Calculation of TDS
- 1. CALCULATION OF TDS -Mr Nitin Sanker -(Middle Earth HR)
- 2. What is TDS? TDS is the abbreviation for Tax Deduction at Source. TDS works on the concept that every person making specified type of payments to any person shall deduct tax at the rates prescribed in the Income Tax Act at source and deposit the same into the government's account.
- 3. FIXED AND VARIABLE COMPONENTS FIXED COMPONENT: This refers to the component that does not change. For example, the monthly income which an employee receives is fixed and hence is a fixed component. VARIABLE COMPONENT: This refers to the components that change every month. This consists of variables like commission, bonuses, incentives etc.. BENEFITS: : Employee benefits and benefits in kind include various types of non- wage compensation provided to employees in addition to their normal wages or salaries
- 4. NONTAXABLE PAYMENTS IN FIXED COMPONENTS HRA (House Rent Allowance i.e. 40% to 50% based on location) Standard Deduction (conveyance+health) LTA (Leave Travel Allowance) PF (Pension Fund) ESI (Employee State Insurance) Children Fund (Education/Health) **All of these components have certain limits.**
- 5. TAXABLE PAYMENTS IN VARIABLE COMPONENTS Variable pay or performance pay is based on two main factors, employee’s own performance and his company’s performance. This includes Performance based incentive, Sale based incentive and Profit based bonus, commissions etc.
- 6. TAXABLE BENEFITS Reimbursement: The meaning of this word is a sum of money that is paid to cover money that has been spent for OFFICIAL purpose only. On submission of authentic bills, the company is liable to reimburse the money. Any expense taken personally by the employee for official/company’s benefit will be reimbursed and is completely tax free. And any expenses made for personal errands cannot be reimbursed.
- 7. Perquisites (perks): The meaning of this is a benefit which one enjoys or is entitled to on account of one's job or position. It is a certain physical aspect given by the company to the employee, free of charge. This is both taxable and non taxable. Taxable perquisites include day’s pay, special allowance or night shift pay etc.
- 8. Allowances: An allowance is usually the money paid to the employees for meeting the expenses incurred by them as part of their work. These allowances include, Overtime Allowance, Project Allowance, and Dearness Allowance etc. All of these are fully taxable.
- 9. NON TAXABLE BENEFITS Gifts (worth up to Rs 5000/-) Meal Vouchers (worth up to Rs 2000/- ) Car Schemes (if the company takes the car on lease and rents it to the employee then only the employee will pay the tax.)
- 10. PERSONAL TAX SAVING Tax Savings means the decrease in Tax paid or payable to the relevant Tax Authority (or, without duplication, the increase in any Refund) attributable to a Tax Benefit. Personal tax savings can be applied to taxable amount with reference to the Income Tax Act.
- 11. CALCULATION OF TDS TDS is calculated by the application of the Slab System to the income. INCOME TAX SLAB SYSTEM: In India, income tax is levied on individual taxpayers on the basis of a slab system where different tax rates have been prescribed for different slabs and such tax rates keep increasing with an increase in the income slab.
- 12. EXISTING TAX REGIME: There are three categories of individual taxpayers: Individuals (below the age of 60 years), which includes residents as well as non-residents Resident senior citizens (60 years and above but below the age of 80 years) Resident super senior citizens (above 80 years of age)
- 13. SECTION 80 DEDUCTION Deductions allowed under the income tax act help you reduce your taxable income. You can avail the deductions only if you have made tax-saving investments or incurred eligible expenses There are a number of deductions available under various sections that will bring down your taxable income The most popular one is section 80C of Chapter VIA. Other preferred deductions under chapter VIA are 80D, 80E, 80G, 80DDB and so on.
- 15. There are different slabs for each category of taxpayers. The latest system is as given below.