What is Salary? How to calculate TDS on Salary

What is Salary?

Salary is the remuneration received by or accruing to an individual, periodically, for service rendered as a result of an express or implied contract. In short it is your right of remuneration against your full one month efforts.

The existence of employer-employee relationship is the sine-qua-non for taxing a particular receipt under the head “salaries.”

 

How to Calculate TDS on Salary ?

STEP 1 – Calculate Taxable Income

 

  Particulars Amount
Basic Salary xxxx
Add: Dearness Allowance xxxx
Add: Bonus xxxx
Add: Commission xxxx
Add: *House Rental Allowance xxxx
Add: *Leave Travel Allowance xxxx
Add: *Retrenchment Compensation xxxx
Add: *Gratuity Received xxxx
Add: *Leave Encashment xxxx
Add: *Pension xxxx
Add: Employer’s Contribution to Provident Fund in excess of 12% of Salary xxxx
Add: Amount of interest credited to provident fund in excess of specified amount xxxx
  “Income chargeable under the head Salaries” xxxx
Less: Deductions Under Chapter VIA xxxx
Less: Loss under the head “Income from House property” xxxx
  Taxable Income xxxx

* The amount of House rental allowance, leave travel allowance, retrenchment compensation, gratuity, leave encashment, pension calculated after giving effect to exemptions available under section 10.

STEP 2 – Calculate Total Tax Payable

Total tax Payable = Taxable Income x Current Year Tax Rate + Education Cess + SHEC

STEP 3 – Calculate Average Rate of Tax

Average Rate of Tax = Total Tax Payable / Total income

 

STEP 4 – Calculate Monthly TDS

Total Tax Payable / Number of Months

Illustration

Calculation of Income Tax in the case of an employee below age of sixty years where medical treatment expenditure was borne by the employer (With valid PAN furnished to employer).

 

S.No. Particulars Rupees
1 Gross Salary 5,20,000
2 Medical Reimbursement by employer on the treatment of self and dependent family member 35,000
3 Contribution of GPF 20,000
4 LIC Premium 20,000
5 Repayment of House Building Advance 25,000
6 Tuition fees for two children 60,000
7 Investment in Unit-Linked Insurance Plan 30,000
8 Interest Income on Savings Account 8,000
9 Interest Income on Time Deposit 15,000

 

 Computation of Tax Deductible at Source – For the assessment Year 2015 -16

 

S.No. Particulars Rupees
1 Gross Salary 5,20,000
2 Add: Perquisite in respect of reimbursement of Medical Expenses 20,000
In excess of Rs.15,000/- in view of Section 17(2)(v)
3 Income from Other Sources 23,000
i) Interest Income on Savings Account Rs 8,000
ii) Interest Income on Savings Account Rs 15,000
4 Gross Total Income 5,63,000
5 a.Less: Deduction U/s 80C 1,58,000
(i) GPF Rs.20,000/-
(ii) LIC Rs.20,000/-
(iii) Repayment of House Building Advance Rs.25,000/-
(iv) Tuition fees for two children Rs.60,000/-
(v) Investment in Unit-Linked Insurance Plan Rs.30,000/-
Total =Rs.1,55,000/-
Restricted to Rs. 1,50,000/-
b. Less: Deduction u/s 80TTA on Interest Income on savings account (restricted to Rs 8000/- available only on Savings account interest) Rs 8,000/-
Total deduction available Rs 1,58,000/-
6 Total Income 4,05,000
7 Income Tax thereon/payable 13,500
(includes Rebate of Rs 2000 as per Section 87A)
8 Add:
(i). Education Cess @2% 270
(ii). Secondary and Higher Education Cess @1%  135
9 Total Income Tax payable 13,905
10 Rounded off to 13,910

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