Why does one need to know about tax deducted at source?

Receiving a raise in salary is one of the happiest moments in one’s life. However just as all good things in life come to an end the taxman is lurking around the corner. This time the problem is tax deducted at source. In life leaving things to chance is more than a gamble. The taxman never takes a chance. Whatever is owed to him is collected even before it reached one’s hands. Think about the provincial slip between the cup and the lip and one’s celebration is cut short prematurely.

What is meant by tax deducted at source?

This is mainly a tax collection mechanism where tax is deducted by one’s employer and directly deposited with the Government. It is assumed that an employee of a company and a tax paying citizen of India will have some tax liability. TDS is deducted directly from one’s salary by the employer. The employer estimates tax liabilities taking into account the maximum tax deductions under Section 80 C, Section 80 D, Section 80 E and other tax saving instruments and deducts a certain amount directly from one’s salary and pays it as income tax to the Government. One then calculates the actual tax liability. If the tax liability is more than the TDS one pays the balance amount and if the tax to be paid is less than the TDS then one can claim a refund. The Company issues the Form 16 which contains the details of the tax deductions made by one’s employer on behalf of the employee. The Form 16 consists of the income earned in the previous year, tax liabilities as well as the tax deductions. The Form 16 gives the salary for the entire assessment year or for the duration of the stay in the Company. The Form 16 is given by one’s employer in the month of May or June. The deadline for filing the income tax return is July 31st.One needs to make sure that the Form 16 is in one’s hands well in advance of this deadline. The Form 16 consists of the details of the PAN (Permanent Account Number) and the TAN (Tax Deduction and Account Number) of the employer who deducts the tax at source.

How is tax deducted at source?

Tax is mainly deducted from the following income. It may include salary, lottery winnings, interest from savings accounts, fixed deposits and corporate fixed deposits, property, rental fee, interest on securities, dividends from shares and mutual funds, commission and brokerage, fees for professional services, Superannuation funds, debentures and so on.

The Components Of The Salary	Understanding these components	Is This Taxed?
Basic Salary	Under the employee provident fund one has the employer’s side contribution and the employee side contribution.	Both contributions are taxed.
Dearness Allowance	A monthly payout to help employees adjust to the high costs of living	Yes
Bonus	These amounts are paid on a monthly or a yearly basis as an incentive for employee performance.	Yes
Conveyance Allowance	This is paid to cover expenses or costs of travel to the office.	An amount of INR 800 per month is tax exempt
HRA	House Rent Allowances are given by the Company to meet rent expenses. It is exempt from tax subject to the following conditions. House Rent Allowance Received By the Employer.Rent paid minus 10 % of the Salary. 40% or 50% of the salary depending on the city one resides in. It is 50% if one resides in a Metropolitan city	Whichever is least among the three is considered and deducted from the HRA and tax is paid on the difference.
Children’s Education Allowances	This is provided to meet the education expenses of one’s child.	Children’s educational allowance is exempt up to INR 100 per month for a maximum of 2 children.
Medical Allowances	The Company pays a certain amount yearly or half yearly known as medical allowances towards these expenses.	Medical allowances are fully taxable. Medical reimbursements up to INR 15000 per annum are tax free.
Telephone and other special allowances	A monthly payout to meet these expenses.	These are fully taxable.
Leave travel allowance	Leave travel allowance is obtained by the Employee from the Employer for vacation travel. In order to obtain leave travel allowance the employee needs to actually travel	Tax deductions are available for leave travel allowance.

When is tax deducted at source?

I would like to end this article stating that the Income tax department takes no chances and collects its dues from the citizens of our country without waiting to see if they are generous enough to give it themselves .It is up to each one of us who is eligible for a TDS refund to claim these amounts and submit the relevant forms on time in order to make the claim.