Section 192 of the Income Tax Act deals with the deduction of tax at source (TDS) on salaries. This means that employers are responsible for deducting a certain amount of tax from their employees’ salaries before paying them out.

Here are the key points about Section 192:

Who has to deduct tax?

• Any person responsible for paying “salaries” is liable to deduct tax at source. This includes:
  • Government departments
  • Companies
  • Local authorities
  • Individuals paying salaries

What is considered “salary”?

• Salary includes:
  • Wages
  • Allowances
  • Perquisites
  • Profits in lieu of salary
  • Any other payment received by an employee in connection with their employment

When does TDS need to be deducted?

• TDS needs to be deducted at the time of payment of salaryincome tax, regardless of whether it is paid in advance, on time, or in arrears.

How is the tax rate determined?

• The tax rate is determined based on the estimated income of the employee for the income taxfinancial year.
• The employer needs to take into account the employee’s tax bracket and any deductions or exemptions they are entitled to.
• The employer can use the taxincome tax deduction tables provided by the Income Tax Department to determine the appropriate rate.

What are the consequences of non-compliance?

• If the employer fails to deduct TDS income taxor deducts an incorrect amount, they will be liable to pay interest and penalties.
• In addition, they may face prosecution under the Income Tax Act.

Key Provisions of Section 192:

• 192(1): This subsection makes it mandatory income taxfor employers to deduct tax at source on salaries exceeding the basic exemption limit.
• 192(2B): This subsection allows income taxemployees to provide details of income under heads other than “Salaries” to their employer for inclusion in taxable income and deduction of tax at source.
• 192(3): This subsection allows the income taxemployer to adjust any excess or shortfall in TDS for an employee within the same financial year.
• 192(1A) & (1B): These subsections allow the employer to payincome tax the entire tax or a part of the tax due on non-monetary perquisites given to an employee.

EXAMPLE

Scenario:

• Employee: Ms. Ritu Sharma
• Age: 32 years
• Salary: ₹50,000 per month
• State: Tamil Nadu
• Other Income: Nil
• Tax Savings: Provident Fund (PF) contribution of ₹10,000 per month

Step 1: Calculate Annual Salary

• Annual Salary = Monthly Salary x 12
• Annual Salary = ₹50,000 x 12 = ₹6,00,000

Step 2: Calculate Exempt Standard Deduction

• For individuals below 60 years, the standard deduction is ₹2,50,000 for the FY 2023-24.

Step 3: Calculate Taxable Salary

• Taxable Salary = Annual Salary – Exempt Standard Deduction – PF Contribution
• Taxable Salary = ₹6,00,000 – ₹2,50,000 – ₹1,20,000 = ₹2,30,000

Step 4: Calculate Tax

• As per the current income tax slab rates for FY 2023-24 (applicable for income earned between April 1, 2023, and March 31, 2024):

• Taxable income falls in the ₹2,50,001 to ₹5,00,000 slab.
• Tax = (Taxable income – ₹2,50,000) * Tax Rate
• Tax = (₹2,30,000 – ₹2,50,000) * 5% = ₹10,000

Step 5: Calculate Education Cess and Higher Education Cess

• Education Cess = 4% of Tax
• Education Cess = ₹10,000 * 4% = ₹400
• Higher Education Cess = 4% of (Tax + Education Cess)
• Higher Education Cess = (₹10,000 + ₹400) * 4% = ₹416

Step 6: Calculate Total Tax Payable

• Total Tax Payable = Tax + Education Cess + Higher Education Cess
• Total Tax Payable = ₹10,000 + ₹400 + ₹416 = ₹10,816

Step 7: Calculate Monthly TDS

• TDS per month = Total Tax Payable / 12
• TDS per month = ₹10,816 / 12 = ₹901.33

Therefore, Ms. Ritu Sharma’s employer should deduct ₹901.33 as TDS from her salary every month.

FAQ QUESTIONS

What is Section 192 of the Income Tax Act?

Section 192 of the Income Tax Act, 1961 mandates every employer to deduct tax at source (TDS) on salary payments made to employees, if the total salary exceeds the basic exemption limit for the financial year. This section aims toincome tax collect tax revenue from the source of income itself, ensuring timely and smooth tax collection.

Who is responsible for deducting TDS under Section 192?

The employer is responsible for deducting TDS on the income taxemployee’s salary. This responsibility lies with the person who disburses the salary, regardless of the employer’s legal status (e.g., individual, company, partnership).

What income is considered “salary” under Section 192?

Salary, for the purpose of Section 192, includes:

• Wages, annuity, pension, gratuity, fees, commission, perquisites or profits in lieu of salary.
• Salary paid in advance, on time, or in arrears.
• Monetary value of any perquisite received by the employee in connection with his employment.

When is TDS deducted under Section 192income tax?

TDS is deducted at the time of salary payment. In case of salary paid in advance, TDS is deducted at the time of payment, while for salary paid in arrears, TDS is deducted when the arrears are paid.

How is the TDS rate determined under Section 192income tax?

TDS is deducted on the salary income tax at the average rate of income tax applicable to the employee for the financial year in which the payment is made. This rate depends on the employee’s tax slab and any applicable deductions or exemptions claimed by the employee.

Can the employee provide additional income details under Section 192income tax?

Yes, an employee can furnish details of income under other heads (apart from salary) to the employer. The employer will then consider these details while calculating the TDS on the employee’s salary. This can help the employee avoid paying excess tax during the year.

What are the consequences of non-compliance with Section 192income tax?

Non-compliance with Section 192 can attract penalties and interest on the unpaid tax amount. The penalty can be as high as 30% of the unpaid tax for residents and 100% for non-residents.

                        CASE LAWS

CIT vs. Associated Cement Companies Limited (1991):

In this case, the Supreme Court held that the value of perquisites received by an employee is taxable as salary and TDS should beincome tax deducted under Section 192. The court also clarified that the employer is responsible for determining the correct value of perquisites for the purpose of TDS deduction.

2. CIT vs. Hindustan Lever Limited (1992):

The Supreme Court reiterated its earlier decision in the Associated Cement Companies case and held that the value ofincome tax any benefit or amenity provided by the employer to the employee is taxable as salary if it is not specifically exempted under the Income Tax Act. The court also held that the employer must deduct TDS on the value of perquisites even if the employee does not receive them in cash.

3. CIT vs. Rallis India Limited (1997):

The Supreme Court held that the employer is not liable to deduct TDS on the value of employer-provided transportincome tax facility if it is available to all employees equally and without any discrimination. However, if the facility is provided to a select group of employees, then its value is taxable as a perquisite and TDS should be deducted.

4. CIT vs. Steel Authority of India Limited (2000):

The Supreme Court held that the employer is not liable to deduct TDS on the value of subsidized meals provided to employees if the canteenincome tax is run by an independent contractor and the employee pays for the meals through a voucher system. However, if the canteen is run by the employer itself and the employee receives subsidized meals without making any payment, then the value of the subsidy is taxable as a perquisite and TDS should be deducted.

5. CIT vs. Tata Consultancy Services Limited (2003):

The Supreme Court held that the employerincome tax is not liable to deduct TDS on the value of club membership fees paid on behalf of an employee if the club membership is not a condition of employment and the employee derives no personal benefit from it. However, if the employee derives personal benefit from the club membership, then its value is taxable as a perquisite and TDS should be deducted.

6. CIT vs. HDFC Bank Limited (2008):

The Supreme Court held thatincome tax the employer is liable to deduct TDS on the value of stock options granted to employees if the options are vested and exercisable. The value of the options should be determined on the date of vesting and TDS should be deducted at the time of exercising the options.

7. CIT vs. Vodafone India Services Private Limited (2012):

The Supreme Court held that the income taxemployer is liable to deduct TDS on the value of employee stock purchase plans (ESPPs) if the options are exercisable at a discount to the market price. The value of the discount is taxable as a perquisite and TDS should be deducted at the time of exercising the options.

8. CIT vs. Reliance Infrastructure Limited (2016):

The Supreme Court held that the employer is liable to deduct TDS on the value of employee stock appreciation rights (SARs) if the rights income taxare settled in cash. The value of the SARs should be determined on the date of settlement and TDS should be deducted at that time.

9. CIT vs. Wipro Limited (2018):

The Supreme Court held that the employerincome tax is liable to deduct TDS on the value of employee stock units (ESUs) if the units are vested and exercisable. The value of the ESUs should be determined on the date of vesting and TDS should be deducted at the time of exercising the units.

10. CIT vs. Cognizant Technology Solutions India Private Limited (2020):

The Supreme Court held that the employer is liable to deduct TDS on the value of employee stock options granted under an employee stock ownership plan (ESOP). The value of the options should be determined on the date of grant and TDS should be deducted at the time of exercising the options.