Jan 11, 2010

TDS Salaries - FAQs

Photo by Stefan Baudy

I’ve seen people visiting various online forums for their tax queries and getting answers that are either incomplete or incorrect. The most commonly asked questions relates to TDS and taxation of salary income. So, to start with, here I’m making an attempt to answer all your queries relating to tax deduction at source (TDS) on your salary income.

TDS Salary: FAQs

Manner of TDS Deduction

Q-1: Whether TDS is to be deducted from the beginning of the financial year? Or, can it be deducted during the last few months of the FY?
Ans: TDS from salary income should be deducted uniformly throughout the year starting from the month of April based on the projected salary for the whole year and considering the savings declaration (no specified format) given by the employee. In subsequent months, adjustments can be done for any changes in salary or tax savings plan of employees.


Q-2: Can I request my employer to deduct TDS on my other income also?
Ans: Yes, if you submit the particulars of your any other income (including loss on house property) in plain paper [Earlier Form 12C was prescribed but since 2003 it is not required], employer is bound to deduct TDS on it. Anyhow, the particulars to be mentioned on the declaration are exactly in the same format as earlier Form 12C.

Please note that in case of loss from house property, detailed computation has to be enclosed. Further for claiming tax benefits on home loan [interest u/s 24(b) & principal repayment u/s 80C], a certificate from the lender specifying the amount of interest paid / payable during the financial year also needs to be furnished.


Q-3: Whether TDS is also to be deducted on the non-cash benefits provided to the employees?
Ans: Yes, from the current financial year (FY 2009-10) tax burden on fringe benefits / perks has again been shifted back to the employees (the FBT stands abolished). So all the non-cash benefits
provided by the employer (e.g. official car, ESOPs, company owned or leased accommodation, gift vouchers, interest free or concessional loans, club membership etc) will have to be taken into account for the purpose of tax deduction at source from salary. The valuation of these perquisites will be as per the CBDT notification issued in December 2009.


Q-4: What if due to an error the employer deducts TDS in excess?
Ans: According to section 192(3) of the IT Act, any excess or shortfall can be adjusted subsequently but within the same financial year. In other words, excess / shortfall TDS of one financial year can’t be carried forward for adjustment in subsequent financial year.

The other point worth noting is that there is no bar on inter-employee adjustment i.e., if there’s a excess deduction on account of one employee and short deduction from the salary of other employee, those can be adjusted.


Exemptions and Deductions

Q-5: What if my employer doesn’t allow HRA exemption while calculating TDS on salaries?
Ans: If in fact you are residing in a rented accommodation and paying rent, I don’t think any employer will refuse deduction on account of HRA. Only in a very exceptional case, employer will refuse HRA deduction against rent paid by you. In such an eventuality, you can always claim it while filing your return of income and receive tax refund.

Many more such frequently asked questions regarding claiming HRA deduction are answered in
Tips & FAQs for claiming HRA Exemption.


Q-6: Can an employer allow both the tax concessions: HRA as well as Home loan tax benefits while calculating TDS from salary?
Ans: Yes, indeed! As long as you’re eligible for both, employer should not have any objection in allowing both: HRA exemption u/s 10 (13A) as well as tax benefit on a/c of repayment of housing loan [interest u/s 24(b) and principal repayment u/s 80 of the IT Act 1961].

There are many possible scenarios where you can
claim HRA along with housing loan tax benefits.


Q-7: Whether employer can insist on travel proof for allowing LTC exemption while calculating TDS on salary?
Ans: Yes, of course employer can insist on production of documentary evidence to satisfy regarding the genuineness of the LTA claim. Mere submission of a declaration for the purpose of claiming LTA / LTC exemption u/s 10(5) of the IT Act, 1961 is not enough.

Though in a judgement delivered in 2009, the Supreme Court exempted the employers from collecting travel bills to allow LTA / LTC exemption to employees while calculating TDS on salaries; however, most employers still demand it.


Q-8: Whether employer can allow 80G deduction while calculating TDS from salary income?
Ans: Employer is not allowed to take into account section 80G deduction in respect of donations made for charitable purposes while calculating TDS on salaries. However, DDO may allow (after due verification) the donations made to specified funds (such as Rajiv Gandhi Foundation and National Defense Fund) as specified in CBDT circular no 9 /2008.

UPDATE (01/02/10): As per the latest salary TDS notification issued in Jan 2010 by the CBDT (Circular no 1/2010 dated 11th Jan 2010), there are two conditions for allowing 80G deduction by the employer:

1. Donation is made to any of the three specified funds: Prime Minister’s National Relief Fund, Chief Minister’s Relief Fund, or Lieutenant Governor’s Relief Fund.

2. Donation is made through the employer.

For all other donations, tax benefit will have to be claimed by you in the return of income.


Q-9: Section 80DD allows a fixed deduction Rs 50,000 / Rs 75,000 irrespective of the amount of expenditure incurred on the medical treatment of handicapped dependent. However, my employer doesn’t agree and he is only allowing the actual expenditure incurred by me?
Ans: Law is law no matter how illogical or absurd it is. Logic dictates that either there should be allowed a fixed deduction without any stipulation as to the actual incurring of the expenditure and in case it is made dependent on actual incurring of expenditure then the expense actually incurred should be allowed subject to a maximum limit.

It doesn’t make sense to make the deduction / exemption conditional on incurring of the expenditure but allowing a fixed amount irrespective of the actual expenditure incurred. In simple words, it is highly illogical to allow a fixed tax deduction of, say, Rs 75,000 irrespective of whether you spend Rs 100 or Rs 60,000 but disallow it if you don’t incur any expenditure.

But understand that law is not what it should be but what it is. So, your employer shouldn’t have any objection in allowing you the fixed deduction of Rs 50,000 / Rs 75,000 (as applicable) allowed u/s section 80DD so long as you’re incurring any expenditure on account of medical treatment of your handicapped dependent (even Rs 1 will do).


Q-10: What are the various investments allowed for the purpose of tax savings?
Ans: For complete list of various tax savings investments and expenses allowed under section 80C, see:
Section 80C Tax Saving Avenues & Investment Options. For mediclaim / health insurance premium and other expenses allowed while calculating taxable income, see: List of Other Deductions allowed u/s 80


Q-11: Do we have to submit the original proofs for claiming exemptions and deductions?
Ans: No, you can submit self-attested photocopies of all the documentary evidence / proofs (e.g., rent receipts, ELSS account statement, life insurance premium receipt, school fee receipt etc) required by the employer for the purpose of allowing you various deductions and exemptions.

However, for the purpose of verification your employer might ask you to show the originals also. But remember original can be required only for verification and not for submission, so don’t forget to get them back and file in your tax file for future reference and any query from tax authorities.


Change of Employment: Form 12B

Q-12: For an employee joining in the middle of a FY, is it the responsibility of employer to ask for salary details of previous employment? In other words, is it mandatory for the current employer to deduct TDS on salary income received from previous employer? Can the employer force the employee to submit the information for TDS purpose? Or, is it at the total discretion of the employee? Can the current employer adjust if there any shortfall or excess TDS deducted by previous employer?
Ans: According to section 192, it is the option / discretion of the employee whether or not to file Form No 12B. The current employer can’t insist on filing of Form No 12B. If the employee chooses not to file, then employers’ obligation is limited to compute TDS on salary payable by him.

If Form 12B is filed, then current employer can deduct the TDS on salary paid by previous employer (in case no TDS was deducted by previous employer). And if the TDS was deducted by previous employer, any excess or shortfall can also be adjusted.

It is always in the interest of an employee to furnish such details because otherwise there can be duplication of exemptions and deductions and there can be a shortfall in tax deduction and as a result the employee would become liable to deposit advance tax.


Q-13: Who’s responsible for filling up the Form 12B: My previous employer or me?
Ans: It is the responsibility of the employee to fill the declaration in Form No 12B and also attach Form 16, if any, issued by your previous employer. It is required to be filled up even if there was no TDS deducted by your previous employer due to the salary being less than the basic exemption limit. It is quite possible that after combining your current and previous salary, your total salary income exceeds the maximum amount not chargeable to tax.


Q-14: How to fill Form No. 12B for giving it to my current employer so that income (and tax already deducted thereon, if any) from my previous employment can be considered for the purpose of TDS from my current salary income?
Ans: Fill up Form 12B based on the Form 16 (if TDS deducted) or on the basis of salary certificate (if no TDS deducted or pending issuance of form 16) issued by your previous employer. You can also take the help of your salary slips. In case of any difficulty, you can take guidance from your previous or current employer.


Q-15: Can my current employer still refuse to deduct TDS on my previous salary once I submit Form 12B?
Ans: No, once you submit Form 12B, it becomes the obligation of the employer to deduct TDS on your consolidated salary after accounting for TDS deducted (if any) by your previous employer.


Issue of Form 16

Q-16: What is Form 16? What’s the difference between Form 16 & Form 16A?
Ans: Form 16 is the Tax Deduction Certificate issued by an employer to his employee against the income tax deducted from his salary. On the other hand Form 16A is issued by organizations against TDS deduction from certain payments made to contractors, service providers, professionals and certain other payments like rentals, interest etc. For example, bank issues you Form 16A against TDS deducted on FD interest.


Q-17: What if my employer or previous employer doesn’t issue me a TDS certificate?
Ans: Now a days you don’t need to submit any documents with your IT return as these are annexure-less. But, although Form 16 is not required to be attached with return of income but still it is the duty of employer to furnish it to the employee. It is required because

a. It shows your salary income (various components are shown separately). In its absence it might not be possible for you to calculate tax on your salary income (particularly if no salary slips are issued at the time of payment of salaries)

b. It shows the details of TDS deducted by your employer which is also required to be mentioned in the Tax Return.

c. You’ve to show it to the income tax authorities if asked for at the time of assessment.

As per section 203, TDS certificate in form no 16 is required to be furnished by the employer to the employee within one month of the close of the financial year. But you don’t have any remedy against your employer if he refuses to issue you the TDS certificate although he is accountable to the tax authorities.

Therefore, the only option left to you if the employer doesn’t issue the certificate is to register yourself on
http://www.tin-nsdl.com/ and get the TDS status as shown in Consolidated Tax Credit Statement (Form no 26AS) from that site. Based on this online statement, you can file your return.


Q-18: Is it compulsory to issue TDS certificates even in case of an employee where no TDS is deducted due to the total income falling below the maximum exemption limit on account of various deductions allowed u/s 80C?
Ans: No, it’s not! There is no obligation on the employer to issue Form 16 in case tax is not deducted by virtue of claims of exemptions and deductions.


Q-19: Is the TDS amount shown in my Form-16 final figure of my tax liability?
Ans: No, the tax shown by your employer on the form 16 is not the final figure of your tax liability. Your actual tax liability may differ on account of following reasons:

i). You might have other income (loss) from other sources of income: Income from house property (rental income), business income, capital gains (e.g., profit / loss on sale of shares or mutual fund units) other income (interest on your savings bank account or FDs).

ii). Your employer might have made excess / short deduction of tax at source from your salary income by not considering any, exemption / deduction or inadvertently allowing any deduction in excess.

It’s your responsibility to show the actual tax on your total income while filing your tax return which might differ from the TDS figure shown in Form 16.


I hope the above discussion answers most of your questions regarding TDS on salary income and there’s no more any need for you to visit various online forums for your tax queries on salary.

Still, if any question is left unanswered, just let me know.


Also see:

1.
Section 80C Tax Planning – 10 Tips
2.
Income Tax Calculator: FY 2009-10
3.
How to Calculate Your Taxable Income

12 comments:

  1. As per reply to Q-4 above there is no bar on inter-employee adjustment of TDS deducted in excess, under section 192(3) whereas this section allows adjustments for any excess or shortwall in the deduction of tax already made during the financial year, in subsequent deductions "for that employee" within that financial year itself. Please illucidate indicating specific section/rule/clarification issued by Income Tax Deptt, if any, regarding inter-employee adjustment.

    I hope to get the reply soon as I need adjustment of more than one lac rupee of tax and the current financial year is going to close very soon. My email address is prembmishra@yahoo.co.in.

    ---------With Rgds PB MISHRA

    You said that to adjust the TDS deducted in excess there is no bar on inter-employee adjustment under section 192(3) for .
    What if due to an error the employer deducts TDS in excess?
    Ans: According to section 192(3) of the IT Act, any excess or shortfall can be adjusted subsequently but within the same financial year. In other words, excess / shortfall TDS of one financial year can’t be carried forward for adjustment in subsequent financial year.

    The other point worth noting is that there is no bar on inter-employee adjustment i.e., if there’s a excess deduction on account of one employee and short deduction from the salary of other employee, those can be adjusted.

    ReplyDelete
  2. Mishra,

    See section 192(3) of the IT Act, 1961.

    ReplyDelete
  3. AnonymousMay 15, 2010

    Sir I have a query that if my excess Tax has been deducted by my previous employer and after consedring that my current employer has deducted tax according to that and still total tax is excess against my salary. But form 16 issued by my current employer shows Tax payable.
    In this case Form 16 can be issued with tax payable because in form 16 earning from prevoius employer does not show.

    Please help me on this issue.

    Abhishek Kathuria

    ReplyDelete
  4. AnonymousMay 18, 2010

    Sir,
    My previous employer deduct TDS 15000/-on salary & My Current Employer deduct TDS 40,000/-on salary. My current employer will issue me Form No 16 include previous employer TDS or he will give me TDS certificate only TDS amount RS. 40,000/-

    Suman Maheshwari

    ReplyDelete
  5. Hi,
    I am planning to apply for UK Visa, for this I need to submit my proof of earning. I have decided to submit my Form 26AS.From the NSDL website using my PAN I am able to view Form26AS.
    It clearly states how much salary is given, how much tax is deducted, etc. Is there a way to get this Form 26AS in original copy, instead of online version. Or is it possible to take this Form 26AS' print copy and get attested by some authorized person?

    ReplyDelete
  6. AnonymousJuly 12, 2010

    At the time of deduction of TDS from employee's salary, Whether the employer can consider advance tax/self assessment tax paid by the employee? Please help me on this issue by quoting circular/case Law/notifications(if any).
    Mallikarjuna

    ReplyDelete
  7. AnonymousJuly 15, 2010

    Hi, Whether advance tax/self assessment tax paid by employee can be considered at the time of deduction of tax from his salary?

    ReplyDelete
  8. AnonymousJuly 17, 2010

    My Question is : My home loan (principal + interest), and savings (like LIC, PPF etc) are not included in my Form16. Now i would like to add those things at the time of filing my returns. Could you tell me is it possible to include those items now ? If yes, please tell me the procedure. Is it possible efiling in these circumstances?At the time of filing is it required to provide proof of those savings (like bank EMI statement, LIC receipts etc) ?

    ReplyDelete
  9. Sir,

    Very useful and practical solution to common problems.

    Thank you very much.

    ReplyDelete
  10. Hi Sir,

    Can I ask my employeer to deduct TDS based on the below two criterias:

    1)Agricultural loan of my fathers land?
    2)Gold loan which is in my name?

    ReplyDelete
  11. Sir, Can my employer refuse to consider my savings (80c) if I make them after the deadline given by the employer that is 24 February, 2012. Am I not eligible to make savings till 31 March? I have already given the details of savings to be made in writing, but I plan to make savings in first week of March.

    ReplyDelete
  12. Sir, can my employer refuse to consider my savings (80c) made after the deadline given by them, that is, 24 February? Am I not eligible to make such savings upto 31 March? I have already given the details of savings to be made in writing.

    ReplyDelete

You’re welcome to post a comment if you’d like to air your views, or if you’ve any further question to ask, but please stick to the topic and don’t forget to write your name.