How to Calculate TDS

How to Calculate TDS?

The sections of the Income Tax Act starting from 192 to 196 makes it compulsory for any one who is making a payment of any income that is charged to tax to deduct income tax by way of TDS at the rates specified respectively.

While calculating the TDS on the income, it can be categorised into two broad categories:

Incomes as Salaries:
A person making payments as salaries should deduct the right amount of TDS and consider the following factors while making the payment of the salary.
1. The first step is to calculate the total actual/approximate salary for the year.
a. For the financial year, the exact taxable salary amount that has been Paid or payable to the employee needs to be calculated.
b. Now assume that the current month’s salary is the amount that the employee is going to draw for the rest of the Financial year and calculate the approximate salary for the year.
2. Now any other income that is reported by the assessee or the employee has to be added to the total amount.
3. If the employee declares any loss, deduct this amount from the taxable annual salary. Only loss from house property should be taken into consideration.
4. If any 80G, 80D etc are declared by the employee, make the required deductions.
5. As per the rates applicable, arrive at the Income Tax,cess and surcharge on the net Income calculated.
6. If any rebate is applicable under section 88E or any relief under 89, make the deductions, making sure to explain the heads.
7. Now taking this as the total tax, make the TDS deduction till the last month.
8. The TDS that is obtained for the whole year has now to be divided by the months remaining in the financial year including the current month.
9. Finally subtract the amount from the salary of the employee.

Non Salaried income:
In the case of Non salaried income, a deductor needs to follow the following points when making the payments.
1. Each payment has to be categorized with relevance to the type and section.
2. Make sure the payment is not being made to the RBI, Government, Mutual Funds, or a few corporations which fall under Central Act.
3. Check the relevant threshold limit for each section and payment type.
4. Check the relevant Rate of Tax
5. Check the TDS rate that is effective including any cess and/or surcharge.
6. Depending on the TDS rate, make the corresponding deductions from the amount to be paid.

Consequences of not deducting TDS:
Following are the consequences of not making the TDS deductions.
1. If Any amount on which TDS is deductible like commission, brokerage, fees towards technical or professional services, royalty, etc, or any amount due to a contractor/sub-contractor and on which TDS has not been deducted or has not been paid within the stipulated time frame, in such cases this amount will be added back again to the taxable income.
2. One percent interest will be applicable per month on the due amount of TDS which has not been paid, from the date on which it was due. This interest has to be paid prior to giving the quarterly statement for the quarter.
3. As a penalty, an amount equal to the amount that a person has failed to deduct as TDS can be levied. The Joint Commissioner can levy an additional penalty also.