Wednesday, 22 December 2010

Income Tax Deduction (TDS) from Salaried Employees

In case of salary the employer should deduct Tax at the time of disburse the salary. This deduction is known as Tax Deducted at Source (TDS) from Salary. TDS from Salary is not like other TDS such as TDS from Contractors, TDS from interest etc. TDS other than salary is only a certain percentage of the payment is to be deducted. But TDS from salary should be full. The employer should deduct the actual Tax which is liable by the employee regarding salary and any other income disclosed by the employee.

When the Tax liability of an employee is calculated, the employer can deduct all permissible deduction such as certain investments, certain allowances etc. as per the Income Tax rule. The employee should declare his investments which may be deducted from their gross salary. These investments are come under section 80C of income tax Act and other related sections.

Let us see which investments are allowed to deduct from the gross salary or gross income as per income tax rule.

Under Section 80 C there is a list of financial instruments you can invest in for getting exemption. Under this section you can claim the total exemption up to Rs. 100000. It means Rs. 100000 or the sum total of all such investments in a financial year, whichever is less.  Let us see which investments are eligible for getting exemption under section 80C.

Employees Provident Fund (EPF, GPF)

Employee’s provident fund (EPF for Private sector employees and GPF for Government employees) is a compulsory deposit as per the provident fund rule. At least the minimum amount must be deducted from employee’s salary by the employer and should be deposited in Provident Fund office or any related trust. (One can allow deducting more as voluntary contribution of provident fund) The provident fund amount may be enough to cover the maximum limit of Rs. 100000 under section 80C for higher salaried employees. The employee can get interest from the deposited amount and the interest is tax free as per the current income tax rules.

Public Provident Fund (PPF)

PPF is another good investment instrument which attracts exemption under section 80C. One can deposit a maximum amount of Rs, 700000 in a financial year in PPF and the interest on PPF also not taxable. This is a safe and good investment method and you can open it any post office or selected national banks. Read more about PPF

Equity Linked Savings Scheme (ELSS)

ELSS or Equity Linked Savings Scheme is a type of mutual fund where there is investing in equity shares and the lock in period is only 3 years. This is also considered as a tax saving instrument. The main advantage is that the lock in period is 3 years and other tax saving schemes has 5 years or more lock in period. This is a high risk investment, because the money is pooled to investing in Equity shares and the return also high.

Life insurance

All life insurance policy also qualified as tax saving scheme under section 80C. The premium actually paid for the financial year is eligible for deduction. But the premium amount in an year must not be more than 20% of the sum assured.

Unit Linked Insurance Plans (Ulips)

ULIPs are insurance plans with a combination of saving in mutual funds. This has two sided advantage is that the insurance and mutual fund saving will be do in one deposit.

Pension plans

Any recognized pension plan including new Pension Scheme is eligible for tax exemption.

NSC or National Saving Certificate

NSC is a post office investment scheme which has a tax saving benefit. It is a secured and safe investment scheme and the risk involved is very less. .Read more

SCS or Senior Citizen Saving Scheme

Senior Citizens Saving Scheme is a deposit scheme introduced by Government of India to provide a good return to senior citizen through a safe investment scheme and also ensure them a good regular income. This is also eligible for tax saving under section 80C.More about senior citizen Saving Scheme

Five year Tax Saving Fixed Deposits

To increase the popularity of Fixed Deposits 5 year special fixed deposits also allowed for tax exemption under section 80C. The lock in period is 5 years and the interest rate is around 8%.

Tuition Fee paid to recognized regular institution

Tuition fee paid for two children in a financial year also attracts tax deduction. Better you should pay tuition fee by cheque and get a certificate from the school or college. Keep in mind that only tuition fee is exempted and all other fee is not included in this exemption. Obtain a certificate from the education institution for availing this exemption.

Principal amount of home loan repayment

If you have taken home loan from a recognized financial institution you can claim the repayment of principal amount in the financial year. The loan and house should be in the name or joint name of the person who claims the exemption and the payment must be given from the bank account of the person who claims the exemption.

All the above mentioned items are for tax exemption under section 80C and the total amount of exemption is the total investment or Rs. 100000 whichever is less.

Other deductions form gross income

Infrastructure bonds

Under Section 80CCF you can claim additional exemption up to Rs. 20000 for the investment in Infrastructure bonds of certain recognized institutions.

Health Insurance

Under Section 80D you can claim exemption for the medical insurance premium up to Rs. 15000 (Rs, 20000 if any person insured is a senior citizen) for the insurance of self, spouse and children and another Rs. 15000 (Rs, 20000 if any person insured is a senior citizen) for the medical insurance of any parent or parents.

Interest on home loan

If you have taken loan for purchasing a house, you can claim an exemption up to Rs. 150000 for the interest payment of housing loan only if you paid the interest from your income and the loan and house must be in your name or you are the co owner of the house and co borrower of the loan.

Donation to approved institution or approved purpose

If you give donation to any approved institution or any approved purpose, your donation is allowed to get exemption under section 80G.Under section 80G you can claim exemption of 50% or 100% of donation as per the case and the approval and percentage of exemption will be on the receipt.

Handicapped dependents

If you or any of any of your dependents are handicapped you can claim a deduction up to Rs. 50000 for the medical treatment or for the deposit made for the maintenance of such person in any approved schemes. If the person has severe disability the allowable exemption is Rs. 100000. (Certificate required)

Deduction for medical treatment

If you or any of your dependents is suffering from any specified disease you can claim exemption of Rs. 40000 or the actual expense for the expenses of medical treatment and the limit is Rs. 60000 if the patient is a senior citizen. (Medical Certificate is required)

For all the above exemption you should submit a declaration and proof of relevant document to your employer in time. The employer can calculate your tax liability in consideration of this exemption and the TDS will be made accordingly.

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  1. Ok but free tax filing services is the best services. Now file your state taxes and federal taxes absolutely free.

  2. if any employer deducts income tax on salary of his employee. and that employee does not clear the savings to his employer. but at the time of filling of his income tax return he produces savings Like LIC etc. in that case wheather that employee can claim the TDS or not which his employr has deducted from salary .

  3. A good question. No problom the employee can submit return with the proof of his savings and can claim for refund of the excess tax deducted from him/her. But submit the proof to the employer and reduce the TDS is easier than submitting proof with return and get the refund afterwards.

  4. how much investment should be made to reclaim rs.20000 deducted income tax? please guide

  5. I am not sure that you can get refund for the whole Rs. 2000 TDS from your salary. Because you can save Rs. 100000 under section 80C and for this Rs. 10000. By saving Rs. 10000 you can save the tax of Rs. 10300 only and if you have taken medicaliam you get exemption of another Rs. 15000 or 20000 of Income as the case maybe. Kidly read the post Income Tax Deduction (TDS) from Salaried Employees

  6. It is according to your gross salary and the amount already saved etc. Without these information I could not say that how much you can get back from ITO

  7. is it necessary to add other income while calculating income for deducting tds on salary income

  8. It is not necessary to disclose your other income to the employer and get calcaulated the TDS accordingly. But if you do so you can avoid the difficulty to calculate tax and should not deposit tax spearately at the time of filing return.

  9. Hii..

    My Name is Varma, I submitted my 2009-10 and 2010-11 TDS to Income-Tax Department. When can i get TDS refund back... Please give me details... whom to contact..

  10. [...] doubt this is a useful program and the taxpayers should not wait more for the refund and also can reduce their cost of getting the refund and other [...]

  11. [...] return. But the only thing is that you have to collect all your details and records including Form16, pass book etc., handy while you sitting for online submission of your [...]

  12. Hello,

    I was working in a company from dec 2010 to march 2011... They were paying me 12000 and in that they were deducting 10% tds... so in hand i was gettin 10800...

    Please tell me what should i do to reclaim the TDS.

    I am unaware of all these terminologies like TDS, filing returns and all.

    Please help me out to reclaim the 1200*3 months TDS.

    Thanks in advance.

  13. Get your TDS certificate (Form 16 or From 16AA) from your employer which shows your salary income and amount of TDS deducted and deposited. Then file your income tax return in concerned form and get the refund. Do not forget to collect the TDS certificate from your previous employer (if any) also and show the previous salary also in Income Tax Return. If you are unaware of income tax proceedeures just consult some expert who help to submit your return

    These links also may be helpful

  14. [...] be aware that most salaried person has income from mutual funds, shares, rent or have housing loan should file income tax return. So [...]

  15. Goutam Bandyopadhyay18 June 2011 at 21:52

    I've bought L&T Infrastucture Bond 2011 for tax benefit in my D-mat account in India Infoline Account.How I can get the bond certificate to show in my income tax return

  16. Just take a printout of your demat account ledger and as proof along with the proof of payment if any

  17. I am paying my tax through own govt. employer by monthly wise salary. My annual income from my salary is approx. Three (3) Lakhs. I am paying Rs. 14000/-tax. I don, t take any benefit of 80C. My annual income from my FD Interest is approx. Forty five Thousand(45000/-) only and I also pay the TDS to bank 7500/- in stead of 4500/- . Can I get my TDS amont of Rs. 3000/- to income tax return. which ITR form is submit for this. I don't show my fixed deposite to my employer because Bank deducted the TDS amount on my quarterly interest direct. I am also given my PAN card No. to the Bank but Bank can deduct the TDS amount 20% instead of 10% on INTERST. I am taking my TDS certificate (form no. 16A) to my bank. Can I take my extra deducted TDS to income tax dept. through return of incometax refund. If yes, which ITR form is submit for this? I can submit my tds deduction sepretaly(Sepretly ITR) to income tax return with form 16a Proof of tds deduction certificate issued by bank.) Kindly adviced me soon. [Nusrat].

  18. IF you have income from salary of Rs. 3 Lakh and also have interest of Rs. 45000 your total tax libility is Rs. 19055 including Education Cess. (Assuming that you are a male) The Total TDS deducted from your income is Rs. 21500. The you will get a refund of Rs. 2445. You should submit return through the new form ITR-1 Sahaj or ITR1 throuhg efiling.

  19. I am male 33 yrs old, i dont have PAN card.

    if i made a fixed deposit in bank and my intrest from fixed deposit exceeds 10000, then shall i have to pay TDS? becouse my total yearly income is about 120000.

  20. Please submit Form 15Hg in your bank to avoid TDS from interest if your total income is less than taxable amount.

  21. it is so good for us for above information.
    Thanks a lot g.

  22. I regularly contribute Rs-2000/month into my GPF account .Besides I am also contributing additional Rs-1000/month as GPF advance/loan repayement.Now I have few confusion...
    1.should I claim only regular GPF deduction of Rs-2000X12=24000 under 80cc,only

    2-should i claim regular GPF deduction 2000X12=24000 + GPF advance/loan repayement (1000X12=12000) ,alsoi.e. total 24000+12000=36000

  23. There are two type of withdrawal from GPF. One is just a partial withdrawal and we should pay it back. and the second one is loan from GPF and we should pay back the loan. IF your case is the second one you could not claim that additional Rs. 1000 pm under 80C.

  24. Hi, I invested rs 25000 in NSC in my wife name. She is house wife. Can i show this for tax deduction or savings only in my name is consider for the same except LIC? Kindly clarify.


  25. soham banerjee22 May 2012 at 11:37

    i receive my form 16 from my employer every year . I do earn from other sources also ,how can i get the whole annual amount under tax purview.

  26. You can declare your all income from other sources to the employer and let him deduct TDS for the whole income or you can show your other income in the income tax return and can pay tax accordingly

  27. Hello Jerry,

    I have the same case but I have not declared my other income to my employer and now I want to pay tax on such extra income and also want to declare it in the final ITR. My specific questions are
    1. which challan form need to be filled (as the earned income is from online part time job for professional work (engineering consultancy)).
    2. How to club this income with my form 16 which I ll get from my employer.
    3. How to declare this income, as I aware all the money has come through PAN so IT people knows each and every details.


  28. You should fill challan No. 280.
    NO problom you can just show your other income under the concerned head in Income tax challan. The income shown in form 16 should show under the head income from salaries. the other income should shown in concenred head such as income from businesss or profession or income form house property or income from other sources as per the nature of your income and pay tax accordingly.