7 min read
Updated on Jan 24, 2023
TDS refers to Tax Deducted at Source of income itself. The income that you receive from your employer determines which tax bracket you fall under and consequently the TDS deduction on your salary. Your TDS deduction on salary will be between 10% and 30% depending on your bracket. In the case of TDS on salary, the employers deduct the applicable taxes from your salary before paying you the same.
In other words, TDS refers to the income tax payable on salary earned. It is also known by the name withholding tax. The TDS deductible from an employee’s salary is mentioned in Form 16 which is issued by an employer to the employee at the end of every financial year.
It is mandatory, and now you know why TDS is deducted from salary. However, you can always bring down the TDS amount by investing in schemes where the income tax authority provides tax exemptions.
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You can submit Form 15G or 15H to avoid the TDS. In the case of senior citizens use Form 15H. If there is no tax on the total income, it may be submitted. Except for the NRIs, Form 15G is applicable to everyone else.
Also, you can easily avoid that possibility by investing in investment plans that are eligible for tax deductions. For that, you would have to submit all the genuine documents to your employer so that you can claim the tax deductions as per Section 80C and other sections of the Income Tax Act, 1961.
The employee is eligible to save or lower TDS on their salary under certain allowance categories. These include:
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The employer is required to provide Form 16 to the employee after deducting the latter’s TDS on salary. Form 16 is proof of TDS deducted by the employer. Along with this, the employer must also provide the employee with Form 12BA which mentions the latter’s salary breakup.
The Form 12BA clearly specifies the perquisites received by the employee from the employer. Perquisites refer to certain benefits enjoyed by the employee in addition to their salary received. These benefits may vary depending on the role assumed by the employee in the company.
If you are wondering how to reduce TDS on salary? The various tax saving schemes options that you have in this regard may be enumerated below:
As per Section 80C, you can also get a maximum tax exemption of 1.5 lakh rupees in a year from real estate properties that you own or have let out on rent.
When you are paying back your home loan’s principal you would get a tax deduction. In fact, it is a major part of the TDS saving granted by Section 80C. The maximum amount that you can claim in this regard is 1.5 lakh rupees in a year. However, you need to make sure that you do not sell the home before five years of possession. Otherwise, you would not be able to claim the tax deduction in question.
As an employee, you can claim exemption from income tax for the expenses that you incur while you are traveling while you are on leave. However, you can only claim such a deduction for the expenses that you have incurred within India. The Income Tax Act states that leave travel allowance is an important part of an employee’s CTC (cost to company). LTA can be claimed only twice in four years.
Investing in the PPF is a good way to reduce the TDS deduction on salary. This is a governmental plan that lets you save small amounts of money and also offer returns on them. It also helps you claim tax deduction under Section 80C. The current rate of interest in this scheme is 7.1%. One of the biggest advantages of investing in the PPF is that you do not have to pay any tax on the interest that you earn from the same. The maximum tax exemption that you can claim for the investment that you are making over here is 1.5 lakh rupees in a year.
Thanks to Section 80EE you would be able to save TDS on salary if you buy a home on loan for the first time in your life. In this case, you would also get tax benefits on the interest that you are paying to repay the home loan. The maximum tax exemption that you are allowed in this case is two lakh rupees in a year. However, you also need to keep in mind that you must not have any residential property in your name on the date when the loan is approved.
You may not know this but you can also get a lower TDS deducted from your salary for the premiums that you are paying toward online health insurance policies. The maximum tax exemption that you can avail in this case is 25,000 rupees a year. The policy is also allowed to cover your spouse and economically dependent children.
As we have said already, the NPS is a great way to lower the TDS deduction from your salary. The main purpose of investing in it is to make sure that you have some degree of financial comfort following your retirement. It comes under section 80CCD of the Income Tax Act 1961.
If you are working in a salaried job and living in a rented home you can claim the tax exemption that is granted for HRA (house rent allowance). With the HRA you would be allowed to lower your TDS burden partially. However, please keep in mind that this exemption is being granted only for the costs related to a rented property.
Investing in the Sukanya Samriddhi Yojana is a good way to make sure that the TDS deduction from your salary is lesser. The maximum tax exemption that you can claim in this regard is 1.5 lakh rupees a year. It comes under section 80C of the Income Tax Act, 1961.
You can also make donations to political parties and use them to gain exemption from income tax. There is no specification on the upper limit in this regard. However, if you wish to claim the deduction you have to donate in ways other than cash.
This is especially when you are donating more than 2000 rupees. In some cases, you can get 100% or 50% exemption from taxes while in other cases you can get the same exemption but with limits. In these cases, the sum must not be more than 10% of your adjusted Gross Deduction Total Income. This particular exemption on your TDS reduction from salary is granted by Section 80G. Section 80GGA allows you to donate money towards rural development and scientific research, and gain tax exemption in the process.
However, if you are earning a salary or earning money from a business this exemption would not be applicable.
Every paisa that you can save in this present scenario of rising costs is important. The people who earn salaries know this the best. This is why they are always looking for ways to reduce the TDS deducted from salary. All the money they earn comes to them in exchange for the hard work that they put in every day. However, as you can see from above, with little knowledge and planning you can save a whole lot of money from your salary deductions and secure your future.
The TDS on the salary of an employee is deducted at the average rate of income tax of the person. Below is the formula to compute TDS:
Average Income tax rate = Income tax payable (as per tax slab) divided by estimated income of employee for the fiscal year
If a person gives a self-declaration of necessary investments being made in form 15G/15H, he/she is exempted from tax deductions.
As per section 194C, the threshold for deduction of the TDS is Rs 30,000/- for the single payment and it is Rs. 1,00,000/- for collective payments of the whole Financial Year.
Following are the three sections under which TDS saving option on salary is available for Indian Citizens:
1. By investing in the instruments mentioned in Section 80C, Section 80CCC and Section 80CCD, citizens can claim deductions on salary
2. PPF Accounts, Pension Plans, Life Insurance Policy, National Savings Certificate, 5 Year Tax Saving Fixed Deposit, are some plans that allow tax benefits
3. Rs.1,50,000 is the maximum deduction that citizens can claim
4. Rs.50,000 can also be saved by those who invest in National Pension Schemes under Section 80CCD.
Yes, Section 192 of the Income Tax Act makes it compulsory for individuals to have a deduction for TDS on salary. TDS on salary is deducted if the income amount of salaried individuals is over the basic exemption limit.
It is the amount that an employee receives from an employer by way of cash, kind, or any other benefit, as stated in Section 17 of the ITA.
Leave encashment is considered taxable only if the employee receives it during the term of their service.
Yes, it does. However, the pension received from UNO does not fall under the salary income category.
The employee must be employed in government service for this or be employed with a PSU, co-operative society, university, or institution. They also need to provide the employer Form 10E.
You must invest in tax-saving Fixed Deposit (FD) accounts that offer tax deductions under Section 80C of the ITA, 1961. The investor is eligible to claim a maximum Rs. 1.5 lakh deduction per annum by investing in such accounts.
Tax Deducted at Source (TDS)
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