Understanding TDS Deductions Under Section 192: Key Guidelines and Changes

Understanding TDS Deductions Under Section 192 and Related Provisions

Applicability of Section 192

According to Section 192, any person responsible for making payments categorized under the ‘Salaries’ head must deduct income tax at the time of payment. The tax deduction should be based on the average income tax rates applicable for the financial year in which the payment is made and on the estimated income of the taxpayer under this category.

TDS on Credited Amounts

It is crucial to note that other subsections related to Tax Deducted at Source (TDS) clarify that if any amount referred to in subsection (1) is credited to any account—regardless of whether it is termed a “Suspense account” or otherwise—this credit is regarded as income credited to the payee's account. Consequently, the relevant provisions of this section will apply. This indicates that TDS must be deducted not only from salary but also from any expenses recorded as provisions.

Non-Deductible Amounts Under Section 40(a)(ia)

Section 40(a)(ia) specifies “Amounts Not Deductible” from Total Income. It states that 30% of any payable amount to a resident is non-deductible if tax has not been deducted at source under Chapter XVII-B, or if the deducted tax has not been paid by the due date specified in subsection (1) of Section 139.

It is important to note that Section 40 does not explicitly mention salary, except in the context of salary payments specified in Section 40(a)(iii). Therein, it states that if an amount chargeable under the heading “Salaries” is payable outside India or to a non-resident, and the tax has neither been paid nor deducted under Chapter XVII-B, it falls under this provision. Therefore, this supports the interpretation that TDS need not be deducted on year-end provisions for Salary, Bonus, or Incentives; it must be deducted only at the time of payment.

Changes to TDS Regulations

• Effective January 1, 2025: Employers must deduct TDS while accounting for any pre-deducted TCS/TDS on non-salary income that employees have declared.
• New Tax Regime (NTR): TDS is now deductible from estimated income by default within the NTR unless employees choose the old regime. A new column (388A) has been added for employees to report pre-deducted TDS/TCS credits.
• Increased Basic Exemption Limit: The threshold has risen from ₹2,50,000 to ₹3,00,000 under the NTR.
• TDS Thresholds:
  • No TDS if taxable income ≤ ₹3 lakh (NTR) or ≤ ₹2.5 lakh (old regime).
• Cryptocurrency and Online Gaming: A TDS rate of 1% applies to transfers of virtual digital assets valued at ₹10,000 or more under Section 194S.
• Non-Filer Penalties: Section 206AB imposes higher TDS rates (up to 10%) for employees who fail to file their Income Tax Returns (ITRs).

Employer Compliance

Employers must ensure adherence to current tax laws by:

• Utilizing Form 12BB to claim exemptions (e.g., HRA, LTA).
• Reporting any perquisites through Form 24Q Annexure II.

Conclusion

Understanding these regulations is imperative for both employers and employees to ensure compliance and avoid penalties. By interpreting sections effectively, employers can manage their TDS commitments accurately while ensuring employees benefit from the exemptions accessible under current tax provisions.