All about TDS on salary under section 192

Every employer responsible for paying any sum chargeable under the head ‘Salaries’ is liable to deduct tax at source (TDS) at the rate applicable in the financial year in which payment to employee is made.

TDS is to be deducted every month on estimated salary. Employer is not required to deduct TDS unless the estimated salary exceeds the amount not chargeable to tax. Employer is liable to deduct TDS of resident or non-resident employees alike.

In this article, we will not discuss about how TDS is deducted by the employer. We will be discussing few important limbs of income tax about salary that may help you in filing correct information in TDS return.

Where the salaried employee thinks that his TDS has been deducted at the higher rate and he is not liable to pay such higher TDS then he can make an application under section 197 of the income tax act requesting the AO to issue lower deduction certificate. AO after enquiring may compute TDS liability and issue lower deduction certificate.

A doctor engaged in the hospital and providing his services on retainership basis, then he cannot be regarded as employee of the hospital since there is no employee-employer relationship between them, consecutively TDS will not be deducted under section 192 of the income tax act (CIT vs Apollo Hospital International Limited)

It is important to note that, when employee changes his employer during the year then employee at his choice can declare his salary to his current employer so that correct TDS figure can arrive. It happens that employee does not declare salary from the previous employer to his current employer, consequently, he takes benefit of Income tax slab twice. So, when he files income tax return, tax liabilities go up and he shall also pay additional interest on short payment of tax. Employer cannot be made liable for short deduction if employee does not furnish information relating to salary received from other employer (CIT vs Marubeni India Pvt Ltd)

Employer has to issue a statement in Form 12BA requiring details regarding the perquisites and other fringe benefits along with profits in lieu of an employee’s salary.

Where the foreign company paid salary abroad to non-residents working in India, if such income had a connection or nexus with rendition of service in India, then such payment would constitute income which is deemed to accrue or arise to the recipient in India as salary earned in India in terms of s 9(1)(11) and consequential liability under s 192 is attracted (CIT vs Eli Lilly and Co India Pvt Ltd)

Option under section 115BAC for lower tax regime: Section 115BAC has been inserted with effect from assessment year 2021-22 allowing employees to opt for lower tax regime every year (not having income from business or profession). Employee can intimate every year to his employer so that TDS can be deducted under section 115BAC.

Point to be noted:

  • Intimation to employer does not amount to exercise of option by the employee. The option is exercised at the time of filing of income tax return.
  • If employee does not intimate then employer shall ignore the section 115BAC of the act and deduct as per the regular provision of the act.

How to deduct TDS when a person is employed by more than one employer

Where employee has more than one employer, he is required by section 192(2) to furnish in Form 12B to one of his employers the details of salary due or salary received by his from other employer. After submission in Form 12B, employer becomes liable to deduct TDS after considering information submitted by employee.

If employee submit information of salary in the month of December, then December onwards tax shall be deducted at the average rate after considering Form 12B (CIT v Marubeni India Pvt Ltd 165 Taxman).

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