TDS on Salary for Financial Year 2020-2021

Central Board of Direct Taxation (CBDT) has released Circular No. 20/2020 dated 3^rd December 2020, which explains provisions related to Tax Deduction at Source on Salary under Section 192 of Income Tax Act, 1961 applicable for Financial Year 2020-2021. CBDT Circular also explains the rates of deduction of income-tax from the payment of income chargeable under the head Salaries during the financial year 2020-2021 and explains certain related provisions of the act and Income-tax Rules, 1961 and Income-tax Rules, 1962.

Rate of Income Tax as per Finance Act, 2020

As per the finance act, 2020, income-tax is required to be deducted under Section 192 of the Income-tax Act from income chargeable under the head “Salaries” for the financial year 2020-2021 (The assessment Year 2021-2022) at the following rates:

Normal Rate of Tax

Tax computation for every individual other than the resident individual who is of the age of 60 years or more at any time during the financial year 2019-2020 is as follows:

Sl.No	Income	Tax Liability
1	Upto Rs.2,50,000	Nil
2	Between Rs.2,50,001 – Rs.5,00,000	5% of income in excess of Rs.2,50,000
3	Between Rs.5,00,001 – Rs.10,00,000	Rs.12,500 + 20% of income in excess of Rs.5,00,000
4	Above Rs.10,00,000	Rs.1,12,500 + 30% of income in excess of Rs.10,00,000

Tax liability for a resident individual who is of the age of 60 years or more but less than 80 years at any time during the financial year 2019-2020 is as follows:

Sl.No	Income	Tax Liability
1	Upto Rs.3,00,000	Nil
2	Between Rs.3,00,001 – Rs.5,00,000	5% of income above Rs.3,00,000
3	Between Rs.5,00,001 – 10,00,000	Rs.10,000 + 20% of income in excess of Rs.5,00,000
4	Above Rs 10,00,000	Rs.1,10,000 + 30% of income in excess of Rs.10,00,000

In the case of a resident individual who is of the age of 80 years or more at any time during the financial year 2019-2020 is as follows:

Sl.No	Income	Tax Liability
1	Upto Rs.5,00,000	Nil
2	Between Rs.5,00,001 – Rs.10,00,000	20% of income above Rs.5,00,000
3	Above Rs.10,00,000	Rs.1,00,000 + 30% of income in excess of Rs.10,00,000

The Concessional Rate of Tax under Section 115BAC

The Finance Act 2020 has inserted a new section 115BAC Income Tax Act, wherein an individual or an undivided Hindu family (HUF) gets an option to choose between the actual tax rates and the new concessional tax rates without considering prescribed exemptions or deductions.

In case a person having income from business or profession, such person is required to exercise the option in the prescribed manner on or before the due date specified under section 139(1) for any previous year relevant to the assessment year commencing on or after 01.04.2021 and such option is once exercised shall apply to subsequent assessment years.
In case of such persons, the option once exercised can be withdrawn only once and such person shall never eligible to exercise the option again unless such person ceases to have income from business and profession.
In case a person having income from any other sources apart from business or profession, such person is required exercise the option in the prescribed manner along with the return of income to be furnished under section 139(1) of the act for the previous year relevant to the assessment year.

The concessional rate of tax provided under section 115BAC will be computed without specified exemptions or deductions, set off of a loss and additional depreciation. The concessional rates of tax under section 115BAC are tabulated here

Sl.No	Total Income	Rate of Tax
1	Upto Rs.250000	Nil
2	From Rs. 250001 to Rs.500000	5%
3	From Rs. 500001 to Rs.750000	10%
4	From Rs. 750001 to Rs.1000000	15%
5	From Rs. 1000001 to Rs.1250000	20%
6	From Rs. 1250001 to Rs.1500000	25%
7	Above Rs.1500000	30%

Health and Education Cess

Health and Education Cess will be levied at the rate of 4% of income tax including surcharge wherever applicable, No marginal relief will be available in respect of such cess.

Section 192 of Income Tax Act- Tax Deduction at Source from Salaries

Method of Tax Tax calculation

Every person who is responsible for paying any income chargeable under the head salaries will deduct income-tax on the estimated income of the assessee under the head Salaries for the financial year 2020-2021. As per section 192(1c) of the act, a person, being an eligible start-up referred to in section 80-IAC, responsible for paying any income to the assessee

Payment of Tax on Perquisites by Employer

An option has been provided to the employer to pay the tax on non-mandatory perquisites given to an employee. The employer can make payment of the tax on such perquisites himself without making any TDS from the salary of the employee. The employer will have to pay the tax at the time when such tax was deductible at the time of payment of income chargeable under the head salaries to the employee.

Computation of Average Income Tax

The tax will be determined at the average of income-tax computed based on the rate in force for the financial year, on the income chargeable under the head salaries including the value perquisites for which tax has been paid by the employer itself.’

Salary from more than one employee

Section 192(2) deals with the situation where an individual is working under more than one employer or has changed from one employer to another. It provides for deduction of tax at source by such employer from the aggregate salary of the employee, who is or has been in receipt of a salary from more than one employer. The employee is now required to furnish to the present/chosen employer details of the income under the head Salaries due or received from the former/other employer and also tax deducted at source.

Income under any head other than Salaries

Section 192(2B) enables a taxpayer to furnish particulars of income under any head other than Salaries received by the taxpayer for the same financial year and any of tax deducted at source. The particulars can now be furnished in the simple statement which is properly signed and verified by the taxpayer in the manner as prescribed under Rule 26B(2)

Computation of Income under the head ‘Income from house property”

The following details will be obtained and kept by the employer in respect of loss claimed under the head “Income from house property” separately for each house property.

Gross annual rent/value
Municipal Taxes paid
Deduction claimed for interest paid
Other deduction claimed
Address of the property

The DDO shall also ensure furnishing of the evidence or particulars in Form No.12BB in respect of the deduction of interest as specified in Rule 26C and Section 192(2D).

The claim of Deduction of Interest on Borrowed Capital for Computation of Income From House Property

Section 24(b) of the Act allows a deduction from income from houses property on interest on borrowed capital as follows:

The deduction is allowed only in case of house property which is owned and is in the occupation of the employee for his own residence.
The quantum of deduction allowed as is tabulated here

Sl.No	Purpose of Borrowing Capital	Date of Borrowing Capital	Maximum Deduction Allowable
1	Repair or Renewal or reconstruction of the house	Any Time	Rs.30000
2	Acquisition or construction of the house	Before 01.04.1999	Rs.30000
3	Acquisition or construction of the house	On or after 01.04.1999	Rs.150000 (upto AY2014-15)
3	Acquisition or construction of the house	On or after 01.04.1999	Rs.200000 (w.e.f. AY 2015-16)
4	Aggregate deduction of SI.1 and SI.2 of the table above all shall not exceed Rs.200000 from the financial year 2019-2020

Other Conditions

The acquisition or construction of the house should be completed within 5 years from the end of the Financial Year in which the capital was borrowed.
DDO should have a completion certification of the house property against which the deduction is claimed either from the builder or through self-declaration from the employee.
Any prior period interest for the financial year up to the financial year in which the property was acquired or constructed will be deducted in equal instalments for the FY in question and subsequent four financial years.
The employee needs to furnish a certificate from the person to whom any interest is payable on the borrowed capital specifying the amount of interest payable.

Adjustment for Excess or Shortfall Deduction

As per the provision of section 139(2) of the income tax act, the deductor can make adjustments for any excess or shortfall in the deduction of tax already made during the financial year, in subsequent deductions for that employee within that finical year itself.

Salary Paid in Foreign Currency

For deduction of tax on salary payable in foreign currency, the value in Indian rupees of such salary will be calculated at the Telegraphic transfer buying rate of such currency as on the date on which tax is required to be detected at the source. The official notification pertaining to the TDS on Salary for Financial Year 2020-2021 is as follows: