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How to Minimize TDS amount on Salary?

What is TDS on Salary?

  • TDS on Salary is the income tax you pay on salary. It is also called withholding tax. Salary or the payment made by an employer to an employee can be bifurcated into two parts – Salary and Perquisite/Perks.
  • Salary is the fixed amount paid every month or week; while perquisites are the facilities and benefits enjoyed by the employee while providing service to the organization.
  • For instance – car allowance, transportation, canteen subsidy, hotel accommodation, lodging & boarding, fuel & gas subsidy, travelling expenses, interest-free loans, etc all fall under perquisites.

According to Section 10 of Income Tax Act, some portion of allowances and perks are exempt from taxation. For instance – Upto Rs. 800/- per month is exempt on conveyance allowance, then there are HRA exemptions and so on.

The money which is deducted as Tax Deducted at Source from an employee’s salary is reflected in Form 16. It is issued to the employee by the employer at the end of the financial year. Moreover, the employee/ taxpayer can check the details of TDS deducted and deposited by his/her employer.

After verifying his/her details through Form 26AS the taxpayer can easily check the details online. If the employee’s income is less than the income mentioned in tax slab then, he/she is not liable to pay income tax, in that case TDS will not be deducted from his/her income.

If the taxpayer is an employee with more than one employer, it may happen that the taxpayer has switched jobs and joined a new organization. In that case, he/she must furnish a statement in Form 12B (Form 12B is an income tax form, which should be furnished by an employee who has changed jobs, the main purpose of this form is to give your current employer, your income details from your previous job. Furnishing Form 12B is not compulsory.) Based on the information provided the new employer will deduct TDS on Salary.

This deducted TDS on Salary is deposited to the Central Government account by the employer before the prescribed due date, where the employer needs to mention his/her TAN number on the deposited challan 281.

The employer needs to mention the salary paid to each employee and the tax deducted thereon while depositing TDS on Salary to the Government.

It is also mandatory to quote employee’s PAN number while depositing the TDS. In case, if an employer fails to deduct TDS from his/her employee or fails to pay the deducted TDS on Salary to the government, the employer is liable to pay interest or penalty.

Further, if an employer has deducted lower TDS on salary in the initial months as compared to the amount he/she needs to deduct, then the employer can adjust the TDS amount by deducting higher amount in the remaining months and vice-versa.

The TDS on Salary deducted annually should be equal to the tax on salary payable by the employee based on his/her income bracket. If the TDS on salary is more than the tax paid then the employee can claim a tax refund.

The employer/deductor should have TAN Registration. TAN is an alphanumeric 10-digit number used for tracking all TDS deductions on Salary by the IT- Department.

How can I minimise TDS on Salary?

  • It is mandatory to deduct TDS on salary if the employee’s income exceeds the exempt tax limit. For AY 2018-19 this is INR 2, 50,000.
  • Under Section 80C and 80D, the government allows tax exemptions, where a taxpayer can claim an exemption based on his/her various investments in that financial year.
  • It is mandatory for an employer to obtain declaration/proof from the individual to approve their tax exemption.
Under following categories an employee can reduce his/her TDS burden
  • House Rent Allowance Exemption– An employee can claim tax exemption on the amount he/she paid for accommodation as rent. To claim this deduction, the employee will have to furnish his/her proof of accommodation by giving the employer the rent receipts.
  • Conveyance or Travel Allowance – An employee can claim tax exemption on the amount of Tax Deducted at source or TDS, if he/she is provided with conveyance allowance. The employee can claim travel allowance only when, the organisation does not provide transportation facility.
  • Medical Allowance – An employee can claim tax exemption if he/she is entitled to the medical allowance. He/she should provide medical bills as proof.

However, there are certain limits to the maximum amount that can be considered for tax exemption.

TDS on Salary Certificate

After the deduction of the TDS on Salary the employer should provide Form 16 to the employee, as a proof of the deducted TDS, with his/her salary breakup in the Form 12BA.

Form 12BA: This form is used when an employee receives perquisites from his/her job. This form is provided to employee by his/her employer. Perquisites are the benefits that an employee gets as an addition to his/her salary depending on the job and position he/she is working in.

If the employee is eligible for any tax relief/exemption under Section 89(1) of the Income Tax Act, then the employee should furnish the details in Form no. 10E. Primarily, an individual can save taxes or enjoy the above-mentioned benefits when there is a change in her salary bracket.

FAQs

Q. What is Salary Income?
Under Section 17 of the IT Act, Salary Income is the amount received by an employee from an employer as cash, kind or facility.
Q. What is allowance?
Apart from the salary, the fixed periodic amount paid by your employer to the employee to meet some requirements is called allowance. For example – transport allowance, tiffin allowance, etc. Generally, there are 3 types of allowances, namely, Taxable allowances, fully exempt allowances and partially exempt allowances.
Q. Does pension income come under Salary income?
Yes, pension income comes under salary income, except for the pension received from United Nations Organization.
Q. Can an employee claim relief under Section 89 to calculate his TDS on Salary?
Yes, however, the employee should be a Government employee or an employee of PSU, company, co-operative society, local authority, university, institution or association. Here, Form No. 10E needs to be furnished by the employee to the employer.
Q. Is leave encashment taxable as salary?
Yes, it is taxable if you receive it while you are in service.