Tax Deduction at Source, often referred to as TDS, is one of the primary mechanisms used by the Indian government to collect income tax from various sources of income. It ensures that tax is collected at the time of payment itself, reducing the chances of evasion and enabling a steady flow of revenue to the exchequer. When it comes to salaries, TDS plays a central role in ensuring that employees’ income tax liabilities are met in a timely manner without the need for large lump-sum payments at the end of the year.
Form 24Q is the quarterly statement that employers are required to file to report TDS deductions made on salaries. Understanding the provisions around TDS on salary and how Form 24Q works is essential for every employer, payroll manager, and even employees who wish to know how their tax is handled.
The Concept of TDS on Salary
TDS on salary falls under Section 192 of the Income Tax Act, 1961. According to this provision, any person responsible for paying salaries is required to deduct TDS at the time of making the payment. The deduction is made based on the estimated income of the employee for the entire financial year. The employer calculates the projected taxable income, applies the relevant slab rates, accounts for eligible exemptions and deductions, and then divides the tax liability across the months of service to arrive at a monthly TDS figure.
The system ensures that employees do not face a large tax burden at the end of the year and that the government receives tax revenue throughout the year. It also places the responsibility of collecting and depositing tax on the employer, which reduces administrative pressure on the tax department.
Thresholds and Exemptions for TDS on Salary
Not all salaried individuals are subject to TDS. The most important threshold to note is the basic exemption limit. For an employee whose total annual income does not exceed ₹5,00,000, TDS is not required to be deducted. This is because of the combined effect of the income tax slab structure and the rebate available under Section 87A.
The exemption limit for income tax purposes begins at ₹2,50,000 for individuals below the age of 60, with higher limits for senior and super senior citizens. However, for the purpose of TDS on salary under Section 192, the employer simply needs to ensure that the projected taxable income for the year exceeds the rebate-adjusted threshold before beginning deductions.
Income Tax Slab Rates and Their Role in TDS
TDS on salary is calculated according to the applicable income tax slab rates for individuals. For Assessment Year 2020–21, the slab rates under the old tax regime were as follows:
- Up to ₹2,50,000 – Nil
- ₹2,50,001 to ₹5,00,000 – 5%
- ₹5,00,001 to ₹10,00,000 – 20%
- Above ₹10,00,000 – 30%
The slab system ensures progressive taxation, meaning that higher income levels are taxed at higher rates. Employers must also factor in applicable cess and surcharge while computing the TDS amount. The cess rate during this period was 4% on the total tax.
Calculation of TDS on Salary in Practice
To compute TDS on salary, employers first determine the employee’s gross salary for the year. This includes basic pay, dearness allowance, house rent allowance, leave travel allowance, and any other regular allowances or perquisites.
Next, exemptions such as HRA (subject to conditions), leave travel concession, and deductions for professional tax are subtracted. Then, deductions under Chapter VI-A of the Income Tax Act, such as those available under Section 80C, 80D, and 80G, are taken into account based on the investment or expenditure proofs submitted by the employee.
The net taxable income is then taxed according to the slab rates, cess is added, and the total tax liability is determined. This annual tax is divided by the number of months of service in the year to arrive at the monthly TDS deduction.
When TDS on Salary Must Be Deducted
TDS is deducted at the time of actual payment of salary, not merely when it becomes due. This means that if salary is paid late, the deduction is made at the time of payment. Employers are required to begin deductions from the month when the estimated taxable income exceeds the exemption threshold.
It is also important for employers to obtain details of other income earned by the employee, such as rental income or interest income, if the employee chooses to declare them. This helps in accurate estimation of the annual taxable income and prevents under-deduction of tax.
Monthly Deadlines for Depositing TDS
Once TDS on salary is deducted, it must be deposited with the government within specified timelines. For deductions made in any month from April to February, the due date for deposit is the 7th of the following month. For deductions made in March, the due date is extended to 30th April to allow employers time to finalise year-end adjustments.
Late deposits can lead to interest liabilities and penalties. Employers must therefore maintain a strict compliance calendar to ensure timely deposits.
Importance of Timely Deduction and Deposit
The obligation to deduct and deposit TDS is not merely procedural. It is a legal requirement, and failure to comply can result in significant financial and legal consequences for the deductor. Late deduction or non-deduction attracts interest at 1% per month or part thereof from the date the tax was deductible to the date it is actually deducted.
If the tax is deducted but not deposited, the interest rate increases to 1.5% per month or part thereof from the date of deduction to the date of payment. In addition to interest, penalties under other provisions may also apply.
Introduction to Form 24Q
Form 24Q is the quarterly statement that employers must file with the Income Tax Department to report TDS deductions made from salaries. It contains detailed information on the salary paid to employees, the TDS deducted, and the challans through which the tax was deposited.
The form must be filed four times in a financial year, covering the quarters April to June, July to September, October to December, and January to March. The due dates for filing are 31st July, 31st October, 31st January, and 31st May respectively.
Structure of Form 24Q
Form 24Q is divided into two main annexures. Annexure I must be filed for all four quarters and provides deductee-wise breakups of TDS against each challan. This annexure is essentially a record of which employees had TDS deducted, how much was deducted, and under which payment challan the tax was deposited.
Annexure II is required only in the fourth quarter and contains a comprehensive breakup of each employee’s salary, deductions claimed under the Income Tax Act, other declared income, and the final tax liability as calculated for the year. This annexure essentially serves as the final reconciliation between projected and actual taxable income.
Who Must File Form 24Q Online
Form 24Q can be filed either physically or electronically. However, electronic filing is mandatory for certain categories of deductors. These include all government offices, companies, persons who were required to get their accounts audited under Section 44AB in the previous year, and any deductor where the number of deductees in a statement for any quarter exceeds 20.
Online filing ensures faster processing, reduces paperwork, and minimises the risk of manual errors. It also allows for quicker communication between the employer and the tax department in case of discrepancies.
Preparing Form 24Q
Employers can prepare Form 24Q using the Return Preparation Utility provided by NSDL e-Governance, available free of charge on the Tax Information Network website. This tool helps in compiling salary details, challan information, and deduction particulars in the required format. Once prepared, the form can be submitted at any TIN facilitation centre or uploaded electronically on the department’s portal.
Proper record-keeping throughout the year makes preparing Form 24Q easier. Employers should maintain detailed salary registers, deduction proofs, challan copies, and any declarations submitted by employees. This ensures accuracy in the quarterly statements and reduces the likelihood of notices from the department.
Interaction with Employee Declarations and Proofs
The accuracy of TDS computation depends heavily on the information provided by employees. Employers typically collect investment declarations at the beginning of the financial year and request proofs later to validate them. If an employee fails to provide proofs, the employer is required to adjust the TDS for the remaining months to account for the higher taxable income.
Employers must also consider situations where employees join or leave mid-year, or where salary structures change. In such cases, the TDS liability for the year may need to be recalculated to reflect the revised income levels.
Role of TDS in Employee Financial Planning
From an employee’s perspective, TDS deductions impact monthly take-home pay and annual tax planning. A correctly calculated TDS ensures that employees neither face a large tax liability at the end of the year nor end up with excessive deductions leading to refunds.
Employees should communicate changes in their financial situation, such as new investments or changes in other income, to their employer promptly. This allows for mid-year adjustments to TDS and helps in avoiding mismatches between actual liability and tax deducted.
Filing TDS Returns through Form 24Q
Form 24Q is a mandatory quarterly return filed by employers to report Tax Deducted at Source on salaries. It serves as an official record of the deductions made from employee salaries, the amounts deposited to the government, and the details of each deductee. Filing this form accurately and on time is a critical compliance responsibility for employers under the Indian Income Tax Act.
The return must be filed for every quarter of the financial year, and its preparation involves gathering data from payroll records, challan receipts, and employee declarations. It is not merely an administrative formality but a statutory requirement that helps the Income Tax Department monitor and reconcile tax collections on salary income.
Purpose and Scope of Form 24Q
Form 24Q is designed to provide a complete picture of an employer’s TDS deductions on salary payments during a specific period. It contains detailed information about each employee, including their Permanent Account Number, salary structure, taxable income, deductions under various provisions of the Income Tax Act, and the TDS deducted and deposited.
The form also records the particulars of the payment challans used for depositing the deducted tax into the government account. This linkage between the employee-level deduction data and the bank-level payment data ensures transparency and facilitates reconciliation during processing by the department.
Legal Requirement to File
Under Section 200 of the Income Tax Act and Rule 31A of the Income Tax Rules, any person responsible for deducting TDS from salary is required to file quarterly statements in the prescribed form. For salaries, this prescribed form is Form 24Q.
Failure to file within the due dates can lead to late filing fees, interest, and penalties. The legal mandate ensures that tax collection data is updated quarterly, helping the department to track compliance and spot irregularities early.
Due Dates for Filing Form 24Q
Form 24Q must be filed four times in a financial year, one for each quarter:
- First quarter: 1 April to 30 June – due by 31 July
- Second quarter: 1 July to 30 September – due by 31 October
- Third quarter: 1 October to 31 December – due by 31 January
- Fourth quarter: 1 January to 31 March – due by 31 May
These timelines are fixed, and missing them triggers automatic late fees under Section 234E. The late fee is charged at a rate of ₹200 per day until the return is filed, subject to a maximum equal to the TDS amount.
Structure and Contents of Form 24Q
Form 24Q is divided into two annexures, each with a specific purpose.
Annexure I
Annexure I is to be filed for all four quarters. It captures deductee-wise and challan-wise details of TDS deducted and deposited. Each record in Annexure I includes:
- PAN of the employee
- Name of the employee
- Amount of salary paid
- Amount of TDS deducted
- Challan identification number for the payment to the government
- Date of deposit and amount deposited
This annexure acts as a running record of TDS transactions during the quarter, linking every deduction to a specific challan.
Annexure II
Annexure II is required only for the last quarter of the financial year. It contains a complete breakup of the employee’s salary and taxable income for the entire year, including:
- Gross salary and perquisites
- Exempt allowances such as HRA and leave travel concession
- Deductions claimed under Sections 80C, 80D, and other provisions
- Other income declared by the employee, if any
- Total taxable income and the resulting tax liability
- Total TDS deducted and deposited during the year
This annexure essentially reconciles the actual income and deductions with the TDS already reported in the first three quarters, ensuring that the year-end numbers match the employee’s Form 16.
Modes of Filing Form 24Q
There are two primary modes of filing Form 24Q: offline submission at a facilitation centre and online submission through the electronic filing portal. However, e-filing is mandatory for certain categories of deductors, including:
- All government offices and bodies
- All companies
- Persons who were subject to tax audit under Section 44AB in the preceding year
- Deductors with more than 20 deductees in a quarter
Electronic filing reduces manual errors, speeds up processing, and ensures that the records are instantly available to the tax department.
Offline Filing Procedure
In offline mode, the deductor prepares the return using the prescribed format and submits it physically at a TIN facilitation centre. The submission must be accompanied by Form 27A, which serves as a control chart summarising the return. The control chart provides totals for the number of deductee records, total salary paid, total TDS deducted, and total TDS deposited.
The facilitation centre verifies the consistency between the control chart and the actual return file. If the figures do not match, the return is rejected, and corrections must be made before re-submission.
Online Filing Procedure
For online filing, the deductor first prepares the return using the Return Preparation Utility provided by NSDL e-Governance. This utility ensures that the file is in the required format and passes basic validation checks.
The steps typically involve:
- Downloading and installing the Return Preparation Utility.
- Entering deductor details, challan details, and employee-level salary and TDS data.
- Generating the .fvu file, which is the validated file format for submission.
- Uploading the .fvu file on the TDS Reconciliation Analysis and Correction Enabling System portal or submitting it through the online facility of the income tax department.
Once the file is uploaded, an acknowledgment number is generated, which serves as proof of submission. This acknowledgment should be stored carefully for future reference and in case of disputes.
Role of Form 27A in Filing
Form 27A is a physical form used when submitting returns offline. It summarises the TDS return and acts as a control sheet. Each Form 24Q return must be accompanied by a separate Form 27A for each quarter.
The details in Form 27A must match exactly with those in the return file. The key fields include the TAN of the deductor, the total number of deductee records, the total amount paid, the total TDS deducted, and the total TDS deposited. Any mismatch can result in rejection of the return.
Accuracy in Filing and Common Errors to Avoid
Accuracy in filing Form 24Q is essential for both compliance and employee satisfaction. Common mistakes include:
- Incorrect PAN of employees
- Mismatched challan details
- Wrong quarter selection when preparing the return
- Incomplete salary breakup in Annexure II
- Incorrect deduction amounts due to wrong investment proof validation
Employers should use validation tools to check the return file for errors before submission. Even a small error, such as a typographical mistake in a PAN, can lead to mismatches in the employee’s tax records and delay the issuance of refunds.
Interaction Between Form 24Q and Form 16
Form 16 is the annual TDS certificate issued by employers to employees. The data provided in Form 16 is derived directly from the details submitted in Form 24Q. If the quarterly returns are inaccurate or incomplete, the Form 16 issued to employees will also be incorrect, leading to compliance issues during the employee’s income tax return filing.
Therefore, maintaining accurate and up-to-date quarterly filings ensures that Form 16 is correct and employees can file their returns without discrepancies.
Amending a Filed Form 24Q
In case errors are discovered after filing, employers can file a correction statement for Form 24Q. Correction statements can address issues such as:
- Updating or correcting employee PANs
- Modifying challan details
- Adding missing deductee records
- Deleting records that were included by mistake
Correction statements are filed using the same utility as the original return, and the revised file must also pass validation checks. Filing corrections promptly helps maintain accurate records and avoids penalties.
Penalties and Late Fees for Non-Compliance
Delays in filing Form 24Q attract an automatic late fee of ₹200 per day under Section 234E, up to a maximum equal to the total TDS amount. In addition, penalties under Section 271H ranging from ₹10,000 to ₹1,00,000 can be levied for failure to file the return or for filing incorrect information.
The penalty under Section 271H may be waived if the TDS is deposited, late fees and interest are paid, and the return is filed within one year of the due date. However, habitual delays or repeated errors can lead to stricter action.
Importance of Maintaining Supporting Records
Every figure in Form 24Q should be supported by documentary evidence. This includes salary registers, deduction proofs, challan receipts, and investment declarations submitted by employees. Proper record-keeping not only aids in accurate filing but also provides a defence in case of departmental scrutiny.
Employers should retain these records for a minimum of seven years from the end of the relevant financial year, as the department can initiate inquiries within this period.
Role of Technology in Streamlining Filing
Many organisations now use integrated payroll and compliance software to automate the process of TDS calculation and Form 24Q preparation. These systems can directly pull salary and deduction data from payroll records, link them with challan payment information, and generate validated .fvu files for submission.
Automation reduces manual data entry errors and ensures that returns are consistent with the underlying payroll records. It also makes it easier to generate correction statements when needed.
Employee Communication During Filing
While the filing of Form 24Q is primarily an employer’s responsibility, keeping employees informed can prevent misunderstandings. Employers should provide periodic TDS deduction summaries to employees, especially when adjustments are made due to changes in salary structure or disallowance of investment claims.
Open communication also helps employees verify their PAN and personal details early, reducing the chances of errors in the final Form 16.
Interest on Late Deduction or Late Deposit of TDS
When an employer fails to deduct TDS on salary at the time of payment, interest becomes applicable. The interest rate for non-deduction is 1% per month or part of a month, calculated from the date on which tax should have been deducted to the actual date of deduction.
If the TDS has been deducted but is not deposited to the government within the stipulated time frame, a higher interest rate of 1.5% per month or part thereof applies. This is calculated from the date of deduction to the date of payment.
These interest charges are mandatory and cannot be waived, even if the default was unintentional. They must be paid before filing the TDS return, as the return filing system requires details of challans reflecting payment of the tax and the interest.
Penalty Provisions under Section 234E
Section 234E imposes a late filing fee if Form 24Q is not filed within the prescribed due dates. The fee is ₹200 per day for every day of delay, and it continues until the return is filed. However, the total late fee cannot exceed the total TDS amount for the quarter.
This fee is different from interest on late deduction or deposit. It is a flat per-day amount meant to encourage timely filing and ensure the quarterly compliance calendar is followed.
Penalty Provisions under Section 271H
Section 271H provides for a penalty ranging from ₹10,000 to ₹1,00,000 in cases of failure to file the TDS return within the due date or for filing incorrect details. This penalty is in addition to the late filing fee under Section 234E.
The penalty under Section 271H may be waived if the following conditions are met:
- The tax deducted has been deposited to the government.
- All applicable interest and late filing fees have been paid.
- The TDS return is filed within one year from the due date.
This waiver provision encourages deductors to rectify defaults quickly and avoid prolonged delays.
Common Defaults Leading to Penalties
Some of the most frequent mistakes that result in penalties and interest include:
- Failure to deduct TDS from salary payments on time.
- Deducting TDS but not depositing it within the due date.
- Filing Form 24Q after the deadline.
- Filing returns with incorrect or incomplete employee details.
- Mismatches between challan data and deductee-level data in the return.
Employers can avoid these issues by maintaining proper payroll systems, monitoring compliance calendars, and conducting regular internal checks.
Form 16 – Annual TDS Certificate
Form 16 is a key document in the TDS compliance framework. It is issued annually by the employer to each employee and serves as proof that TDS was deducted and deposited on their behalf. The details provided in Form 16 are based on the information filed in Form 24Q during the year.
Form 16 contains two parts:
- Part A: Shows details of TDS deposited, including the TAN of the employer, the PAN of the employee, the summary of tax deducted and deposited, and challan details.
- Part B: Provides a detailed computation of the employee’s income, exemptions, deductions, and the tax liability for the year.
Employers must issue Form 16 by 15 June of the financial year following the one in which the tax was deducted. Failure to issue Form 16 on time can lead to employee grievances and compliance notices.
Duplicate Form 16 in Case of Loss
If an employee loses the original Form 16, they can request a duplicate from the employer. The duplicate must clearly be marked as such, to differentiate it from the original. Employers should maintain a record of all duplicate certificates issued to ensure transparency and accountability.
Form 27A – Control Chart for TDS Returns
Form 27A is a summary statement that must be submitted along with the TDS return in Form 24Q when filing offline. It provides control totals for key figures in the return, such as:
- Number of deductee records.
- Total amount paid to employees.
- Total TDS deducted.
- Total TDS deposited as per challans.
This form acts as a cross-verification tool for the tax department to ensure that the data in the return is consistent with the summarised figures. Any discrepancy between the control chart and the return can result in rejection of the submission.
Significance of Accurate Reporting in Form 27A
Accurate preparation of Form 27A is important because it is the first point of review for the facilitation centre or the electronic filing system. If the totals in Form 27A do not match the return file, the filing will be flagged for errors and may require re-submission. This can lead to unnecessary delays and potential penalties for late filing.
Best Practices for Avoiding Defaults
Avoiding defaults in TDS compliance requires a combination of process discipline, technology adoption, and regular monitoring. Some of the recommended practices include:
- Setting up a compliance calendar with reminders for deduction, deposit, and return filing deadlines.
- Using payroll software integrated with TDS calculation and reporting features.
- Conducting periodic audits of payroll and TDS records to detect and correct errors early.
- Ensuring all employees have valid PAN details on record to avoid higher TDS rates.
- Reconciling challan payments with bank records immediately after deposit.
Importance of Employee Data Management
Accurate employee data is the foundation of correct TDS reporting. Employers should verify PAN details, date of joining, salary structure, and declared deductions at the start of the financial year.
Any changes in employment status, such as transfers, promotions, or resignations, should be updated promptly in the payroll system. Maintaining updated employee data reduces the risk of mismatches in Form 24Q and Form 16 and ensures smooth processing of employee income tax returns.
Communication with Employees on TDS Matters
Employers should adopt a transparent approach when it comes to TDS deductions. Sharing monthly or quarterly deduction statements with employees allows them to verify the accuracy of their tax deductions and claim adjustments if needed.
Such communication also builds trust and helps employees plan their personal finances better. Providing clarity on how deductions are calculated and how investment proofs affect the final TDS ensures that there are no surprises at the end of the year.
Handling Year-End Adjustments
At the end of the financial year, employers often need to make adjustments to TDS deductions to align them with the actual taxable income of employees. This may happen due to changes in declared investments, receipt of bonuses, or adjustments for other income declared during the year.
Employers must ensure that such adjustments are done in the last few months of the financial year to avoid large deductions in the final month, which can cause hardship to employees.
Preparing for Scrutiny or Audit
The income tax department may scrutinise TDS returns as part of its compliance checks. Employers should be prepared to provide:
- Salary registers and pay slips.
- Investment declarations and proof submissions from employees.
- Copies of challans for TDS payments.
- Form 24Q filings and acknowledgments.
- Copies of Form 16 issued to employees.
Being able to present organised records during scrutiny reduces the risk of disputes and penalties.
Leveraging Technology for Compliance
Modern payroll and compliance systems can automate much of the TDS process, from calculation to deposit and return filing. Features such as automatic challan generation, real-time deduction tracking, and error detection in return files make compliance easier and reduce the likelihood of defaults.
Employers should evaluate software solutions that integrate payroll processing with statutory compliance, ensuring that data flows seamlessly between functions and is always up to date.
Building a Culture of Compliance
Beyond processes and systems, building a culture of compliance within the organisation ensures sustained adherence to TDS requirements. This involves training payroll and finance teams on the latest legal provisions, encouraging timely reporting of changes in employee data, and maintaining a proactive approach towards meeting statutory deadlines.
When compliance becomes part of the organisation’s operational culture, the chances of defaults, interest, and penalties reduce significantly.
Conclusion
TDS on salary, governed under Section 192 of the Income Tax Act, is a crucial responsibility for every employer. From understanding the applicable income tax slab rates and deduction thresholds to adhering to strict deposit and filing deadlines, each step plays a significant role in ensuring statutory compliance. Form 24Q serves as the backbone of quarterly TDS reporting, capturing both the transactional details of deductions and the annual salary computations required for accurate employee records.
Timely deduction and deposit of TDS, along with accurate and punctual filing of Form 24Q, safeguard employers from interest, penalties, and legal complications. Awareness of related documents, such as Form 16 for employees and Form 27A as a control chart, ensures that all stakeholders have the necessary proofs and records for smooth tax processing.
Effective TDS compliance is not just about avoiding fines; it reflects a company’s commitment to transparency, good governance, and employee trust. By leveraging technology, maintaining organised payroll systems, conducting regular reconciliations, and keeping employee data updated, employers can minimise errors and meet their obligations seamlessly.
Ultimately, mastering the end-to-end process of deduction, deposit, filing, and certification under the TDS framework not only fulfils legal duties but also strengthens an organisation’s financial discipline, ensuring both the employer and employees benefit from a compliant and efficient payroll environment.