Tax Deducted at Source or TDS is the amount which is deducted from the income of an individual by an authorised deductor and deposited to the IT department. The TDS will be calculated by following a couple of simple steps.
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How do I calculate TDS on my salary?
While the essential salary is fully taxable consistent with respective income tax bracket, some exemptions are available for payments made as allowances and perks. You can calculate TDS on your income by the following steps.
- Calculate gross monthly income as a basic income, allowances and perquisites.
- Calculate available exemptions under Section 10 of the tax Act (ITA). Exemptions are applicable on allowances such as medical, HRA, travel.
- Reduce exemptions consistent with step (2) for the gross monthly income calculated in step (1).
- As TDS is calculated on annual income, multiply the corresponding figure from above calculation by 12. This is your annual taxable income from salary.
- If you have any other income source such as income from house rent or have incurred losses from paying housing loan interests, add/subtract this amount from the figure in step (4).
- Next, calculate your investments for the year which is there in Chapter VI-A of ITA, and deduct this amount from the gross income calculated in step (5). An example of this would be exemption of up to Rs.1.5 lakh under Section 80C, which includes investment avenues such as PPF, life insurance premiums, mutual funds, home loan repayment, ELSS, NSC, Sukanya Samriddhi account and so on.
- Now, reduce the most allowable tax exemptions on a salary. Currently, income up to Rs.2.50 lakhs is fully exempt from paying taxes, while income from Rs.2.50 lakhs to Rs.5 lakhs is taxed at 10%, and Rs.5 lakhs to Rs.10 lakhs income bracket is taxed at 20%. All income above is taxed at 30%.
- Do note that old person have different tax slabs and receive higher exemptions than those discussed above.
As per the steps defined above, let’s consider a different example for better understanding.
- Steps (1) & (2)
- Suppose your monthly gross income is Rs.80,000. This figure may contain divisions as – basic pay Rs.50,000, HRA of Rs.20,000, travel allowance of Rs.800, medical allowance of Rs.1,250, child education allowance (CEA) of Rs.200 and other allowances totalling 12,750.
- Steps (3) & (4)
- Assuming that you simply occupy your own property, your monthly exemption from allowances equals Rs.2,250 (medical + travel + CEA). Therefore, your yearly taxable amount involves (Rs.80,000 – Rs.2,250)*12, which involves Rs.9,33,000.
- Step (5)
- Let’s say you only experienced a loss of Rs.1.5 lakhs on house loan interest repayments over the year. Reducing this exempted amount from the due income, your due income becomes Rs.7,83,000.
- Step (6)
- Suppose you have invest Rs.1.2 lakhs in various categories that fall under Section 80C exemptions, and made another Rs.30,000 investment in categories falling under Section 80D. So, the resulting Rs.1.5 lakhs is exempted from taxes consistent with Chapter VI-A. Deducting this amount from the gross due income calculated above, your due income becomes Rs.6,33,000.
- Step (7)
- Finding out your tax slab
- Your final tax breakup consistent with income slabs listed by the IT department is as follows:
- Therefore, the ultimate TDS to be deducted on your yearly income is Rs.25,000 + Rs.26,600, which involves Rs.51,600 for current year’s income, or Rs.4,300 per month for the present fiscal.
|Income Tax Slabs||TDS Deductions||Tax Payable|
|Up to Rs.2.5 lakhs||Nil||Nil|
|Rs.2.5 lakhs to Rs.5 lakhs||10% of(Rs.5,00,00-Rs.2,50,00||Rs.25,000|
|Rs.5 lakhs to Rs.6.33 lakhs||20% of(Rs.6,33,00-Rs.5,00,00)||Rs.26,600|
What is TDS on Salary?
TDS on salary basically means that tax has been deducted by the employer at the time of depositing the salary into the employee’s account. The amount deducted from the employee’s account is deposited with the government by the employer. Before an employer deducts tax at source from an employee’s salary, he/she must obtain TAN registration. The Tax Deduction and Collection Account Number or TAN number is essentially a 10-digit alphanumeric number that is used to track TDS deduction as well as remittance by the Income Tax Department.
What is TDS Calculated on?
The CTC extracted to you at the time of joining includes components like basic salary, allowance , house rent allowance, medical allowance, dearness allowance, special allowances and other allowances. The CTC is split into two major categories : salary and perquisites. Perquisites, or perks as they’re popularly called, include some skills and benefits provided by the employer towards expenses like traveling, canteen and fuel subside, hotel expenses then on.
How is TDS calculated?
The government allows tax exception under Section 80C and 80D. This allows a private task for exemption on tax supported various sorts of investment he/she is making for that specific fiscal year . The TDS on salary are often calculated by reducing the exemption from total annual earning as specified by the tax department. The employer is required to get a declaration and proof from individuals to approve tax exemption. The following categories are considered for exemption:
- House Rent Allowance – If an employee is paying towards accommodation as rent and entitled for HRA from the employer, the worker can declare this amount for tax exemption.
- Conveyance or allowance – If an employee is given conveyance allowance, the worker can declare them for tax exemption.
- Medical Allowance – If a worker is entitled to a medical allowance, he/she can declare and produce medical bills for tax exemption.
There are limits to the maximum amount that can be considered for exemption.
The following process is involved within the deduction of TDS:
- Calculating total earning – The employer is required to calculate the whole earning of the worker.
- Calculating total amount eligible for the exemption – The employer is in charge of calculating the entire amount that’s considered for tax exemption. The employee must declare the sort of amount that’s eligible for exemption.
- Obtaining declaration and investment proof – The employer is required to save investment and proofs from employees
- Depositing TDS deductions – The employer would require depositing the collected TDS to the central government.
Any worker can declare for a maximum of Rs.1,50,000 for tax exemption. The following investments schemes are considering for exemption under 80C:
- Investment in mutual funds and equity shares, such as ULIP, Linked Saving Scheme of a Mutual Fund/UTI
- Life insurance Premium paid
- Contribution to statutory PF, 15 years P.P.F., and allowance funds
- Payments towards subscription for National Saving Certificates and residential Loan Account Scheme
- Interest earned through few of the National Savings Certificates are eligible for a particular amount of tax
- Fixed deposit scheme for a duration of minimum 5 years
An employee is eligible for a maximum of Rs.25,000 annual exemption if the worker has made an investment under certain equity saving schemes. The investment should be made for a minimum of 3 years from the date of scheme acquisition.
The section 80D offer exemption for the premiums purchased a Medical Insurance. The exemption is also extended to the individual’s dependents.
There are various other Sections that regulates many other types of exemptions.
Know All About TDS
Frequently Asked Questions
- What is the TDS rate for FY 2017-18?
For individuals between 60 and 80 years old, the speed for income up to Rs.3 lakh is nil. The rate for profit income between Rs.3 lakh and Rs.5 lakh is 5%. The rate for profit income between Rs.5 lakh and Rs.10 lakh is 20%, and therefore the rate for profit income in more than Rs.10 lakh is 30%.
For individuals above 80 years old, income up to Rs.5 lakh is exempt from tax, while income between Rs.5 lakh and Rs.10 lakh is 20%, and income above Rs.10 lakh is charged at 30%.
Surcharge will be applicable for individuals who earn income in excess of Rs.50 lakh, and a 3% cess is also applicable on tax plus surcharge.
- Can HRA be claimed as a deduction when calculating TDS?
Employees will have to declare the amount paid as rent and it can be claimed as an exemption.
- How much deduction can I claim under Section 80C when calculating TDS?
The maximum amount that can be claimed under Section 80C of the Income Tax Act is Rs.1.5 lakh.
- What items are allowed for TDS exemption?
The following items are eligible for exemption:
- PPF (Public Provident Fund)
- ELSS (Equity Linked Savings Scheme)
- Contribution to EPF (Employees Provident Fund)
- Bank FDs
- NSC (National Savings Certificate)
- Premiums paid towards life insurance policies
- Repayment of home loan principal amount
- Transport allowance
- House Rent Allowance
- Savings under Section 80C of the Income Tax Act, 1961
- What are the items on which deductions can be claimed under Section 80C?
Here is a list of items on which deductions can be claimed under Section 80C:
- Investment in Public Provident Fund
- National Savings Certificate
- Employee’s share of Provident Fund contribution
- Premium payment towards life insurance policies
- Tuition fees of children
- Home loan principal repayment amount
- Unit linked insurance plans
- Equity linked savings schemes
- Investment in Sukanya Samriddhi Account
- Amount paid to buy deferred annuity
- Senior Citizens savings scheme
- 5-year deposit scheme
- Subscription to notified deposits scheme / notified securities
- Subscription to National Housing Bank’s Home Loan Account Scheme
- Contribution to LIC’s notified annuity plan
- Subscription to deposit scheme of companies involved in offering housing finance or public sector companies
- Contribution to notified Pension Fund set up by UTI or Mutual Fund
- Subscription to NABARD’s notified bonds
- Subscription to debentures / equity shares of approved eligible issues