Is your employer wrongly deducting tax deducted at source (TDS)? Here’s the latest CBDT circular on the way TDS should be calculated. The method of calculation of TDS is as per the income tax rules which are to be followed by anyone who deducts the tax at source.
For deduction of tax at source specifically of income tax deduction from salaries under section 192 of the Income Tax Act, 1961 during the financial year 2019-20, the Central Board of Direct Taxes (CBDT) had issued a circular on January 16, 2020.
However, on March 5, 2020, the CBDT has come out with a corrigendum to the circular issued in January 2020 explaining the correct method to calculate TDS.
Tax deducted at source (TDS) on income earned is something most salaried employees are familiar with. Based on the salary income of the employee, the employer deducts TDS before crediting the employee’s bank account.
In the CBDT circular No. 4/2020 dated January 16, 2020, the method of Tax Calculation was as under:
“Every person who is responsible for paying any income chargeable under the head ‘Salaries’ shall deduct income-tax on the estimated income of the assessee under the head ‘Salaries’ for the financial year 2019-20. The income tax is required to be calculated on the basis of the income tax rate, subject to furnishing of PAN or Aadhaar number, as the case may be, as per sec 206AA of the Act, and shall be deducted at the time of each payment.
“No tax, however, will be required to be deducted at source in a case unless the estimated salary income including the value of perquisites, for the financial year exceeds Rs. 2,50,000 or Rs.3,00,000 or Rs. 5,00,000, as the case may be depending upon the age of the employee.”
Correct TDS calculation method
In the above method, the salary income of the employee is to be considered without giving the benefit of exemptions, deductions and any other income tax relief that the employee may have availed.
Therefore, CBDT has clarified that there is a corrigendum to the circular issued in January 2020 and the method of TDS calculation is to be as follows:
“No, tax, however, will be required to be deducted at source in a case unless the estimated salary income including the value of perquisites is taxable after giving effect to the exemptions, deductions and relief as applicable.”
The manner of TDS calculation used by the employers is after taking into the deductions and exemptions, however, the CBDT has issued the latest corrigendum in order to correct the earlier version of the circular. One can use the TDS chart and TDS calculator to find out the tax on salary income as well.