What is TDS
TDS stands for Tax Deducted at Source. This is a mechanism for collecting direct tax at the time of payment. The income tax department introduced this mechanism for direct tax collection like Salary, Rent, Commission, Professional and Technical, Contractor, Interest, etc.
Sections of TDS
Here are some popular TDS sections that many firms or companies are using. TDS all Sections Rates and Threshold Limit.
- 192 –TDS ON SALARY
- 194 –TDS ON DIVIDEND
- 194C –TDS ON CONTRACTOR
- 194D –TDS ON INSURANCE COMMISSION
- 194H –TDS ON COMMISSION OR BROKERAGE
- 194I -TDS ON RENT
- 194J -TDS ON PROFESSIONAL AND TECHNICAL SERVICES
- 194Q –TDS ON PURCHASE OF GOODS
TYPES OF TDS
Here are some examples of Types of TDS
- Salaries
- Interest payments by banks
- Commission payments
- Rent payments
- Consultation fees
- Professional fees
- Contractor fees
- Purchase of Goods
SECTION 192 – Calculate TDS Rate ON SALARY
Example:- One-month salary slip of Mr. A (For Metro City) and calculating estimated salary for 12 months.
| INCOME | AMOUNT | DEDUCTION | AMOUNT |
| BASIC SALARY | 30000 | PF | 3600 |
| HRA | 15000 | LWF | 25 |
| SPECIAL ALL. | 8500 | INCOME TAX | 1980 |
| OTHER ALL. | 9500 | ||
| TOTAL | 63000 | TOTAL | 5605 |
| NET PAY | 57395 |
DEDUCTION DECLEARED
Example- Annually estimated deduction of Mr. A
| DEDUCTIONS | AMOUNT |
| 80C (PF) | 43200 |
| 80C (LIC) | 22500 |
| HRA | 84000 |
| STANDARD DEDUCTION | 50000 |
| TOTAL | 199700 |
Calculate TDS Rate on Salary
We are calculating the average TDS rate on salary because the TDS rate is not fixed and we are calculating on estimated salary. It depends on annual salary and deductions.
If salary increases after few months then the TDS rate will be increased. Not all employees’ TDS rates need to be the same, It may be different because all employee’s salaries are not the same, every employee has a different salary structure or CTC.
As per the above salary slip of Mr. A, Calculate the estimated annual salary or income and deductions.
| PARTICULAR | AMOUNT |
| A-TOTAL ANNUAL INCOME (63000X12)(ESTIMATED) | 756000 |
| B-TOTAL ANNUAL DEDUCTIONS (ESTIMATED) | 199700 |
| C-ESTIMATED TAXABLE INCOME (A-B) | 556300 |
As per Old Tax Slab:-
| TAX SLAB (OLD TAX REGIME) | TAX AMOUNT |
| 250000 | 0 |
| 250000 @5% | 12500 |
| 56300 @20% | 11260 |
| TOTAL (556300) | TOTAL (23760) |
Formula:-
Average TDS Rate = TOTAL TAX * 100 / YEARLY ESTIMATE SALAY
Avg. TDS Rate = 23760 * 100 / 756000
Avg. TDS Rate = 3.143%
TDS Rate is @3.143% on salary Rs.63000/month = 1980
WHO DEDUCT TDS ON SALARY
Every firm or company who pay salary to employee, they will liable to deduct a TDS on salary.
- Proprietor Ship / Firm
- HUF / Indivisual
- Partner Ship
- Company
- Co-Operative
- Organization
- College / University
- Govt Organization
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