All employers who pay salaries are required to deduct and remit TDS according to the Income Tax Act
Under the Income Tax Act, certain payments are liable to tax deduction at source (TDS). In these cases, the payer of the income is required to deduct tax before the payment is made or credited to the account of the payee. The net amount can then be remitted to the account of the payee. The onus is on the payer to deduct the TDS and remit it to the central government before the due dates. The payee has to include the gross value while computing the total income. However, the law allows the payee to claim credit for all the TDS deducted in computing the total income.
Section 192 of the Income Tax Act provides that every person responsible for paying any income which is chargeable under the head 'salary' should deduct income tax on the estimated income of the assessee. The tax is required to be calculated at the average rate of income tax computed on the basis of the rates in force.
The deduction is to be made at the time of the actual payment. However, no tax is required to be deducted, unless the estimated salary income exceeds the maximum amount not chargeable to tax applicable in case of an individual during the relevant financial year. Thus, the employer is required to compute at the beginning of the financial year, the total salary income payable to an employee during the financial year.
Further, the employer should also take into account any other income as reported by the employee. After considering the incomes exempt, deductions, rebate and relief, the tax liability of the employee should be determined on the basis of the rates in force for the financial year. Every month, one-twelfth of this net tax liability is required to be deducted.
Once deducted, the tax is required to be deposited in a government account and a certificate of deduction of tax at source (also referred as Form No 16) is to be issued to the employee. The employer is required to prepare and file quarterly statements in Form No 24Q with the Income Tax Department.
As per Sub-section III of Section 192, an employer can make adjustments for any excess or shortfall in the deduction of tax already made during the financial year, in the subsequent deductions. For instance, in case a payment of advance salary, arrears of salary, or increase of salary, commission, bonus etc has taken place, the tax liability of the employee will increase. Deduction of tax at source is accordingly required to be increased. Similarly, if the employee makes investments which qualify for deduction or rebate and furnishes the required proof, the employer can accordingly reduce the TDS deducted.
The payer is required to file the quarterly returns of TDS with the Income Tax Department indicating the details of the payees, nature of payment and the permanent account number. Based on the return so filed, credit will appear in the name of the payee, which will be the basis for the Department to determine the taxes due or the refunds due to the assessee. There is a facility to an assessee to register with the Department and check the TDS credit to his account on a regular basis.
