TDS on salary, perquisites 2020: How benefits you enjoy will be taxed – Check calculation

Employers responsible for paying any income chargeable under the head ‘Salaries’ are required to deduct income tax on the estimated income of the assessee under the head ‘Salaries’ for financial year 2019-20, or Assessment Year 2020-21, according to the Income Tax department.

A circular dated 16 January, 2020 of the Central Board of Direct Taxes (CBDT) said the income tax is required to be calculated on the basis of the applicable rates for the financial year. The assessees are required to furnish PAN or Aadhaar, as the case may be, as per section 206AA of the Income Tax Act.

As per the circular, no tax will be deducted at source for those assessees whose estimated salary income, including the prerequisites, for the financial year do not exceed Rs 2.5 lakh. This limit for those above 60 years and those above 80 years is Rs 3 lakh and Rs 5 lakh respectively. 

Tax on perquisites paid by the employer

Perquisites are the benefits an employee enjoys, or is entitled to enjoy, on account of his job or position. According to the income tax department, employers have been provided with an option to pay tax on non-monetary perquisites given to an employee.

The employer can pay tax on such perquisites himself without making any TDS from the employee’s salary.

“However, the employer will have to pay the tax at the time when such tax was otherwise deductible i.e. at the time of payment of income chargeable under the head — salaries to the employee,” the circular said.

According to the circular, the tax on the perquisites is to be determined at the average of the income tax computed on the basis of the tax rate for the financial year, on the income chargeable under the head ‘salaries’, including the value of perquisites for the tax that has been paid by the employer himself. The following illustration will help you understand this provision: 

Calculation of TDS/tax on perquisites:

For example: Suppose income chargeable under the head “salaries” of an employee below 60 years is Rs 8,00,000, which includes Rs 90,000 paid on account of non-monetary perquisites and the employer opts to pay tax on such perquisites. Here’s what the employer will have to deposit at tax on perquisites, according to the circular: 

  • Income chargeable under head ‘Salaries’: Rs 8,00,000

  • Tax on total salary (including 4% health and education cess) = Rs 75,400

  • Average rate of tax [ (75,400/800000) x 100 ] = 9.4%

  • Tax payable on Rs 90,000 = (9.24% of 90,000) = Rs 8316

  • Amount required to be deposited each month = Rs 693 (Rs 8316/12)

The above amount paid by the employers will be deemed to be the TDS made from the salary of the employee.

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