Why Does My Monthly Income Tax Deduction Vary? Seeking Clarity on Tax Distribution

Hi all,

Just wanted to know why the income tax on monthly salary deduction varies month-wise. For example, last year my total income tax deduction was $12,320 in the year 2012-13, which was deducted over 10 months as follows:

1 - $1000
2 - $800
3 - $800
4 - $1200
5 - $800
6 - $800
7 - $1500
8 - $2000
9 - $1800
10 - $1620

My query is on what basis different amounts have been deducted from the salary. I am clear about the figure of $12,320 but confused about the distribution of taxes in different months. Need your help.

Regards,
Prabhakar

Hi all,

Posted this with great expectations from the Senior HR group but did not receive any response until now. Please help me sort out my query. Just wanted to know why the income tax on monthly salary deduction varies month-wise. For example, last year my total income tax deduction was $12,320 in the year 2012-13, which was deducted over 10 months as shown above. My query is on what basis different amounts have been deducted from the salary. I am clear about the total figure but confused about the distribution of taxes in different months. Need your help.

Regards,
Prabhakar

Dear Prabhakar, you have posted the same query thrice on separate threads, which I have merged together now. The reason you did not get any response was due to the lack of more information. No one can comment on the matter of different amounts of deductions in income tax unless they know how much salary was being paid to you every month.

You must be aware that the total net or gross salary is not fixed; it varies as per your attendance, overtime, or other payments like incentives or deductions, right? If you had only put more effort into writing your query with information, at least more than the efforts that I am taking in answering your query (which does not contain any worthwhile data), you would have got your answers by now. Please remember that people like to help only those who want to help themselves and are willing to make efforts.

Every month, income tax deductions are made based on certain assumptions of what the total salary paid to you will be at the end of the year. Hence, you see these variations, which indicate that your salary over the months must have been fluctuating. In any case, you have to reconcile the total at the end of the financial year and calculate whether you have to pay more or seek a refund through your returns. That is all you need to do.

Regards.

First, thank you for responding. Regarding my inquiry, I was unaware that the provided data may not be sufficient to address my questions. I have primarily worked in recruitment and am somewhat unfamiliar with payroll and income tax, but I am currently making efforts to transition into this area. I have attached the relevant facts and figures for your reference, hoping they will assist in clarifying my query.

Understanding Tax Deduction Patterns

I am interested in understanding the following:

1. Why are all taxes deducted only in 10 months instead of 12 months? This pattern appears consistent in all my Form-16 documents.

2. How is the monthly tax deduction figure determined, and on what basis is this amount fixed? You mentioned that the figure is based on the monthly salary, and I have provided information on my monthly salary for the past 12 months. I am seeking to understand the relationship between the monthly salary and the monthly tax deduction figure.

I believe this data should be adequate, but please let me know if any additional information is required.

Regards,
Prabhakar

Dear Prabakar, Income Tax needs to be deducted in 12 installments. However, your payroll team did not deduct the same during April and May (possibly because they had not collected the income tax declaration from all employees until that time).

Whenever you receive additional payment, your income tax will increase as it will raise your tax liability, requiring you to pay additional tax for the extra income. Since your income is less than 5 lakhs, you need to pay 10.3% on your income over and above 2 lakhs. In June, September, and December, you received additional payments on which your payroll team would have recovered the one-time tax amount. If you do not receive the same, your regular tax will be 800 per month.

Typically, the payroll team will collect a declaration form from employees in April, inquiring about tax-saving investments like LIC, monthly rent, housing loans, etc. They will ask you to submit the evidence (proofs) between January and March. Your tax deduction will vary during these periods due to this process.

Note: If you require equal deductions every month, you must provide the correct declaration during April itself and submit the actual proofs during January. Also, the tax will definitely change whenever you receive additional payments.

I hope the above clarifies your doubts.

Regards,
Ramesh G

Ramesh G. has very nicely explained the reasons for the unequal monthly deductions of IT from your salary. It is difficult for your Payroll team to manually compute every month's deductions and to estimate how much an employee will earn during the remaining months of the financial year; hence such unequal monthly deductions.

In fact, this is the usual scenario in all companies, even where payroll software is used.

Initial Fixed Deductions

Many companies have initial fixed deductions during the early months, like April to September, based on estimates. Then, the remaining amount applicable is deducted during the months of October to February. During this period, bonuses, incentives, increments, etc., are paid; hence deductions are high.

End of Financial Year Adjustments

In the months of January and February, any remaining amount is taxed as per the assessment of total income by the end of the financial year. Thus, it is difficult to have a direct correlation between tax deducted every month and the salary paid every month.

Therefore, in these months, the deductions can be heavy if there is a lot of tax remaining to be deducted. Also, there can be fewer deductions or even refunds in cases where an employee has planned their taxes and declared (after taking) the allowed and exempted tax-saving instruments.

Final Tax Reconciliation

What matters is, at the end of the financial year, one has to tally the income and the Tax Deducted at Source (TDS) in the Form-16 given by the employer. If the tax paid/deducted is more, then one can apply for tax refunds; or if the tax due is more, one has to pay the additional tax through a challan at the time of filing tax returns.

Hope the above information is sufficient for you to happily go about understanding the implications and remedies of IT deductions through salary. If you have understood the above, you can do your bit to help fellow employees by sharing this information and helping educate them too.

Warm regards.

This has been the sore point between employees and the payroll processing team, which generally includes the Finance department. Employees, on one hand, are not fully aware of the provisions of the Income Tax Act. The Finance department, on the other hand, is unaware of the savings/investments made by employees.

Resolution Strategy

The only way this can be sorted out is if the Finance department sends an Excel sheet in April every year after considering the amendments made for the respective financial year. They can protect the cells that should not be modified by the employee. They can shade the portions green, wherein the employee can fill up the house rent paid by him, mediclaim premium likely to be paid by him, housing principal payment notional, housing interest payment notional, school fee likely to be paid, proposed premium to be paid towards life insurance policies, proposed investments to be made in the Public Provident Fund, proposed investments to be made in tax-free bonds if announced in the financial year, etc. Once they fill up these details (proposed/notional) in the green shaded portions, the tax liability for the employee during the financial year gets computed automatically. The finance department can arrive at the tax to be deducted in equated monthly installments (EMI).

Thereafter, in January, they can collate evidence for the notional/proposed investments to ascertain whether the investments have indeed been made. If it is available, the EMI can continue; if evidence is not available, then the amounts furnished by him in the green shaded portion not supported by evidence can be deleted, and the balance tax payable can be arrived at. After deducting the EMIs already made, the balance tax is computed and divided by 3 (January, February, and March) and recovered from employees.

In many organizations, the exercise picks up heat only in January, and employees are left with no take-home pay during these 3 months. Both the employees and the Finance department are equally responsible for this exercise. The HR department can facilitate the process by advising and encouraging employees to submit the information sought by the Finance department.

Regards

Thank you for sharing the information with me. I've gained a good understanding of this topic. From what I have gathered, income tax is calculated based on the total income of the employee, assuming they will be working regularly throughout the year and considering the investment declarations made by the employee.

Tax Deduction Schedule

If I am correct, the total tax is deducted in all four quarters following a specific rule of deduction:

- **First quarter:** Deduction up to 15% of the total assumed tax - applicable in April, May, June.
- **Second quarter:** Deduction up to 45% of the total assumed tax - applicable in July, August, September.
- **Third quarter:** Deduction up to 75% of the total assumed tax - applicable in October, November, December.
- **Fourth quarter:** Deduction up to 100% of the total assumed tax - applicable in January, February, and March.

There may be variations if proof against the declaration is not provided; in such cases, the tax amount may increase. Similarly, if the income decreases for any reason, more tax will be claimed.

Query on Tax Deduction Percentage

My query pertains to the percentage of tax deduction from the monthly salary. If this percentage is variable, then in my case, I could expect different deduction amounts. In the first three months, I observed deductions of 0, 0, 1000, whereas I could have seen deductions of 200, 200, 600 respectively. This discrepancy is due to the fact that the deductions are not directly correlated with the salary components, as advised by one member. The payroll team determines the deductions, following the rule that lesser tax should be deducted at the beginning of the financial year, gradually increasing as the year progresses.

I seek clarification on my understanding of this topic. If I am clear on this matter, my purpose for starting this discussion will be fulfilled.

Regards,
Prabhakar

I understand your logic and request for a logical deduction of IT. As informed earlier, this is an area generally under the control of the F&A Dept. While processing salary, generally the HR dept. is basically concerned with attendance and the nature of absence or leaves. The rest is generally done by the F&A.

I suggest you write to the F&A dept. of your company or raise this issue in an appropriate meeting. However, I must say that this is not an easy matter.

You question why no IT was deducted in the months of April and May. My dear friend, even if a person gets Rs. 50,000 PM, in 2 months his salary will not reach the taxable level. Moreover, after the deduction of taxes, the company cannot keep it with itself but has to remit it to the IT Dept.

Now, if a person, as per the Act, has no liability for paying tax until he reaches the minimum of the tax slab, how can tax be deducted and remitted to the IT Dept.?

Moreover, another employee may say that since he has not yet reached the taxable level in his salary, how can tax be deducted from his salary?

Now, do you understand the implications of why no tax was deducted from your salary in the months of April and May?

Another case: Suppose an employee had worked for only 2 months, i.e., April & May, and his tax is deducted and paid to the IT Dept; now if the employee, while taking final settlement, may claim that his tax deduction is illegal and should be returned, as he has not yet reached the taxable level?

This is the logic that F&A puts forward. So, it's better to take up this issue with them.

Such practices have been going on for years in practically every company because there is no straightforward solution to it.

All things considered, it's the duty of the employee receiving a salary to ensure that tax is deducted at source; that is the reason employees do not have to pay advance tax like other professionals.

I can understand that of late, all these questions are coming up in your mind; however, be assured that this issue has been thought of, discussed, and debated by the IT, company, auditors, CAs, tribunals and courts, employees, employees' union, etc., several times earlier.

Warm regards.