Employment related TDS

Section 392 - TDS on Salary

Scope: Employer deducts Tax at source from salary payments. Applies to all salaried employees where income exceeds the basic exemption limit.

Rate: As per applicable slab rates

Threshold: No deduction for the respective employee, if income is below taxable limit.

Steps in computation:

1. Employer must consider exemptions (HRA, LTA, agricultural income, standard deduction)
2. Deductions under Chapter VI-A like 80C, 80D
3. Calculate tax on the taxable income.
4. Apply Relief under Section 89 (salary arrears) and double taxation relief, as direct deduction from tax amount/tax liability.
5. Adjustments allowed for excess/short deduction across months.

Compliance:

1. Form 130 (new version of Form 16) to be issued by the company annually to employees.
2. Quarterly return is to be filed by the company in Form 30Q.
3. Employer responsible for timely deposit of TDS.

Exceptions:

1. No TDS for employees whose total income is below taxable limit.
2. Rebate u/s 87A to be allowed as direct reduction from tax payable, usually as a benefit for small taxpayers.

Section 392A - Premature Withdrawal from Provident Fund (PF/EPF)

Scope: TDS on withdrawal of PF balance before 5 years of continuous service is premature withdrawal.

Rate: 10% (30% if PAN not furnished).

Threshold: It is Per Withdrawal > ₹50,000. (Not aggregate annual withdrawal)

Steps in computation:

1. Check whether the years of service <5 years
2. Check whether PF balance withdrawn in a single transaction is > ₹50000
3. If both are Yes, then whole withdrawal amount is subject to TDS at prescribed rate.

Compliance:

1. Form 130A certificate to be issued by the company to the employee.
2. Quarterly return is to be filed by the company in Form 30Q.

Exceptions:

1. No TDS if withdrawal due to illness, closure of business, or transfer of PF balance to new employer.
2. No TDS if withdrawal < ₹50,000.

Section 392B - Superannuation Fund Payments (newly streamlined in 2026)

Scope: TDS on payments made from approved superannuation funds to employees. Covers lump sum withdrawals, annuities, or commuted pension portions.

Rate: 10% on the taxable portion of the payment.

Threshold: TDS applies if the lump sum exceeds exemption limits for respective type. (commuted pension and retirement benefits have specific exemptions).

Steps in computation:

1. Identify exempt portion (commuted pension, retirement after specified age).
2. Deduct TDS on taxable balance.

Compliance:

1. Trustees deduct TDS and issue Form 130B to employees.
2. Quarterly reporting to be done by the company in Form 30Q.

Exceptions:

1. No TDS if payment made on retirement after specified age (as per scheme rules).
2. No TDS if commuted pension portion is within exemption limits.
3. No TDS if payment is transferred to another approved superannuation fund.