November 27, 2013

CA CS ICWA TAX PROFESSIONALS PORTAL - TDS on Salary – full concept – with examples - Part 1

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TDS on Salary – full concept – with examples
As per Circular No 8/2013 dated 10-10-2013

Part 1 – Deductor and Rates of Income Tax


Who will deduct TDS:-

Person responsible to deduct TDS:- As per Section 204 of Income tax act 1961, every person who is an employer, in the case of payments of income chargeable under the head "Salaries”.

Meaning: - All the persons/assesses who are employer will deduct TDS on the salary paid to the employee if such sum exceeds basic exemption limit provided under the act.


When TDS to be deducted:-

TDS is deducted as per the provisions of Section 192 of the Income Tax Act, 1961.
TDS to be deducted at the rates prescribed when total income of a employee exceeds basic exemption limit prescribed under the act.

Rates and Basic Exemption Limits: -

(A) For all Individuals other than resident senior citizens of age 60 and above.

Means: - These rates are applicable to the following:-

S.no
Gender
Residential Status
Basic Exemption Limit
1
Men below 60 years
Resident of India
Rs 2,00,000
2
Women below
 60 years
Resident of India
Rs 2,00,000
3
Men of any age
Non resident of India
Rs 2,00,000
4
Women of any age
Non resident of India
Rs 2,00,000

(Note: - Please refer to the Section 6 to understand Resident and Non resident of India)

Rates of Tax:-

Total Income of person
Tax rates
Does not exceed Rs 2,00,000
Nil
Exceeds Rs 2,00,000 but below
Rs 5,00,000
10% of Income Exceeding Rs 2,00,00
Exceeds Rs 5,00,000 but below
Rs 10,000,00
Rs 30,000 + 20% of Income Exceeding Rs 5,00,000
Exceeds Rs 10,00,000
Rs 1,30,000 + 30% of Income Exceeding Rs 10,00,000

Note: -
1)      The amount of income-tax shall be increased by Education Cess (2%) and Senior Higher Education Cess (1%) on Income Tax.

2)   Tax Credit of Rs 2000 will be available only to assessees having total taxable income upto Rs. 5 lacs


For example:-

a)   If total salary income of an employee is Rs 1,95,000.

Solution: - No TDS will be deducted as salary income of an employee does not exceeds Rs 2,00,000

b)   If total Salary Income Rs 3,50,000

Solutions: - 

Total Income of Person
Details
Tax
Exceeds Rs 2,00,000 but below Rs 5,00,000
3,50,000-200000 = 1,50,000
Hence 1,50,000*10%

15,000
Less: Tax Credit
Only if total income is below Rs 5,00,000
2000
Income Tax
13000
Add: Surcharge @10%
Only if total income exceeds Rs 1 Crore

0
Income Tax + Net Surcharge
13000
Add: Education Cess @ 2%
13000*2%
260
Add: Senior Higher Education Cess @ 1%
13000*1%
130
Gross Tax Liability
13390


c)    If total Salary Income Rs 10,50,000

Solutions: - 

Particulars
Details
Tax
Exceeds Rs 10,00,000
Rs 1,30,000 + 30% of income Exceeding Rs 10,00,000

10,50,000 – 10,00,000 = 50,000
Hence 1,30,000 + 50,000*30%

1,45,000
Less: Tax Credit
Only if total income is below Rs 5,00,000
0
Income Tax
1,45,000
Add: Surcharge @10%
Only if total income exceeds Rs 1 Crore

0
Income Tax + Net Surcharge
1,45,000
Add: Education Cess @ 2%
1,45,000*2%
2,900
Add: Senior Higher Education Cess @ 1%
1,45,000*1%
1,450
Gross Tax Liability
149350



(B) Rates of tax for every individual, resident in India, who is of the age of sixty years or more but less than eighty years at any time during the financial year:

Applicability:-
a)   Age of employee is exceeding 60 years but less than 80 years
b)   Any employee who attains the age of 60 years during the year
c)    An employee must be resident of India

Means: - These rates are applicable to the following:-

S.no
Gender
Residential Status
Basic Exemption Limit
1
Men on or above
60 years but below 80 years
Resident of India
Rs 2,50,000
2
Women on or above 60 years but below 80 years
Resident of India
Rs 2,50,000

(Note: - Please refer to the Section 6 to understand Resident and Non resident of India)

Rates of Tax:-

Total Income of person
Tax rates
Does not exceed Rs 2,50,000
Nil
Exceeds Rs 2,50,000 but below Rs 5,00,000
10% of Income Exceeding Rs 2,50,000
Exceeds Rs 5,00,000 but below Rs 10,000,00
Rs 25,000 + 20% of Income Exceeding Rs 5,00,000
Exceeds Rs 10,00,000
Rs 1,25,000 + 30% of Income Exceeding Rs 10,00,000

Note: -
1)   The amount of income-tax shall be increased by Education Cess (2%) and Senior Higher Education Cess (1%) on Income Tax.

2)   Tax Credit of Rs 2000 will be available only to assessees having total taxable income upto Rs. 5 lacs

For example:-

a) If total Salary Income Rs 10,50,000

Solutions: - 

Particulars
Details
Tax
Exceeds Rs 10,00,000
Rs 1,25,000 + 30% of Income Exceeding Rs 10,00,000

10,50,000 – 10,00,000 = 50,000
Hence 1,25,000 + 50,000*30%
1,40,000
Less: Tax Credit
Only if total income is below Rs 5,00,000
0
Income Tax
1,40,000
Add: Surcharge @10%
Only if total income exceeds Rs 1 Crore

0
Income Tax + Net Surcharge
1,40,000
Add: Education Cess @ 2%
1,40,000*2%
2,800
Add: Senior Higher Education Cess @ 1%
1,40,000*1%
1,400
Gross Tax Liability
1,44,200



(C) Rates of tax for every individual, resident in India, who is of the age of eighty years or more at any time during the financial year:

Applicability:-
a)   Age of employee is exceeding 80 years
b)   Any employee who attains the age of 80 years during the year
c)    An employee must be resident of India

Means: - These rates are applicable to the following:-

S.no
Gender
Residential Status
Basic Exemption Limit
1
Men on or above
80 years
Resident of India
Rs 5,00,000
2
Women on or above 80 years
Resident of India
Rs 5,00,000

(Note: - Please refer to the Section 6 to understand Resident and Non resident of India)

Rates of Tax:-

Total Income of person
Tax rates
Does not exceed Rs 5,00,000
Nil
Exceeds Rs 5,00,000 but below Rs 10,000,00
20% of Income Exceeding
Rs 5,00,000
Exceeds Rs 10,00,000
Rs 1,00,000 + 30% of Income Exceeding Rs 10,00,000

Note: -
1)   The amount of income-tax shall be increased by Education Cess (2%) and Senior Higher Education Cess (1%) on Income Tax.

2)   Tax Credit of Rs 2000 will be available only to assessees having total taxable income upto Rs. 5 lacs


For example:-

a) If total Salary Income Rs 10,50,000

Solutions: - 

Particulars
Details
Tax
Exceeds Rs 10,00,000
Rs 1,00,000 + 30% of Income Exceeding Rs 10,00,000

10,50,000 – 10,00,000 = 50,000
Hence 1,00,000 + 50,000*30%
1,15,000
Less: Tax Credit
Only if total income is below Rs 5,00,000
0
Income Tax
1,15,000
Add: Surcharge @10%
Only if total income exceeds Rs 1 Crore

0
Income Tax + Net Surcharge
1,15,000
Add: Education Cess @ 2%
1,15,000*2%
2,300
Add: Senior Higher Education Cess @ 1%
1,15,000*1%
1,150
Gross Tax Liability
1,18,450




Note: - Surcharge.

The amount of income-tax shall be increased by a surcharge @10% of the Income-tax on payments to an individual taxpayer, if the total income of the individual exceeds Rs 1 crore during FY 2013-14 (AY 2014-15).

Education Cess and Senior Higher Education Cess shall be applicable to the Income tax after addition of Surcharge.

For example: -- If Tax if Rs 50,00,000 before surcharge and education cess and senior higher education cess.

Then total tax liability will be as under: -

Particular
Income
Tax
50,00,000
Add: -Surcharge@10%

         50,00,000*10%
5,00,000
Total                        
55,00,000
Add: - Education Cess @ 2%

          55,00,000*2%        
1,10,000
Add: - Seniour Higher Education Cess @ 1%
        55,00,000*1%          
55,000
Total Tax Liabilty                       
56,65,000
               


By CA Ashish Barthwal



For any query feel free to contact ca_ashish.barthwal@yahoo.com
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