1. Deduction of Tax at Source &
Advance Ruling
By: Sakshi Saxena
Assistant Professor, IIMT
2. TDS (Tax Deducted at Source)
Tax Deducted at Source is a mean of
collecting income tax in India, under
the Indian Income Tax Act of 1961.
Any payment covered under these
provisions shall be paid after
deducting at prescribed percentage/
rate.
The government uses TDS as a tool to
collect tax evasion by taxing the
income ( partially or wholly) at the
time it is generated rather than at a
later date.
3. Shine Pvt Ltd make a payment for office rent of Rs 80,000 per month to
the owner of the property. TDS is required to be deducted at 10%.
Shine Pvt ltd must deduct TDS of Rs 8000 and pay the balance of Rs
72,000 to the owner of the property. Thus, the recipient of income i.e.
the owner of the property in the above case receives the net amount of
Rs 72,000 after deduction of tax at the source. He will add the gross
amount i.e. Rs 80,000 to his income and can take credit of the amount
already deducted i.e. Rs 8,000 by shine Pvt ltd against his final tax
liability.
Example
5. Section 192 provides that any person responsible for paying any income chargeable under
the head ‘Salaries’ is required to deduct tax on the amount payable.
Deduction of Tax from Salaries (Sec 192)
When Tax
to be
deducted?
Tax is to be deducted
at the time of
payment of salary, i.e.,
tax is to be deducted
at the time of ‘actual
payment’ of the
salary.
Who
deduct tax
at source
in case of
Salary?
Any ‘person’
responsible for paying
any income
chargeable under the
head ‘Salaries’ is
required to deduct tax
from the salary so
payable.
Amount of
Tax
Estimated tax for
FY/12 month.
For the month of
March=Actual Tax
Payable-Tax Paid
When to
deduct the
tax?
Deduction at the time
of payment/credit
every month
6. Mr. Sharma (ageing 58 years of age) receives a salary of Rs. 1,00,000 per month during the FY 2020-21. We can
compute His TDS on salary for FY 2021-22 under section 192 per month as follows:
Let’s Understand with Example
• As per section 192, his TDS on salary as per the current slab rate will be Rs.1,55,000.
• After adding 4% education and higher education cess (i.e. Rs.4,650), the net tax payable becomes Rs.1,59,650.
• Average rate of TDS on salary will equal Rs.1,59,650/12,00,000*100. In other words, Mr. Sharma’s rate of TDS on
salary will be 13.30%
• TDS on salary under Section 192 to be deducted each month will be (Rs 1,00,000 x 13.30%), or Rs. 13,300.
8. The government allows tax exemption under Section 80C and 80D. This allows an individual to
seek exemption on tax based on various types of investment he/she is making for that particular
financial year. The TDS on salary can be calculated by reducing the exemption from total annual
earning as specified by the Income Tax department. The employer is required to obtain 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 employee can declare this amount for tax exemption.
• Conveyance or Travel Allowance - If an employee is provided with conveyance allowance, the
employee can declare them for tax exemption.
• Medical Allowance - If an employee is entitled to a medical allowance, he/she can declare and
produce medical bills for tax exemption.
How is TDS calculated?
9. The following process is involved in the deduction of TDS:
• Calculating total earning - The employer is required to calculate the total earning
of the employee.
• Calculating total amount eligible for the exemption - The employer is accountable
for calculating the total amount that is considered for tax exemption. The
employee needs to declare the type of amount that is eligible for exemption.
• Obtaining declaration and investment proof - The employer is required to collect
investment and proofs from employees
• Depositing TDS deductions - The employer will require depositing the collected
TDS to the central government.
TDS Deductions
10. An employee can declare for a maximum of Rs.1,50,000 for tax exemption. The
following investments schemes are considering for exemption under Section 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 PPF, and superannuation funds.
• Payments towards subscription for National Saving Certificates and Home Loan
Account Scheme.
• Interest earned through few of the National Savings Certificates are eligible for a
certain amount of tax.
• Fixed deposit scheme for a period of minimum 5 years.
Sec 80C
11. Section 80CCG
An employee is eligible for a maximum of
Rs.25,000 annual exemption if the employee has
made an investment under certain equity saving
schemes. The investment should be made for at
least 3 years from the date of scheme
acquisition.
Section 80D
The section 80D offer exemption for the
premiums paid for a Medical Insurance. The
exemption is also extended to the individual's
dependents.
Sec 80CCG & Sec 80 D
12. Deduction of Tax from Accumulated
Balance of Recognized Providend Fund
Withdrawn by Employee
Section
192A
13. Section 192A of Income Tax Act is concerned with the TDS on premature withdrawal
from EPF. It directs the Employees' Provident Fund Scheme, 1952 to deduct TDS when
employees do not meet the provisions mentioned under Rule 8, Part A of the Fourth
Schedule.
Deduction of Tax from Accumulated Balance of Recognized Provident Fund
Withdrawn by Employee(Sec 192A)
According to the provisions
included in 192A TDS
Section, the tax will be
deducted at source if the
total balance exceeds Rs.
30000 at the time of
withdrawal. The same will
also be applicable if the
account holder has been
associated with an
organisation for less than 5
years.
According to the Indian
Income Tax Act of 1961,
the tax will be deducted at
the source at a rate of 10%.
This rate will be effective
only after the PAN card
has been submitted. No
tax will be deducted at
source if a PF account
holder files Form 15G or
15H.
15. The TDS Section 193 has been implemented over the interest on securities. Considering the individual is
transferring an amount in the form of interest on securities. There has to be a particular amount of tax
deducted based on the implementation of Section 193 TDS rate.
Deduction of Tax from Intrest on Securities (Sec 193)
Who is
required to
deduct
these
sections?
Anyone who is giving
the interest income
on securities to an
Indian resident to
deduct tax before
releasing the interest.
The tax rate under
Section 193 - is 10%.
The earliest of the
actual payment or the
time of deduction is
when income is
credited to the payee’s
• If the money is credited in
March, then it must be
paid by April 30 at the
latest.
• If the amount is credited
in a month other than
March, the deduction is
made seven days after the
end of that month.
• If debentures are
issued by listed
businesses, no TDS
will be taken up to Rs.
5000.
• Up to Rs. 10,000 in the
case of 8% saving
(taxable) bonds.
Who is
required to
deduct
these
sections?
Due Dates
of Section
193
Exemptions
of Section
193
17. Under Section 194B of the Income Tax Act, TDS will be deducted when the income is
earned from the winning lotteries, card games, quiz shows, card games, online gaming,
and dance competitions. The winnings from the games need to be more than Rs. 10,000.
Deduction of Tax from Accumulated Balance of Recognized Provident Fund
Withdrawn by Employee(Sec 192A)
Rate of Interest Under this
Section
• TDS rate is 30%.
• There won't be a fee and a
health and education cess
added.
• TDS will therefore be
deducted at standard
rates.
Penalties Under Section 194B
If a person who is responsible
does not deduct the tax, then
they would have to pay the
penalty that is as much as the
amount of tax that has to be
deducted. The deductor would
need to deposit the tax deducted
to the Government. If not, it
could lead to imprisonment for a
minimum of 3 months to 7 years
or a fine.
