How Should We Handle TDS for a Resigning Senior Manager's Final Salary?

Our senior manager is leaving our company. His salary is INR 556,500 per year (INR 46,375 per month). He will be paid INR 88,500 on June 30 in his final salary, which includes his June salary, bonus, and unused annual leave. He was paid INR 46,375 gross salary for both April and May, so his year-to-date salary will be INR 181,250 for the three months ending June 30.

He has not provided us with any declaration regarding his savings, investments, or sums qualified for deduction or exemption under salaries. He has been preparing and approving everyone's salaries, including his own. I would like to know if we should (or must) deduct TDS on his June salary (and also his April and May salary) and pay it to the Income Tax Department. Thank you.

As his total income from the current company is INR 181,250, including monthly wages, leave encashment, bonus, and any other payable, you might not deduct TDS as it's less than INR 250,000. However, he should calculate the receipts in the future in the same financial year and be prepared to pay TDS. If the company is still willing to deduct, yes, you can deduct and remit it to the IT.

Tax Deduction for Senior Manager's Settlement

The Senior Manager's earnings for this financial year from your company do not exceed the minimum limit for income tax deduction. Hence, you may not deduct any tax from his settlement amount. However, when he joins another company in this financial year, he will need to provide a declaration pertaining to the investments he will be making. This will enable his new company to calculate his tax liability and make suitable deductions.

At the end of the year, your company will need to issue his Form 16, which he will require to calculate his overall tax liability while filing his returns in July/August 2017.

Regards,
A.B.

TDS Deduction for Employees with Multiple Employers

It is not at the discretion of the employer; rather, it rests on the discretion of the employee who receives or will receive a salary from more than one employer. The taxpayer has to choose which employer should deduct TDS from their estimated or aggregate salary, as per the provision of Para 3.3 of Income Tax Circular No 20/2015, dated 02.12.2015. Therefore, ask your Senior Manager in writing whether he would like to have TDS deducted from his June salary/F&F or from his next employer.

Para 3.3 of the Circular

“Section 192(2) deals with situations where an individual is working under more than one employer or has changed from one employer to another. It provides for the deduction of tax at source by such employer (as the taxpayer may choose) from the aggregate salary of the employee, who is or has been in receipt of salary from more than one employer. The employee is now required to furnish to the present/chosen employer details of the income under the head 'Salaries' due or received from the former/other employer and also tax deducted at source therefrom, in writing and duly verified by him and by the former/other employer. The present/chosen employer will be required to deduct tax at source on the aggregate amount of salary (including salary received from the former or other employer).”

Regards, Chakra Partners