TDS u/s 192 - Payment of Salary

1) Who is responsible to deduct tax u/s 192?

All persons paying salary are responsible to deduct TDS on income chargeable under the head "Salary". In other words, none of the payers of Salary are excluded; Individual, HUF, Partnership firms, companies, cooperative societies, Trust and other artificial judicial persons have to deduct TDS on Salary.

2) Who is the payee?

Any employee having taxable income under the head "Salary" shall be treated as a payee for TDS u/s 192. For the application of Sec. 192, there must exist an employer-employee relationship between payer and payee.

For e.g

I. Director of the company is not an employee and as such no TDS u/s 192 on any amount paid to the director

II. Part-Time Directors of the company, visiting professors & visiting doctors are covered u/s 194 J and not covered u/s 192. The whole-time directors are employees of the company and hence TDS is deductible u/s192.

Case laws

PCIT(TDS) vs. National Health & Education Society [2019] 4112 ITR 404 (Bom)

Where there existed no relationship of employer and employee between the assessee and Hospital-Based Consultants (HBCs), provisions of section 192 would not be applicable

CIT(TDS) vs. Asian Heart Institute and Research Centre (P.) Ltd. [2019] 

Where assessee trust, running a hospital, shared receipts from patients with consultant doctors in a fixed ratio, TDS was to be deducted under section 194J as such payment was professional fees

3) Is TDS deducted on Salary Paid to Non-resident Employees?

Yes, TDS to be deducted by employers on payments made to non-resident employees u/s 192.

4) When to Deduct TDS under Section 192?

Liability to deduct tax at source shall arise at the time of actual payment of salary and not at the time of accrual. Thus, the employer is not required to deduct tax at source when the salary has not been paid but merely credited to the account of the employee. Although, as per section 15 the salary is taxable in the hands of the employee either at the time of actual receipt or at the time of accrual whichever is earlier.

5) Threshold limit

No tax is required to be deducted at the source unless the estimated salary exceeds the maximum amount not chargeable to tax. No TDS u/s.192 if the tax payable (after taking rebate u/s.87A) by the employee is NIL.

6) Rate of TDS under Section192

Under section 192 there is no specific TDS rate. TDS to be deducted is calculated according to the tax slabs and rates thereof applicable to the financial year for which the salary is paid. The requirement of deducting TDS u/s 192 shall be worked out, after considering all the exemptions, allowances, rebate and deductions which are available to the employee.

TDS u/s 192 has to be deducted at the average of income tax computed on the basis of rates in force during the financial year. The total tax to be deducted on the estimated income of the employee for the relevant financial year is divided by the number of months of his employment. The amount so arrived is the monthly deduction of tax at source.

However, if the employee does not have PAN No., TDS shall be deducted 20% without including Health & Education Cess, if the normal tax rate, in this case, is less than 20%.

7) Whether an employer is also liable to deduct TDS on non-monetary perquisites?

Section 192 (1)(a) provides an option to the employer to pay tax on behalf of the employee on non-monetary perquisites, however, it is not mandatory for the employer to pay so. For the purpose of paying tax by employer u/s 1(a) tax shall be determined at the average rate of income tax in force on the income chargeable under the head salaries including the value of non-monetary perquisites.

ILLUSTRATION

The estimated Salary of an employee below 60 years of age is Rs. 8.00 lakh out of which Rs. 50,000/- is on account of non-monetary perquisites and the employer opts to pay the tax on such perquisites as per the provisions of the Income Tax Act. Total salary income chargeable to Tax is Rs. 8.00 lakhs. Employers are required to deduct perquisite tax for the A.Y. 2020-21 computed as follows:

The tax so paid by the employer shall be deemed to be TDS made from the salary of the employee. This TDS contributed by the employer is exempt in the hands of the employee.

8) Excess or shortfall of TDS during the Financial Year

•Any excess/deficiency arising out of previous deduction or failure to deduct during the financial year can be adjusted subsequently as per Section 192(3).

•Thus, where the assessee did not deduct tax from salaries in each month, rather the tax is deducted at end of the financial year, interest u/s. 201(1A) could not believe–CIT v. Enron Expat Services Inc.(Uttarakhand HC)(ITANo.78/2007)

•If TDS u/s.192 is not deducted in equal installments intentionally (not bonafide) and the deficiency is made good in last months, interest u/s. 201(1A) is liable to be levied

–Madhya Gujarat Vij Co. Ltd. v. ITO (Ahmedabad Trib.) (ITANo.420/Ahd/2011)

9) RELIEF WHEN SALARY IS PAID IN ARREARS OR ADVANCE –SECTION89(1)

• Advance Salary and Arrears of salary-Taxable in the year of receipt.

• However, eligible to claim relief u/s. 89(1).

• Relief to be computed as per Rule 21A.

• As per Sec.192 (2A), Form No.10 E is required to be submitted to the employer. Form No.10 E is also required to be submitted electronically on the e-filing portal.

• Section 89(1) and Section 10(10C):

If any amount received on voluntary retirement or termination of service as per VRS or in the case of a public sector company, a scheme of voluntary separation is claimed as exempt u/s. 10(10C), relief u/s. 89(1) cannot be claimed.

10) Other relevant points related to section192

a. Every person responsible for paying salary income is first required to estimate the income chargeable under the head "Salaries".Thevalueoftheperquisites provided by the employers to their employees shall be determined under rule 3 and shall be taken into account while estimating income under the head "Salaries".

b. Further, any income falling under section 10 (income which does not form part of total income) shall not be included in computing the income from salaries for the purpose of section 192 of the Act.

c. The person responsible for making payments shall also take into consideration amount deductible under section 80C, 80CCC, 80CCD, 80CCG, 80D, 80DD, 80DDB, 80E, 80EE, 80G, 80GG, 80GGA, 80TTA and80U.

d. Section 192(2A) provides that deduction of tax at source is to be made after allowing relief u/s 89(1) and after considering the tax on perquisites agreed to be borne by the employer.

e. Section 192(2D) further casts responsibility on the person responsible for paying any income chargeable under the head "Salaries" to obtain from the assessee (employee), the evidence or proof or particulars of prescribed claims (including claim for set-off of loss) under the provisions of the Act in the prescribed form and manner for the purposes of –

i. estimating the income of the assessee (employee); or

ii. computing tax deductible under section192(1).

f. Section 192 (2) provides that where an assessee is employed under more than one employer, then the assessee (employee) may choose the employer for deduction of tax at source. Thereupon, that employer shall deduct tax at source from the aggregate salary of an employee. For this purpose, the employee is required to furnish details of salary due or received by him from other employer(s) in Form No. 12B to one of the employers (as chosen by him).

g. As per the provision of section 192(3), the person responsible for paying the salary may, at the time of deducting tax at source, increase or reduce the amount to be deducted for the purpose of adjusting any excess or deficiency arising out of previous deduction or non-deduction.

• The employee MAY provide to the employer, particulars of:

• Other Income, including tax deducted thereon

• Loss, only if it is under the head "Income from house property‘

• Income from House Property-

• Any other rental income may be informed to the employer.

• Deemed let out property- From A.Y. 2020-21, if assessee owns more than 2 Self-occupied houses, such other house or houses shall be deemed to have been let out and its annual value shall be computed in accordance with Section 23(1). [Prior to A.Y. 2020-21, if the assessee owned 2 houses, the other house had to be deemed to have been let out]

• Assessee can claim a deduction of interest paid on borrowed capital u/s 24(b) of the act.

• Loss only under the head "Income from House Property" can be informed to the employer. House Property loss can be set-off maximum up to Rs. 2 Lakhs. [Section 71(3A)]

• Particulars of "Other Income" to be informed to the employer in simple statement duly verified by the employee- Rule 26B

h. In case if the employee furnishes to his employer, the details regarding his other incomes, investments, eligible deductions, etc., then for the purpose of TDS u/s 192, the employer shall be bound to consider such information.

11) Tax to be deducted from other incomes of the employee

• The employee may declare his other incomes to the employer for the purpose of tax deduction at source under this section.

• If he wants to declare, then particular of

i. other income (not being a loss) and tax deducted thereon

ii. the loss under the head "Income from house property" shall be submitted to the employer in a prescribed form and verified in a prescribed manner.

• On receipt of the same, the employer shall deduct tax under section 192 after taking into account the other income.

• However, this shall not have the effect of reducing the tax deductible (except where the loss under the head "Income from house property" has been taken into account) from salary income below the amount that would be so deductible if the other income and tax deducted thereon had not been taken into account.

12) Whether the benefit of lower deduction or no deduction of TDS is available u/s 192?

Yes. However assessee to whom the salary is payable may make an application in Form No. 13 to the Assessing Officer and if the Assessing Officer is satisfied that the total income of the recipient justifies the deduction of income tax at any lower rate or no deduction of income-tax, he may be given such certificate as may be appropriate.

W.E.F. 1-4-2010, as per section 206AA(4), no certificate under section 197 shall be granted unless the application made in Form No.13 under that section contains the Permanent Account Number of the applicant.

13) Whether provisions of Section 192 shall also apply to the salary paid by a non-resident employer to a non-resident employee for services rendered in India? Yes, Provisions of Sec. 192 shall apply if the salary was paid for services rendered in India even though the employers, as well as employees, were non-resident and the payment is made outside India.

14) Evidence/Proof Of Claims To Be Submitted By The Employee –Section192(2D)

The person responsible for making any payment of income chargeable under the head "Salaries‘ shall obtain from the assessee the evidence or proof of particulars of prescribed claims made by him in Form No. 12BB:

a) Exemption of House Rent Allowance

- Amount of rent paid to the landlord
- Name and address of the landlord
- PAN of the landlord if aggregate rent paid during the previous year exceeds Rs. 1lakh
- Rent receipts/ rent agreement from the landlord

b) Leave TravelConcession

- Evidence of expenditure is required to be furnished to the employer as per Rule 26C

- Leave Travel Concession cannot be claimed for foreign travel- Syndicate Bank Vs. ACIT (TDS) 164 ITD 319 (BengaluruTrib.)

- However, if the assessee has, under bonafide belief that foreign travel costs can be claimed as exempt u/s 10(5), not deducted TDS, penalty u/s 271C could not be levied and the same was treated as reasonable cause for the purpose of Section 273 B- State Bank of India Vs. ACIT (TDS) [2019] 063 ITD 440 (JaipurTrib.)

c) Deduction of Interest u/s 24(b)

- Interest on borrowing can be set off against salary income. (House Property) loss to the extent of Rs. 2 Lakhs)
- Details to be submitted:
- Interest payable/ paid to the lender br>-- Name, address, and PAN/Aadhaar number of the lender.
- Interest Certificate from the lender

d) Donations under sec. 80G

The donations are made under sec 80G (other than to a notified charitable institute) then the employer should allow that donation while calculating tax deductible. When a donation is made to a notified public then the employer should not allow that donation while calculating tax deductible.

e) Other deduction

Deductions under sections 80C, 80CCC, 80CCD, 80CCG, 80D, 80DD, 80DDB, 80E, 80EE, 80GG, 80GGA, 80TTA,80U.

15) TDS on Salary to Partners

Salary or remuneration paid to partners is not taxable in hands of partners as Salary but it is considered as income from the business. No employer-employee relationship exists between the partner and partnership firm. /p>

Explanation 2 of section 15 says that - Any salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from the firm shall not be regarded as "salary".

Therefore no TDS is to be deducted on salary paid to the partners /p>

Some person argues that this provision only applies on salary paid to active partners Salary paid to inactive partners is not allowed as a deduction to the partnership firm under section 40(b) but still it‘s a business income for the partner. The above explanation doesn‘t differentiate between active or inactive partners and thus salary paid to any partner is not liable to TDS.

16) TDS on Pension and FamilyPension

There is a difference between "Pension" and "Family Pension" for the purposes of the Income Tax Act, 1961. The Income Tax treatment for "Pension" and "Family Pension" is different.

It is pertinent to point out that "Pension" received from a former employer is taxable under the head "Salary" since Section 17 of Income Tax Act specifically lays down in clause (ii) of sub-section (1) that "any annuity or pension" is included in "salary".

Therefore, "Pension" is taxed in the same way as "Salary" is taxed.

On the other hand, "Family Pension" is taxed under Section 56 as "Income from Other Sources".

Now, Section 192 of the Income Tax Act makes any income chargeable under the head "Salary" subject to Tax Deduction at Source (TDS). Since pension is also considered as Salary, therefore TDS is deducted on pension also, wherever applicable as per the prevailing rates.

On the other hand, Family Pension is not "Salary" but an "Income from Other Sources". Therefore, TDS cannot be deducted on Family Pension under Section 192. Moreover, there is no other Section in the Income Tax Act which makes it mandatory to deduct TDS on a family pension. Therefore, there is no TDS deduction on Family Pension.

In the case of pensioners of a Govt. or other departments, receiving pension through nationalized banks, TDS has to be deducted by the bank u/s 192. Further, the Banks are bound to issue Form No. 16 to such pensioners as per Section 203.

Form No. 16 cannot be denied merely because there is no Employer-employee relationship between the bank and such pensioner. [CBDT Circular No. 761 dated 13.01.1998]

17) Salary received by MP, MLA, Ministers

• Remuneration received by a Member of Parliament, Member of Legislative Assembly is not chargeable as Income under the head "Salary". As there is no employer-employee relationship. It is chargeable under the head "Income from other sources‘ – CIT Vs. Shiv Charan Mathur (Raj. HC) (ITA No. 96 of 2006) (Also refer to CBDT Letter F. No. 40/29/67-IT(A-1) DATED22.05.1967

• Salary received by the Chief Minister or a minister is taxable under the head "Salary‘ – Lalu Prasad Vs. CIT ( Patna ) (2009) 316 ITR186

• Daily allowance, Constituency allowance, etc. received by MP/MLA is exempt u/s 10(17).

18) TDS under section 192 and Section115BAC

Tax rates u/s 115 BAC inserted vide Finance Act, 2020

When to exercise option u/s 115 BAC

• A person can opt under Section 115BAC

• If having income from business or profession
• Option to be exercised on or before due date u/s139(1)
• The option once exercised shall apply to subsequent years
• Can only be withdrawn once and thereafter, the assessee shall not be eligible to opt u/s 115BAC.

• If NOT having income from business or profession

• Option to be exercised at the time of furnishing return of income
• The assessee will have the option for each assessment year to choose from either the normal provisions or Section 115BAC.

19) TDS U/S 192 IN LIGHT OF THE SECTION 115BAC?

• Intimation to Employer-The employee, whether having any income under the head "profits and gains from business or profession" or not, has to intimate the employer about the intention to opt for concessional rate of taxation u/s.115BAC of the Act. The employer will deduct TDS accordingly.

• If no such intimation is made, TDS will be deducted without considering Section115BAC.

• Intimations made to the employer cannot be modified during the year

• However, this intimation given to the employer is not binding and the employee can choose a different option while filing a return of income.

• In respect of employee having income under PGBP head– intimation for subsequent years should not deviate from the previous intimation, except when the employee opts out from Section 115BAC.

• CBDT Circular No.C1 of 2020 dated April 13, 2020