to your queries:

1. What is TDS?

Tax Deducted at Source (TDS) is applicable on salaries. In an organization, employees whose salary is higher than the tax exemption amount will have TDS deducted from their salary. For men up to 60 years, the limit is ₹1,80,000 per annum; for women, it is ₹1,90,000 per annum; for senior citizens above 60 years, it is ₹2,50,000 per annum; and for those above 80 years, it is ₹5,00,000 per annum.

2. What breakup should be made of each employee's salary?

TDS is calculated annually and divided into 12 months. Some people prefer to deduct the total TDS amount in the salary from December to March.

3. How can I know who is covered under TDS deduction?

Any person whose salary exceeds ₹1,80,000 per annum (for men) or ₹1,90,000 per annum (for women) is not exempt from tax. Therefore, TDS should be calculated accordingly.

4. How can an employee save his TDS deduction from salary?

An employee can save on TDS by showing investments like LIC, infrastructure bonds, NSC, KVP, etc., or payments like rent, housing loan interest, children's tuition fees, and Mediclaim. Normally, tax savings come under sections like 80C, 80D, 80E, 80G, etc.

For more details, you can visit the IT Department Site: http://www.incometaxindia.gov.in/home.asp

Regards,