TDS on salary is not on a fixed rate; Know how tax is calculated and deducted by employer
«The employer deducts TDS on salary at the employee's 'average rate' of income tax. This is because TDS on salary is not deducted at a flat rate,» says Abhishek Soni, co-founder, Tax2Win, a tax filing assistance platform.
Here's how this TDS deduction works and how it can impact your monthly income.
Also read: Tax demand up to Rs 1 lakh/person waived: Check ITR a/c.
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How is TDS on salary calculated?
The calculation of TDS is dependent upon the estimated net tax liability of the employee. In the process various factors such as tax regime chosen by the employee, tax exempted income, expenses and eligible deduction on tax savings investments (if any was made) are also considered. In order to make sure that a correct amount of TDS is being deducted, employers ask employees at the beginning of the financial year to declare their expenses and investment which would be eligible for tax deduction or exemption. Employers also ask employees to choose the tax regime (old/new) at the start of the financial year.
Based on the declaration given by the employees, the employer deducts an average TDS each month typically until the last quarter of the financial year. And as the end of the financial year approaches employers ask for proof of tax savings investments which the employees declared earlier.
According to Suresh Surana, founder, RSM India, a tax and business consulting group, «As per section 192 the amount of income-tax to be deducted shall be computed on the
