Deduction of TDS

When TDS should be deducted?

The concept of TDS is based on a simple principle i.e. tax is to be deducted at the time of payment getting due or actual payment whichever is earlier. A set of scenarios for will be helpful in understanding the concept:

Say, ABC Private Limited has to make payment of Rs 50,000/- to Mr. XYZ in exchange of professional services.

Scenario 1:

Mr. XYZ was paid Rs 30,000/- in advance on 15th July. XYZ raised invoice after completion of work on 31st July and rest of payment is to be made.

In such case the company should have deducted tax in the following manner:

On 15th July: Rs 3000/- (@ 10% on advance of Rs 30000/-)

On 31st July: Rs 2000/- (@ 10% of total invoice amount as deducted by tax already deducted i.e. Rs 5000/- deducted by Rs 3000/-)

Scenario 2:

Mr. XYZ raised the invoice on 15th July and was paid whole consideration at one go on 31st July.

In such whole amount of Rs 5000/- shall be deducted on 15th July, the date when payment got due, and a net payment of Rs 45000/- shall be made on 31st July.

Scenario 3:

Mr. XYZ is to receive the whole amount of Rs 50,000/- well in advance before completion of the assignment.

In such particular case tax of Rs 5000/- shall be deducted right at the time of payment of advance and no tax is to be deducted at the time of making an entry for the bill due.

How much tax should be deducted from salary?

Persons responsible for paying salary are liable to deduct tax on estimated salary at prescribed rate of 15% subject to following:

Exemption Limit: No tax is required to be deducted at source unless the estimated salary exceeds basic exemption limit.

Exempt allowances: Allowances such as LTC, HRA, conveyance, travelling exempt as per prescribed limits and other perquisites not forming part of salary should be deducted from total salary while calculating taxable salary.

Other deductions: Other deductions such as deductions under section 80C, 80CCC, 80CCD, 80CCG, 80D, 80DD, 80DDB, 80E, 80EE, etc. should be considered before the calculation of tax on salary.

What is the minimum salary one should have for TDS to be deducted by the employer?

If after comprehensive calculation of allowable allowances, taxable perquisites and deductions under chapter VI-A, income from salary head exceeds a sum of basic exemption limit, then tax has to be deducted by the employer @ 15% on the amount over and above the basic exemption limit. For example, the salary of Mr. A arrives at Rs 2,80,000/- assuming that all the allowances, perquisites, and deductions have been taken into consideration, tax @ 15% on Rs 30000/- (2,80,000 – 2,50,000) shall be deducted by the employer.

Hence, provisions of TDS shall attract only if minimum salary is above the basic exemption limit.