- What is TDS and how does it apply to your salary income?
- What is the TDS rate for FY 2020-21? Read this post to know all
Section 192 of the income tax act, 1961, deals with the tax deducted at source (TDS) on salary. It is the employer which deducts tax from the salary of its employees every month based on the prevailing income tax slabs. Since your earnings and income tax rates are subject to change from time to time, the eventual TDS can vary across periods. You can read further to know TDS is calculated and the ways by which you can save tax.
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How is the TDS Calculated for Salaried?
Employers calculate the TDS on employees’ salaries using the following details.
Total earning: The total earning of an employee over the financial year including their hikes, commission, bonus, etc.
Investment Declaration: If you are investing in tax-saving products, mention the details in an investment declaration proof and submit it to your employer which will consider the same while calculating the TDS on your salary.
An Example below will help you understand the calculation better.
Example: Suppose your annual gross income is INR 8 lakh. Your home loan interest payment amounts to INR 1.5 lakh a year and the annual ELSS investments stand at INR 1 lakh. In addition to this, you have paid annual health insurance premiums amounting to INR 8,000.
|Standard Deduction||INR 50,000|
|Income Post Standard Deduction||INR 7,50,000|
|Home Loan Interest Payments (Under Section 24)||INR 1,50,000|
|ELSS (Under Section 80C)||INR 1,00,000|
|Health Insurance Premium (Under Section 80D)||INR 8,000|
|Total Deductions||INR 2,58,000|
|Taxable Income (Income Post Standard Deduction-Total Deductions Excluding Standard Deduction)||INR 4,92,000|
|Total Tax Payable||NIL|
Note: As per the income tax slab, there is no tax for individuals having income upto INR 5 lakh post all eligible deductions. If it goes beyond, tax rates will apply.
What is the Income Tax Slab Rate for FY 2020-21?
Above you know that tax rates will apply if the income post eligible deductions is more than 5 lakh. This makes it necessary to know what the income tax slab rates are. Check out the table below to know the same.
|Income Slab (In INR)||Tax Rates|
Optional TDS Rate Announced for Different Income Slabs in Budget 2020
You can see the tax rates for income above 5 lakh and beyond are quite high. To reduce the tax incidence, the government has given taxpayers an option of reduced tax rates for income beyond INR 5 lakh. But at the same time, it has placed a condition that if you opt for the said regime, you won’t avail of as many as 70 tax deductions and exemptions, including a standard deduction. Optional tax rates for different incomes are shown in the table below. Take a look.
|Up to INR 2.5 lakh||NIL|
|INR 2.5 lakh to INR 5 lakh||5%|
|INR 5 lakh to INR 7.5 lakh||10%|
|INR 7.5 lakh to INR 10 lakh||15%|
|INR 10 lakh to INR 12.5 lakh||20%|
|INR 12.5 lakh to INR 15 lakh||25%|
|INR 15 lakh and above||30%|
After the additional education and health cess of 4%, the final TDS amount is calculated. And you need to be careful of your investments when you opt for the new tax regime. Because once you opt for the new tax slab, you can’t change it during the financial year.
Exemptions you need to give up while choosing the new tax regime include the following.
- Leave Travel Allowance (LTA)
- House Rent Allowance (HRA)
- Daily expenses in the course of employment
- Relocation allowance
- Helper allowance
- Children education allowance
- Other special allowances [Section 10(14)]
- Standard deduction
- Professional tax
- Interest on housing loan (Section 24)
- Chapter VI-A deduction of 80C,80D, 80E and so on
TDS on Fixed Deposit, Savings Accounts
The interest income of the user is taxable under section 194A of the Income Tax Act (ITA), 1961. Banks deduct tax on fixed deposits if the interest earned on the same exceeds INR 40,000 in a year. The TDS rate will apply once the earnings goes past the threshold limit of INR 40,000. The TDS threshold for savings account is INR 10,000 under Section 80TTA. However, if the interest income exceeds the threshold limit, the following TDS rates will apply.
|When PAN is not available||20%|
|If the PAN number is given||10%|
|If you submit the form 15G/15H||NIL|
Banks will deduct TDS if the interest earnings go past the threshold limit in a financial year. But if your total income is not taxable, you can submit Form 15G/15H to prevent banks from deducting TDS.