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How To Calculate TDS on Salary Under Section 192 of Income Tax Act

If you are a working professional or a pensioner then you must have heard about the term TDS which is an acronym for tax deduction at source. Section 192 of Income Tax act is directly related to the TDS on your salary. 

The remuneration you receive from your employer can be considered as your income. Thus you are required to pay a certain amount of tax from your salary as income tax to the government. All the information related to TDS deduction can be found on Form 16 which will be given to you by your employer in every financial year.

How to calculate TDS on salary

Here, we will look at two different types of examples in order to figure out how you can calculate TDS under section 192 of Income Tax act.

Example 1

Suppose a person named Alex is working for a company named XYZ Ltd. and his salary is Rs. 90000 per month. In this case, we will be trying to calculate his TDS for the 2022-23 financial year. Let us assume that Alex has invested Rs. 80000, Rs. 100000 in the ELSS fund and Rs. 120000 in EPF.

His estimated total income for the current financial year is Rs. 1080000. A standard deduction of Rs. 50000 is generally allowed for every salaried individual. According to chapter VI A, we can also deduct Rs. 150000.

  • Calculation of TDS for Alex:
Total salaryRs. 1080000
Standard deduction amountRs. 50000
Deduction according to Chapter VI ARs. 150000
Total Taxable incomeRs. 880000

Tax applicable as per the slab rates:

0 to Rs 2.5 lakhNil
Rs 2.5 lakh to Rs 5 lakh – 5%Rs. 44000
Rs 5 lakh to Rs 10 lakh – 20%Rs. 176000
Cess – 4%Rs. 8800

The total amount of tax is Rs. 228800

Now for the twelve months in the current financial year, the TDS deduction under section 192 of Income Tax act will be Rs. 228800/12 = Rs. 19066.66 per month.

Section 192 of the Income Tax act is applicable to every salaried income including pensions.

Example 2

Suppose Henry is a retired individual who receives a pension of Rs. 40000 every month and also has savings account through which he has received Rs. 20000 interest in the 2022-23 financial year. 

According to section 192 of IT act, TDS deduction will be applicable on every financial payment that comes under the salary category. Pensions come under the salary category which is why TDS is also applicable in this case.

  • Calculation of TDS for Henry:

Total salary –    

Pension –                                                                                Rs. 480000                                                                       

Standard deduction amount –                                              Rs. 50000

Total income from salary –                                                    Rs. 430000

Income from savings account –                                            Rs. 20000

Income from other sources – 

Total Taxable income –                                                           Rs. 450000

Tax applicable as per the slab rates:

0 to Rs 3 lakh – Nil

Rs 3 lakh to Rs 5 lakh – 10%                                                 Rs. 45000

Rs 5 lakh to Rs 10 lakh – 20%                                               

Rebate under Section 87A – (up to Rs. 12500)                     Rs. 12500

The total amount of tax is Rs. 32500

The total amount of TDS Henry will have to pay is Rs. 32500/12 = 2708.33 per month.

Various factors included in the calculation of taxable income?

It is the employer’s responsibility to deduct the income tax from their employee’s salary and then deposit it into the government’s account. At the beginning of every financial year, the company or employer evaluates the salary of every individual employee. 

The employee’s salary includes things like a dearness allowance, house rent allowance, basic pay, bonus, contributions to the employee provident fund, meal coupons, perquisites granted by the employer, etc. 

After the evaluation of individual employees’ salaries has been completed, the employer then estimates the exemptions the employee will be entitled to under section 10 of the Income Tax act. Employees can receive exemptions on the following allowances

  • Children’s education allowance
  • Travel expense
  • House rent allowance
  • Uniform expense
  • Entertainment allowance

The company or employer also needs to deduct the professional tax paid by the employee along with the Rs. 50,000 standard deductions. After deducting all the above-mentioned allowances from the total monthly income of the employee, the remaining amount will be considered taxable salary income.

In case the employee discloses income from other sources such as income generated by bank deposits, rental income from real estate, etc. then it should also be added to the total taxable salary of the employee. 

More importantly, if there is no income from the employee’s property or the income from rent balances the interest paid because of the housing loan then a negative figure should be added to the ‘income from house property’ category. After deducting or adding the entire amount the employee’s total income should be calculated.

To conclude

Section 192 of Income Tax act helps employers and companies evaluate how much money they are obligated to deduct from their employee’s salaries while the government also benefits from it by receiving the taxes at regular intervals. Furthermore, the tax burden of every individual is lessened when the TDS is deducted regularly from their income.

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