Tax Deducted at Source (TDS) is the tax that is deducted by the employer or the deductor from the taxpayer and is deposited to the Income Tax Department on behalf of the employer. The TDS rates are set based on the age and income slab of different employees. TDS is the reduced amount when payments like salary, commission, interest, rent, or any other professional fees, etc., are made. Let’s understand a bit more about how to calculate TDS.
Importance of TDS Deduction
- If you are making any payments specified under the IT Act.
- If the amount payable exceeds Rs.50,000 when you are making rent payments. In such cases, TDS are deducted at the rate of 5%.
- If you are a working professional, your employer will do the TDS deduction.
How are TDS Calculations Done?
Let us understand how to calculate TDS through an example. We shall consider that you are running a business in a property on rent, and you are supposed to pay the rent to the owner every month total rent costs Rs.50,000, which you are liable to pay the owner, then the TDS rate will be 5%. So, you shall be subtracting Rs.5000 from the gross rent, paying Rs.45,000 to the owner. The owner can add the net gross income of Rs.50,000 to the income.
The following table shows the tax rate for each tax slab:
- There is no tax levied for income up to Rs. 2.5 lakhs
- The tax Rate is 5% for income within the range of Rs. 2.5 lakhs to 5 lakhs
- For those who have income in the range of Rs. 5 lakhs to 7.5 lakhs, tax at 10% would be charged
- Similarly, the tax rates for the following ranges – Rs. 7.5 lakhs to 10 lakhs, Rs. 10 lakhs to 12.5 lakhs, Rs. 12.5 lakhs to 15 lakhs and Rs. 15 lakhs and above are 15%, 20%, 25% and 30%, respectively.
TDS Calculation Formula
In typical scenarios, the employers deduct their employees’ salaries at the average rate of their income tax. The general TDS calculation formula is
Average Income Tax = Income Tax Payable / Estimated Income Tax for that financial year
This TDS calculation on salary formula will give you the value of the average income tax, which is the value of TDS. Let us say that you are working in a company that pays you Rs.1,00,000 as your salary. Your total salary will be Rs.12,00,000 per annum. Then the tax deduction will take place according to that particular year’s TDS rate for the income slab and use the TDS calculation on salary formula for estimating the deduction. This will give you the TDS amount. The TDS calculation formula is one of the very simplest and most convenient ways of calculating the TDS.
How to Calculate TDS on Salary?
Now that we are aware of the definition of TDS, the conditions applied, and also came across an example, you should have an idea about the basic idea behind TDS. With this, let us learn the types of TDS:
- Brokerage or Commission
- Amount Under LIC
- Commission payments
- Contract payments
- Interest On Securities
- Payment for rents
- Deemed dividends
Apart from these, other income sources qualify for TDS, such as compensation for acquiring immovable properties, transfer of immovable property, income sources from games, etc.
You must ensure the following to ensure when you calculate TDS
- There must be a valid Tax Deduction & Collection Account Number(TAN) and registered for e-filing.
- You need to prepare TDS statements using Return Preparation Utility before validating them.
- You must have a valid Digital Signature Certificate e-Filing.
- You will have to provide the bank account details of your principal contact.
You can calculate TDS based on the income by the following steps:
- Calculate the gross annual income. You can also calculate the gross annual income as the sum of basic income, and allowances.
- Calculate the available exemptions that fall under Section 10 of the IT Act.
- Reduce the exemptions
- Multiply the figure obtained by 12, to calculate TDS on a yearly basis.
- Add/ subtract the amount from income sources such as house rent, incurred losses, or any other income sources with the value obtained from the above figure.
- Compute the investments for the year that are all under Chapter VI-A of ITA and deduct this value from the gross income calculated.
- After this, reduce the maximum allowable income tax exemptions on a salary.
These are the steps to calculate TDS depending on your tax slabs. For senior citizens, the tax slab will differ.
Online TDS Calculator
We are prone to mistakes in terms of calculation due to mathematical errors. You can not afford such errors when you calculate TDS. So, whenever we calculate TDS, we should compute the tax deductions with care. In such instances, an online TDS calculator proves to be very useful.
It enables us to check whether there are any deductions and if you have to calculate TDS correctly or not.
Also Read: TDS Refund: How to Claim, Check the Status
TDS Interest Calculator
You can use online TDS interest calculators to estimate the interest charges whenever there is a late payment of TDS, late deductions on TDS, or late filing of TDS. You can use the same calculators as online TDS interest calculators for the calculation of interest on TDS. It is possible to compound the interest on late payment of TDS at a rate of 1.5% per month from the due date.
If your payable TDS amount is Rs.7000, the due date is 13 February, and let us say, you pay it on 20th June. Then, as per the online TDS interest calculator, the interest that you will be paying is
Rs.7000 *1.5% * 5 months = Rs.525
According to the TDS interest calculator, you will be paying Rs.525 in the above scenario.
TDS Penalty Calculator
You will have to pay penalties if you fail to pay the tax deducted from the credit of the Central Government. If you file the on 24th December, then according to the calculate TDS, the calculation is Rs.200*55 days = 11,000.
However, if you fail to file e-TDS by delaying more than a year or in cases where you submit incorrect details of PAN, Challan, or TDS amount, then the penalty will range from Rs.10,000 to 1,00,000.
Pros & Cons of Deducting TDS from Income
|It prevents people from evading taxes.|
There are chances of Delay in the refund of TDS
|Which widens the tax base collection |
The fee charges are charged by professionals and these fees are quite high
|It is convenient for those who are deducting the taxes as the taxes are automatically deducted. |
|The government will receive a steady source of income |
- Income tax is the tax on an individual or an entity’s income
- The entities that are liable to pay taxes are firms, companies, local authorities, etc.
- TDS refers to Tax Deducted at Source, which is a deduction on taxes by the deductor or an employer.
- The TDS rates are based on the age and income slabs of the individual.
- TDS is applicable for house rents, HUFs, payments under the IT act, etc
You would have had an exciting learning process throughout this content piece about taxes and their deductions, starting from the basics. By now, you will have an excellent idea about the income tax, income tax return, filing the IT, and how the system of TDS works in the IT department.
Focus more on the calculate TDS, the TDS calculation on salary formula, and how the online TDS calculators work and have a clear idea about the online TDS interest & penalty calculators. You can go through the FAQs to clear your doubts in the next section.
Frequently Asked Questions
As an employee, you should declare the amount paid as rent, which can be claimed as an exemption.
If your TDS credit is not reflected in Form 26AS, then you must contact your employer and enquire if there are any valid reasons.
TDS amount is to be submitted on the 7th of every month for the payments made in the previous month and on the 30th of April for the payments made in March.
Yes, the TDS differs for individuals without a PAN card. If you don’t have a PAN card, then the TDS will be charged at an extra rate of 20%.
Pan cards will enable the departments to link all the transactions of an individual with the department. Since the TDS is made by your company, most of the employees will be asked to submit their PAN to HR if the income is above the taxable limit.
The various exemptions allowed for TDS are:
– House Rent Allowance.
– Leave Travel Allowance.
– Leave Encashment Amount.
– Pension Amount.
– Gratuity Amount.
Section 192 of the Income Tax Act of 1961 states that any person responsible for paying any income chargeable under the head ‘salary’ must deduct income tax on the assessee’s anticipated income under the head salaries.
Yes, the TDS rate is determined by the sort of income you get. Each income has a distinct threshold, and once that barrier is reached, the TDS rate prescribed in the Income-tax Act is applied.
To find out the quantum of the tax deducted by the payer, you can ask them to provide you with a TDS certificate in respect of the tax deducted by them. You can also check Form 26AS from your e-filing account at https://incometaxindiaefiling.gov.in
Also, read about Tax Saving FD on Investment Simplified.