Tax Deduction at Source (TDS)

Tax Deduction at Source (TDS)

-Dr. Lalit Kumar Setia*

During the discussions with the Drawing and Disbursing Officers (DDOs), it is observed that the DDOs are always ready to learn new skills to cope up with the advanced tools of computing an accurate amount of TDS and submission of the same. They continuously work for containing corruption by enforcing the financial rules at their workplaces. It is rightly said, "If you think you are too small an entity to play any role in the fight against corruption, think of the potential of an atom". 

The DDOs are usually not cooperative with the people doing bad things in their life and ask to have favored in wrong works including financial irregularities. Sh. Mahatama Gandhi rightly pointed out, "Non-cooperation with evil is as much a duty as is co-operation with good". 

Tax Deductions at Source:

Every year, the tax deductors face problems in deducting an accurate amount of tax from the income of employees. The employees are expected to submit the documents of income tax savings (deductions or exemptions) to the Drawing and Disbursing Officers (DDOs). There are employees who are fairly computing and deposit the income tax not only on Salaries but also on other incomes, it is expected that all employees report the accurate amounts of other incomes and deductions, they are entitled as per the income tax act. Every employee should be aware of the provisions of the income tax act and its consequences for the concealment of income.

Why deduct the TDS of employees on an average basis?

Most of the deductors face practical issues while deducting the TDS of the employees on an average basis. The employees insist to deduct the TDS less than the average amount. As per provisions of the Income Tax Act, it is mandatory to deduct the accurate amount of tax in the proper way on an average basis i.e. equal installment in each month of the year by the employer as Tax Deduction at Source (TDS) under section 192 of Income Tax Act and the same is required to be deposited in each month to the Income Tax Department. 

Is it required to have proof of savings to allow deduction of section 80C?

This is the duty of an employee to communicate timely to the Drawing and Disbursing Officer (DDO) about the deductions, he wishes to claim during the annual financial year. He can submit in writing the amount he will definitely deposit for claiming deduction of section 80C, saving income tax on it. Each employee should submit proofs of savings, payment of rent (if any), payment of NPS (if any), and other documentary evidence. In case, the proof is not provided and he also has not submitted it in writing, then the Drawing and Disbursing Officer should not entertain deduction under section 80C except for the amount he deducted from the salaries of the employees which are also covered in section 80C such as GPF, GIS, NPS, etc. 

Claim for Tax Deductions:

In case, such declarations are not made with desired proofs, the employers may deduct the Tax Deduction at Source (TDS) keeping into mind, the incomes of the employees as per accounting records, and the same is shown in Form 16 or Annual Information Statement (AIS). Thereafter, if excess payments in form of TDS are deducted then the employee can claim the deductions or exemptions at his or her level while filing Income Tax Return (ITR) and the refund is processed from Income Tax Department.

What proofs are desired from an employee?

The Drawing and Disbursing Officer (DDO) works on behalf of the Income Tax Department and collects the proof for each deduction claimed by the employee.

Documents to claim Deduction of Section 80C:

In the case of Equity Linked Saving Schemes of Mutual Funds, LIC Premiums, PPF Contribution, NPS contributions, an employee can submit the receipts of such investments or entries of such payments in the bank’s passbook. 

In the case of Tuition Fees, it is required to submit the receipts of schools.

Documents to claim Deduction of Section 24:

If the loan has been taken to buy a home; then hard copies of all relevant documents will have to be submitted to claim a deduction of Rs. 50000 p.a. (Interest on Loan) till the loan is repaid u/s 24 of Income Tax Act.

Documents to claim Exemption on HRA:

To claim relief from Tax on HRA, an employee has to submit PAN of Landlord, however, if the annual rent payment is less than or equal to 1 Lac (i.e. 8333 per month) then it is not required to submit PAN of Landlord. But a copy of the rent agreement or declaration by the landlord along with ownership proof of landlord of rented premises (i.e. house tax receipt or latest electricity bill) has to be provided to the employer.

Documents to claim Deduction of Section 80D:

In case of claiming deduction u/s 80D, it will be required to provide a receipt or digital transaction details to the employer.

The employees should prepare the details and provide documentary proofs so that excess tax cannot be deducted from the salaries.

Are you interested in an Online Course related to Income Tax?:

1. https://smartinstituterls.blogspot.com/2022/12/income-tax-matters-in-government.html 

2. https://smartinstituterls.blogspot.com/2022/12/computation-of-income-tax-liability.html

*Copyright © 2018 Dr. Lalit Kumar. All rights reserved. 

This article is written by Dr. Lalit Kumar Setia; a renowned author and trainer. He completed his Doctorate in Commerce from Kurukshetra University Kurukshetra and MBA in Information Technology from GJU, Hisar. He also wrote two books, 15 research papers, and organized more than 200 Training Courses during his working period since 2006 in Haryana Institute of Public Administration, Gurugram. The article was firstly published in 2018 and last updated on 19th October 2021. The writer can be contacted on lalitkumarsetia@gmail.com 

More Articles:

https://leavesofprogress.blogspot.com/2021/10/shameless-life-feel-guilty.html (Why to live shameless life?)

and

https://leavesofprogress.blogspot.com/2021/09/parking-of-funds-and-personal-ledger.html (Parking of funds is irregularity)

Tax Deduction under Section 80C

Tax Deduction under Section 80C

Saving and Deductions in 80C

Tax Deductions under Section 80C

This article is in continuation of earlier part-1 entitled, “Tax Saving under Section 80C”.

(e) National Saving Certificate (NSC), Senior Citizen Savings Scheme (SCSS), 5-year Time Deposit (TD) in Post Office, Kisan Vikas Patra (KVP) and 5-Year tax-saving Fixed Deposit (FD) in Banks:

The term of above stated investments is at least 5 years. The investments can be claimed as deduction under section 80C.

Here the point is whether the interest earned on NSC, KVP, SCSS, TDs, FDs is taxable or not?

The interest earned on NSC, KVP, SCSS, TDs, and FDs are liable to tax and will be included in income of the recipient as ‘income from other sources’.

(f) Equity Linked Saving Scheme of Mutual Funds under section 80C:

The investments in mutual funds with lock-in period of at least 3 years are eligible for deduction under section 80C. The investments in Mutual Funds are subject to market risk and the returns are determined on the basis of performance of the stock market during the years of investment.

Here the point is whether the returns on such mutual fund investments are taxable or not?

The income from sale of investments in mutual fund after the lock-in period of 3 years are considered as Long Term Capital Gain (LTCG) and such income is taxable in the hands of recipient.

(g) Repayment of Home Loan (Principal Component) under section 80C:

In case, an individual took a home loan for the purchase or construction of residential house and the construction of the property is completed or possession of property is taken during the financial year; then the amount of repayment of principal component of the home loan can be claimed under section 80C. Any payment made to the Government Development Authorities for purchase of residential house is also eligible as deduction under section 80C.

(h) Payment of Tuition Fees of two children under section 80C:

The amount paid as tuition fees during the financial year can be claimed as deduction under section 80C. However, the portion of payment comprises development charges, library charges, and other such charges are not counted as tuition fees. The tuition fees should be paid for children’s education to the school or college or university located in India only.

(i) Payment of Stamp Duty or Registration Charges for purchase or construction of residential house:

Whenever a residential property is purchased, the buyer pays stamp duty and registration charges to the Government. After completing the construction of house property or taking possession of the same, the charges can be claimed as deduction under section 80C.

(j) Payments or Investments in Pension Plans under section 80CCC:

The financial institutions, insurance companies and banks offer various types of pension or annuity plans offering monthly pension after the date of retirement or age of 60; are eligible for claiming the deduction under section 80CCC came under the overall limit of section 80C.

Here, the point is whether the returns from such pension plan in the form of monthly pension or in form of interest or bonus are taxable or not?

The monthly pension received after the maturity of the pension or annuity plan, is taxable in the hands of recipient. In case, the plan is surrendered before maturity and amount is received, that will be taxable including interest or bonus received upon it.

(k) Payment or contribution to Government Pension Scheme under section 80CCD (1):

The salaried people or employees can contribute up to 10% of their salary in notified government pension account (i.e. National Pension Scheme or Atal Pension Yojana). The self-employed taxpayers can also contribute up to 20% of their gross total income or Rs. 1,50,000 whichever is less; to claim deduction under section 80CCD(1).

(L) Payment or Contribution to Government Pension Scheme under section 80CCD (1B):

The salaried people or employees can also claim additional deduction of Rs. 50,000 above the overall limit of 80C (i.e. Rs. 1,50,000) for their contribution to notified pension scheme (i.e. National Pension Scheme or Atal Pension Yojana) under section 80CCD (1B).

The 80CCD (1) is included in the overall limit of 80C i.e. Rs. 1,50,000 while the 80CCD(1B) is additional deduction up to Rs. 50000 for contribution in notified Government Pension Scheme. The total deduction can be claimed including 80CCD (1B) Rs. 150000 plus Rs. 50000 that is Rs. 200000.

However, the deduction under section 80 CCD (1B) is for contribution in Tier – 1 account of the National Pension Scheme or Atal Pension Yojana.

(M) Payment or Contribution to Government Pension Scheme under section 80CCD (2):

The employers can also contribute to the employee’s pension scheme to the extent of 10% of the employee’s salary. In case, this amount is disbursed to the employee for depositing into his pension account; then this amount received from employer will be deposited into the employee’s pension account and deduction can be claimed under section 80CCD(2). This deduction will be additional to 80C and 80CCD(1B).

Here salary includes the Basic Pay and Dearness Allowance.  

When does an individual or HUF cannot claim deduction under section 80C:

In case, the individual or HUF earned income only from capital gains i.e. on sale of long-term assets or securities then 80C deduction cannot be claimed to reduce the tax liability.

Overall limit of deduction under section 80C:

Section 80CCE of income tax details that the amount of deduction under section 80C, 80CCC, and 80CCD (1) cannot exceed more than Rs. 1,50,000.

It is worth to mention here that the deduction of 80CCG which was started for investments under a government approved equity savings scheme (Rajiv Gandhi Equity Saving Scheme) had been discontinued from the Financial Year 2017-18.

 *Copyright © 2018 Dr. Lalit Kumar. All rights reserved. 

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Tax Saving under Section 80C

Tax Saving under Section 80C

The Drawing and Disbursing Officers are responsible to deduct accurate amount of Tax Deduction at Source (TDS) from the salaries of the employees. Most of the employees ask DDOs to advise upon tax savings and each DDO before giving advice, should be clear the instruments, investments, payments associated with the section 80C. The ‘Professional Guidance’ webpage is providing full detail in simplest way for complete understanding of section 80C. The major deduction which attracts taxpayers is still under section 80C of Income Tax Act, however it is still restricted up to Rs. 1,50,000. The taxpayers invest a certain amount to claim this deduction and all insurance companies, financial companies, banking companies targets the taxpayers (individuals and Hindu Undivided Family – HUF) to attract them for their plans to claim deduction under section 80C. Which of the option is good for the taxpayers and why; that is still a matter of concern and every individual considers the pros and cons of each investment before making investment.

Tax Deduction under Section 80C

Options to select for claiming Deduction under Section 80C:

For claiming deduction under section 80C, the individual and HUF can consider various options and payments should be made up to 31^st March of the financial year.

An individual / HUF can take a life insurance policy (for self, spouse and children including annual plans, deferred annuity plans, and Unit Linked Insurance Plans - ULIP) and claim deduction on payment of its premium during the financial year. He can deposit amount in Provident Fund (Public Provident Fund, Recognized Provident Fund, Superannuation Fund), National Saving Certificate / Kisan Vikas Patra, Mutual Funds (Equity Linked Saving Schemes or Notified Pension Funds), UTI funds, specific Bank Fixed Deposits or bonds (infrastructure bonds, notified bonds of NABARD, Senior Citizen Saving Scheme, Five Years-Time Deposit with Post Office etc.) and other investments entitled to claim deduction under section 80C. Apart from it, the deduction can be claimed for payments of tuition fees of two children, repayment of housing loan (only principal component), stamp duty or registration charges paid for purchase or construction of residential house etc.

(a) Life Insurance Premium under Section 80C for Individuals and HUF:

If amount is paid for annuity plan of Life Insurance Policy, that can be claimed as a deduction under section 80C. Such premiums paid for self, spouse and children can be claimed under section 80C and the premium paid for policy of father, mother, or others cannot be claimed as deduction under section 80C.

Here the point is whether the amount received on maturity of the ULIP will be taxable in the year of receipt or not?

It depends upon the amount of premium and sum assured value of the policy. In case, the premium paid is less than 10% of the sum assured value of the policy then amount received on maturity of the policy will be exempt under section 10 (10D), otherwise it will be taxable.

(b) Employee’s Provident Fund Investments under Section 80C for Individuals and HUF:

The salaried people usually pay a part of their monthly salary as a contribution to Employee’s Provident Fund. Such contributions in Provident Fund Investments are eligible to claim deduction under section 80C. The employers also deposit equal amount of contribution in the account of employee’s provident fund.

Here the point is, whether the contribution of employer and interest earned on provident fund during the year is taxable in the hands of employee or not?

The employee and employer’s contribution to provident fund accumulate a corpus and interest is earned upon the same. Such interest earned up to 9.5% is not taxable in the hands of the employee. The interest earned above the limit of 9.5% per annum will be taxable. Further, if the employer contributes more than 12% of employee’s salary in employee’s Provident Fund Account, then the excess will be taxable in the hands of employee.

What will happen if an employee decides to contribute more than 12% in his provident fund?

If an employee contributes more than 12% of his salary in provident fund, then such contribution is known as Voluntary Provident Fund (VPF) and such contribution is also eligible for deduction under section 80C.

Whether the interest earned on maturity of provident fund is taxable or not?

The interest earned and maturity amount is exempt.

(c) Public Provident Fund Investment under Section 80C for Individuals and HUF:

An individual or HUF can open a Public Provident Fund (PPF) Account in post office or bank and the PPF account has a lock-in period of 15 years however, partial withdrawals can be made after 7 years of opening the account. The minimum amount required to be deposited in PPF account is Rs. 500 per year and the maximum amount can be deposited up to Rs. 1,50,000.

Here the point is whether the interest earned on PPF account is taxable or not?

The banks and post office provide interest on PPF account on annual basis means it is compounded yearly. It is exempt in the hands of recipient.

(d) Sukanya Samriddhi Yojana (SSY) investment under Section 80C:

An individual only if he / she is one of the parents or legal guardian of one or two girl children with age up to 10 years, can open Sukanya Samriddhi Yojana Account in post office or bank and contribution in this account can be made up to Rs. 1,50,000 per year. The lock-in period of the account is up to the age of 21 years of the girl child and the amount to be deposited in this account is for 15 years thereafter amount is not deposited in this account. Such contribution can be claimed as deduction under section 80C.

Here the point is whether the interest earned on SSY account is taxable or not?

The interest earned on SSY account is compounded annually and it is exempt in the hands of recipient. The interest rate on SSY account is usually declared higher than the PPF account’s interest rate. Both the interest rates are revised every year by the Government.

To continue the understanding, please go through the next part: Tax Deduction under Section80C.

 *Copyright © 2018 Dr. Lalit Kumar. All rights reserved.

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