Understanding TDS Deductions: How Should HR Handle a 3 Lakh Salary with Investments?

TDS Calculation Queries for HR Professionals

I need your help in resolving an issue. I am working with a Pvt Ltd firm in Delhi as an Assistant Manager HR. One of our employees is receiving a 3 Lakh annual salary. My company has the provision to deduct TDS every month from the start to avoid interest charges, etc., at the end of the financial year. The employee has submitted the investment details as follows: rent allowance of ₹7,000/month, PF contribution of approximately ₹9,000, conveyance allowance of ₹9,600, medical allowance of ₹15,000, and projected investment details of approximately ₹20,000.

Questions on TDS Deduction

My question for you is, do we need to consider projected investment details during TDS calculation? Secondly, do we need to deduct TDS of approximately ₹704 every month, as that is currently being deducted from the employee's salary as instructed by our C.A.? If yes, how do we calculate the deduction? Third and lastly, do we really need to deduct TDS on a salary of 3 Lakh per annum? Being in HR, can't we adjust his 1 Lakh salary to avoid deducting TDS?

Please send your replies to [Email Removed For Privacy Reasons].

I look forward to your earliest response.

With Thanks,

Barkha

I think it is better for you to go as per your CA's advice, who has been hired by your company to perform a job in which he is a professional. So, if you need to know how to calculate TDS or how to avoid tax, it's better that you sit with your CA and understand it, as it would be too cumbersome to explain the nitty-gritty of the IT Act in this forum.

Further, being in HR does not give you an unfettered right to tinker with the salary structure of your employees. Please follow the provisions of the IT Act in this regard.

This man is not liable to pay tax based on the figures you have posted; hence, no TDS deduction is required. Take care to take a declaration from him for the following:

1. House rent ₹7,000 per month - take rent receipt on record. This is assuming he is being paid HRA as part of his salary, which is around the amount of rent he is paying.
2. Medical ₹15,000 per year.
3. Other investments for ₹20,000.

Once he submits the declaration, the onus is on the employee to follow up on his promises. However, in January, do a recheck and see what promises he has kept with documentary evidence and accordingly work out his taxes or make deductions under TDS accordingly.

Hope this helps.

Regards,
Robin Varghese
HR Consultant, New Delhi
[Phone Number Removed For Privacy Reasons]
[Email Removed For Privacy Reasons]

Yes, but take a declaration from the employee. Anything he gives as a declaration, irrespective of whether he follows up accurately or not, the onus remains with the employee.

Regards,

Robin Varghese
HR Consultant, New Delhi
+91-8800747161
Email: robin_vargh@yahoo.com

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Dear Robin ji, The queriest said that the employee had submitted the investment details as follows:
- Rent allowance (not HRA) ₹7,000/month
- PF contribution - approx ₹9,000/annum
- Conveyance allowance ₹9,600/annum
- Medical allowance ₹15,000/annum
- Projected investment ₹20,000

The queriest has also not mentioned whether all those allowances are paid to the employee and the quantum. My question to you, sir, is if the employee is not paid those allowances or irrespective of the amount paid and spent, is the employee entitled to the declaration/IT exemption?

Dear Mr. Korgaonkar,

The HR needs to specify details of salary - Basic, HRA, Conveyance, etc. (salary components). This has already been conveyed to the HR in question, and all calculations and advice are based on this assumption. What I gather from HR is the question of whether an employee's intimation to make these investments is enough so as not to deduct IT, or should HR wait for actual proof of investments and meanwhile deduct TDS. Here, it is a well-defined law that a declaration is enough to absolve the employer (deducting authority) from penalties which could otherwise amount to a jail term. Once the declaration is given, the onus falls on the employee to furnish proof of investment, failing which he will stand liable for penalties, etc.

It is taken for granted that an employee will provide a Rent receipt only if he is paid HRA as a component of salary. Likewise, for conveyance, no declaration is needed as an amount of ₹800 pm is deductible. PF, again, is deducted by the employer, so the amount is known more to the employer than the employee (especially where mid-term increments take effect). Again for Medical - the employee has to provide proof irrespective of whether he gets anything in lieu of this as part of the salary. An employee will make ₹20,000 investments only when he has to provide for IT liabilities. So, no employee will do anything on his own without having to allocate for tax liabilities on account of components of the salary which are taxable.

Warm regards,

Robin Varghese
HR Consultant, New Delhi
[Phone Number Removed For Privacy Reasons]
[Email Removed For Privacy Reasons]
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Dear Barkha ji,

You, being an Assistant Manager HR, are expected to know exemptions, deductions, and maximum permissible investments under Income Tax.

You mentioned that your company has the provision to deduct TDS every month from the start to avoid interest charges at the end of the financial year. It is not your company’s provision but a requirement under the Income Tax Law. According to this law, the employer must deduct tax at source if the projected income of an employee during the financial year falls within the tax bracket after considering exemptions, deductions, and maximum permissible investments as declared by the employee.

Exemptions Under Income Tax

Exemption means certain allowances, special allowances, or salary heads that are exempt from Income Tax, subject to certain conditions. House Rent Allowance, Transport Allowance, Education Allowance, Leave Travel Allowance, and many more special allowances are exempt from Income Tax, but not Medical Allowance.

Generally, any allowance received by an employee is fully taxable unless specifically exempted. The employee must claim the exemptions. I repeat, the employee must earn those allowances and claim the exemptions.

Medical Allowance is fully taxable. However, medical expense reimbursement up to Rs. 15,000 is not treated as a taxable perquisite as per Clause (v) of the Proviso to Section 17 (2) of the Income Tax Act.

Deductions Under Income Tax

Deduction means a deduction from total income in respect of various investments, expenditures, or payments. Under Section 80C, 80CCC, and 80CCD, the maximum deduction available is Rs. 1 lakh.

Apart from the maximum limit of Rs. 1 lakh under Section 80C, 80CCC, and 80CCD, there are other deductions allowed, such as mediclaim premium under Section 80D and donations under Section 80G, among others.

If one goes through Form 16, they can gather some information on it.

I am not a finance person or an Income Tax expert, but any HR person should have some knowledge in this area, and therefore I have it. When we recruit staff at various levels and decide their compensation, we must have this much knowledge. If not, the finance department will take over your functions related to employee compensation and taxation. I have seen in many companies that these functions are taken over by the finance department.

Regards.

I think it's better for you to consult a Financial Accountant (CA). They will provide you with the best suggestions, as they have been hired by your company to perform their professional duties. If you need assistance with calculating TDS or tax planning, your financial adviser will offer you the best advice on these matters.

Yes, the company has to consider the proposed investment plan while calculating TDS. If the investment receipt is not submitted before the date mentioned in the Declaration, the TDS will be recalculated, and the same has to be recovered from the salary of the said employee for the month of March.

Regards.