TDS — Tax Deducted at Source

Tax Deducted at Source (TDS) on salary is the mechanism by which employers deduct income tax from employees' salaries each month and remit it to the government on their behalf. As per Section 192 of the Income Tax Act, 1961, every employer paying salary is required to deduct tax at source at the applicable rates. Udyamo HRMS automates TDS calculations based on the employee's projected annual income, declared investments, and the applicable tax regime.

This chapter covers TDS rules on salary, how to configure the tax settings in Udyamo HRMS, how employees declare investments, and how to generate TDS reports for quarterly filing.

What You Will Learn

• TDS on salary — legal obligations and calculation methodology
• Old vs. New Tax Regime
• How to configure TDS settings (deductor type, AO code, deductor data)
• How employees submit tax declarations
• How TDS is calculated during monthly payroll
• How to generate TDS reports and the quarterly return (Form 24Q)
• Compliance deadlines

Prerequisites

Required: Before configuring TDS, ensure:

• Your organization profile is complete, including PAN (see Organization Profile & Branding)
• Salary components and structures are configured (see Salary Components)
• Payroll module is enabled and tested (see Running Payroll)
• You have the organization's TAN (Tax Deduction and Collection Account Number) from the Income Tax Department

Understanding TDS on Salary

Legal Obligation

Under Section 192 of the Income Tax Act, every employer (referred to as the "deductor") is required to:

1. Estimate each employee's total annual income from salary.
2. Allow applicable deductions and exemptions.
3. Calculate the tax payable on the estimated income.
4. Deduct tax proportionately each month from the employee's salary.
5. Deposit the deducted tax with the government.
6. File quarterly TDS returns.

Income Tax Slabs — New Tax Regime (Default from FY 2023-24)

A standard deduction of Rs 75,000 is available under the New Regime (from FY 2024-25). A rebate under Section 87A makes income up to Rs 7,00,000 effectively tax-free.

Income Tax Slabs — Old Tax Regime

Under the Old Regime, employees can claim various deductions:

Tip: The New Tax Regime is the default regime from FY 2023-24 onwards. Employees who wish to claim deductions under the Old Regime must explicitly opt for it. Udyamo HRMS supports both regimes.

Configuring TDS Settings

Step 1: Navigate to Tax Settings

1. From the sidebar, click Settings.
2. Under the Payroll section, click Taxes.
3. The Tax configuration page opens.

Step 2: Enter Deductor Details

The Tax model in Udyamo HRMS stores the organization's tax deduction details:

Deductor Data Fields

1. Enter all the required fields.
2. Click Save.

Warning: The TAN must exactly match the TAN registered with the Income Tax Department. An incorrect TAN will cause TDS return filings to be rejected.

Step 3: Verify Configuration

After saving, verify that:

• The deductor type, AO code, TAN, and other details are displayed correctly.
• The configuration is marked as active.

Employee Tax Declaration

Employees must declare their expected investments and expenses at the beginning of the financial year so that the employer can compute the correct TDS each month.

Declaration Workflow

How Employees Submit a Tax Declaration

1. The employee logs in to Udyamo HRMS.
2. From the self-service portal, navigates to My Tax Declaration (or Payroll > Tax Declaration).
3. Selects the Tax Regime: New Regime or Old Regime.
4. If Old Regime is selected, enters the declaration details:

5. Clicks Submit.

Tip: Encourage employees to submit their tax declarations at the start of the financial year (April). This ensures TDS is distributed evenly across all 12 months, avoiding large deductions in later months.

TDS Calculation Logic

Udyamo HRMS uses the following methodology to calculate monthly TDS:

Step-by-Step Calculation

1. Compute Gross Annual Income: Project the employee's annual salary based on the current month's salary multiplied by 12 (or the remaining months if the employee joined mid-year), plus any variable pay or bonuses.

2. Apply Exemptions (Old Regime only):

   • HRA exemption (least of: actual HRA, 50%/40% of Basic, rent paid minus 10% of Basic)
   • Leave Travel Allowance (LTA) exemption
   • Standard deduction (Rs 50,000 under Old Regime; Rs 75,000 under New Regime from FY 2024-25)

3. Deduct Chapter VI-A Deductions (Old Regime only):

   • 80C, 80D, 80E, 80G, 80TTA, etc.

4. Compute Taxable Income: Gross Annual Income minus exemptions minus deductions.

5. Apply Tax Slabs: Based on the selected regime (Old or New).

6. Add Health and Education Cess: 4% on the computed tax.

7. Subtract Rebate (if applicable): Section 87A rebate for taxable income up to the applicable threshold.

8. Divide by Remaining Months: The total annual tax liability is divided equally by the number of remaining months in the financial year to determine the monthly TDS.

Example — New Tax Regime

Example — Old Tax Regime with Deductions

Tip: Udyamo HRMS recalculates TDS each month based on the year-to-date (YTD) income and deductions. If an employee submits an updated declaration mid-year, the remaining months' TDS is adjusted automatically.

TDS on Payslips

After payroll processing, the TDS deduction is visible on each employee's payslip:

1. Navigate to Payroll > Payslips.
2. Select the month and click on an employee's payslip.
3. The Deductions section shows Income Tax (TDS) with the monthly amount.

The payslip also typically shows:

TDS Reports

Available Reports

Generating the TDS Worksheet

1. From the sidebar, click Reports.
2. Select TDS Report (or Statutory Reports > TDS).
3. Choose the Month and Year (or select a quarter for quarterly data).
4. Click Generate.
5. The report shows each employee's:
   • Gross income
   • Exemptions and deductions
   • Taxable income
   • Tax computed
   • TDS deducted (month and YTD)
6. Click Export to download in Excel or PDF format.

Quarterly TDS Return (Form 24Q)

Employers must file a quarterly TDS return in Form 24Q with the Income Tax Department.

Filing Schedule

TDS Payment Deadlines

Filing Process

1. Run payroll for all months in the quarter.
2. Generate the TDS Quarterly Report from Udyamo HRMS.
3. Export the data.
4. Use the data to prepare Form 24Q (either manually or using TDS return preparation software such as RPU provided by NSDL/Protean).
5. Upload the return on the TIN-NSDL portal or through your authorized representative.
6. After successful filing, download the provisional receipt.

Warning: Late filing of TDS returns attracts a penalty of Rs 200 per day under Section 234E until the return is filed (maximum penalty cannot exceed the total TDS amount). Additionally, late deduction or non-deduction of TDS attracts interest at 1% to 1.5% per month.

Form 16 — Annual Salary Certificate

At the end of the financial year (by 15th June of the following year), employers must issue Form 16 to each employee. Form 16 is a certificate that details:

• Salary paid during the year
• Deductions allowed
• TDS deducted and deposited
• Employer and employee details

Udyamo HRMS generates the data needed for Form 16:

1. Navigate to Reports > Form 16 Data.
2. Select the Financial Year.
3. Click Generate.
4. Review the data for each employee.
5. Export the data for Form 16 generation.

Tip: Form 16 consists of two parts: Part A (generated from TRACES portal based on TDS returns) and Part B (salary details from the employer). Udyamo HRMS provides the data for Part B.

Troubleshooting

Next Steps

• Configure Statutory Bonus and Gratuity — see Statutory Bonus & Gratuity
• Review EPF and ESIC configurations — see EPF and ESIC
• Understand the full payroll flow — see Running Payroll