TDS Calculation: To ensure that the employee does not have to bear the burden of tax once, the employer deducts some tax from the employee’s salary every month. The company has to deposit this TDS with the Income Tax Department.
This financial year is about to end. The new financial year will start from April 1. Companies deduct full tax from the employee’s salary till March every financial year. The employee’s salary comes under the purview of Tax-Deducted at Source ( TDS ). This means that every month the company deducts tax and deposits the money in the employee’s bank account. How much tax does the company deduct from the employee’s salary, how is the tax calculated, does the employee not have to pay any tax while filing the income tax return after deducting TDS? Let us try to answer these questions.
Rate not fixed for TDS on salary
Experts say that the TDS rate on other types of income is fixed. But, in case of salary, there is no fixed rate of TDS. TDS is decided according to the total annual salary of the employee and his slab. The finance department of the company has asked the employee at the beginning of every financial year to provide information about the total tax-savings investment he will make during the financial year. Apart from this, the company also asks the amount of HRA claim.
TDS based on tax liability
The finance department of the company decides the total tax liability of the employee after receiving information about his proposed tax-savings investment, HRA claim, etc. The employee’s net salary is arrived at after removing deductions and exemptions from the total annual income. The finance department calculates the tax liability on it. For this, the total net income of the employee and the tax slab applicable accordingly is made the basis.
Employer deducts TDS every month
After determining the tax liability, the finance department of the company starts deducting tax from the employee’s monthly salary. This information is given to the employee. The purpose of deducting the entire tax liability from the salary every month is that the employee does not have to bear too much tax burden at one go. The company has to deposit the money deducted from TDC to the Income Tax Department every quarter.
Full TDS is deducted from the salary from January to March.
The Finance Department asks for proof of investment from the employee by the first or second week of January every financial year. After receiving the proof, he does the final calculation of tax liability. If the employee has made less investment during the financial year than the proposed tax-saving investment, his tax liability increases. The Finance Department deducts this increased tax from the salary in three installments from January to March.
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