TDS Deduction from Salary: A Guide for Salaried Individuals
In the ever-evolving landscape of income tax laws, staying informed is crucial for salaried individuals looking to optimize the TDS deduction from their salary and to save tax. With changes effective from April 1, 2023, for FY 2023-24, understanding the nuances can help you navigate the tax regime efficiently.
Importance of Investment Proof Submission
Many employers now require employees to submit proof of investments to avoid higher TDS deductions from their salary income. This necessity depends on the chosen tax regime and the flexibility your company allows in switching between old and new tax regimes after April 2023.
Timeline for Investment Proof Submission
While employees typically aren’t required to submit documents in April when investment proposals are requested, the last three months of the financial year are crucial. Companies may ask for proof to back your declaration, especially from January onwards. The actual investments and provisional expenses for the last quarter need validation to calculate accurate deductions till March 31.
Old Tax Regime vs. New Tax Regime
(i) Old Tax Regime:
Offers various exemptions and deductions like HRA, LTA, and Sections 80C, 80D, 80CCD(1b), 80CCD(2), etc.
Proof submission depends on the exemptions and deductions claimed, such as rent agreements, premium receipts, and investment statements.
(ii) New Tax Regime:
Default regime with limited deductions: standard deduction of Rs 50,000 and Section 80CCD(2) for NPS contributions.
No need for proof submission for standard deduction, and usually, employers consider Section 80CCD(2) automatically.
Last Date for Submission of Investment Proof
The deadline for proof submission varies, but most organizations expect it by March 15. Failure to submit documents results in higher TDS deductions until proofs or investment declarations are received.
Relevant Changes in Income Tax from April 1, 2023
(i) Reduced income tax slabs to five from six.
(ii) Increased basic exemption limit to Rs 3 lakh.
(iii) Enhanced income tax rebate, making it zero for taxable income up to Rs 7 lakh.
(iv) Introduced a standard deduction of Rs 50,000 for the new tax regime.
(v) Reduced the highest surcharge rate from 37% to 25%.
CBDT Guidelines on TDS deduction for Employers
TDS on salary income falls under Section 192 of the Income-tax Act. A circular issued by the Central Board of Direct Taxes (CBDT) on April 5, 2023 i.e., Circular No. 4/2023, guides employers on TDS deductions. However, whether an employee can switch tax regimes during the financial year depends on the company’s policy.
When to deduct TDS from Salary
In accordance with Section 192, employers bear the responsibility of deducting taxes at source when disbursing salary payments to employees. Unlike other TDS provisions for non-salary payments, where tax deduction obligations arise at the time of credit or payment, the deduction for salaries occurs exclusively at the time of actual payment. This means that when issuing advance salary or settling arrears, employers must factor in these components while calculating the applicable tax deduction. Stay compliant with tax regulations by ensuring timely and accurate deductions from salary payments as required by Section 192.
What to Do If Excess Tax Is Deducted
If you miss the initial deadline for submission of documents, excess TDS will reflect in Form 16. Claiming an income tax refund during filing is the way to recover this excess amount. The difference between the actual payment made by the employer and the tax deductible at source, will be treated as the excess payment made and that will be refunded by IT department after filing of the ITR by the employee.
Conclusion
Being aware of the latest income tax regulations is pivotal for salaried individuals aiming to maximize tax savings. Adhering to submission deadlines and understanding the intricacies of old and new tax regimes will ensure a smoother financial journey in FY 2023-24.
To Access the CBDT Circular No. 4/2023 (Clarification on TDS from salary u/s.192) CLICK HERE
To Know about 6 Pivotal Cash Transactions Causing Possible I-T Notice on You CLICK HERE
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