The system of tax deduction at source plays a crucial role in India’s income tax framework. Among the various forms used for reporting deducted tax, Form 24Q is the one specifically designed for salary income. Employers are obligated to deduct tax from employee salaries when applicable and file quarterly statements in this form to ensure compliance.
This article explores the foundation of TDS on salary, the functioning of Form 24Q, the applicable tax slabs, timelines, and the responsibilities of employers.
What is TDS on Salary
Tax deduction at source, commonly referred to as TDS, is a system in which the payer of certain income deducts tax before making payment and deposits it with the government. When it comes to salary, the responsibility falls on the employer. Under section 192 of the Income Tax Act, 1961, an employer is required to calculate the tax liability of the employee based on projected annual income, applicable deductions, and exemptions, and deduct the required amount as TDS.
The deducted amount is then deposited with the central government within the prescribed time frame. This process ensures that tax collection happens throughout the year and not in a lump sum at the time of filing the annual return.
When TDS on Salary is Deducted
Employers are mandated to deduct TDS at the time of paying salaries to employees. The calculation of TDS is not simply on a month-to-month basis but considers the employee’s estimated income for the entire financial year.
If the total income of an employee is less than the basic exemption limit of 2,50,000 rupees, then no TDS is required. Further, individuals whose taxable income after deductions and rebates is below five lakh rupees are also not subject to TDS due to the rebate under section 87A. This provides relief to small taxpayers and reduces the compliance burden on both employer and employee.
Legal Foundation under the Income Tax Act
The responsibility of deducting tax from salaries arises under section 192 of the Income Tax Act. This provision states that any person responsible for paying income under the head “Salaries” must deduct income tax at the time of actual payment. Unlike other sections of TDS that prescribe fixed percentages, section 192 requires employers to calculate TDS based on the income tax slab rates applicable to the employee after considering exemptions, allowances, and deductions.
Income Tax Slab Rates Applicable to Salaries
TDS on salary is linked to the slab rates of individual taxpayers. For the assessment year 2020–21, the slab rates under the old regime were as follows:
- Income up to 2,50,000 – Nil
- Income from 2,50,001 to 5,00,000 – 5 percent
- Income from 5,00,001 to 10,00,000 – 20 percent
- Income above 10,00,000 – 30 percent
In addition to the basic tax, applicable surcharge and health and education cess are also considered while calculating the total TDS liability. Employers are expected to adjust deductions such as those available under sections 80C, 80D, and house rent allowance to arrive at the correct taxable income of the employee.
Illustration of TDS Calculation
To better understand how TDS on salary is computed, consider the case of an employee with an annual salary of 7,50,000 rupees. After claiming deductions under section 80C of 1,50,000 rupees and section 80D of 25,000 rupees, the taxable income comes to 5,75,000 rupees.
According to the slab rates, tax on 2,50,000 is nil, the next 2,50,000 is taxed at 5 percent (12,500), and the balance 75,000 is taxed at 20 percent (15,000). Thus, the total tax liability comes to 27,500. Adding cess of 4 percent brings it to 28,600. This amount divided across twelve months gives the monthly TDS amount that the employer must deduct.
Due Dates for Depositing TDS on Salary
Once tax has been deducted, it must be deposited with the central government. For deductions made in the months from April to February, the due date for depositing TDS is the 7th day of the following month. For the month of March, the deadline is the 30th of April.
Adherence to these timelines is essential, as failure to deposit tax within due dates leads to interest liability and potential penalties. Employers need to maintain strict internal checks to ensure compliance.
Introduction to Form 24Q
Form 24Q is the quarterly statement through which employers report details of salary payments and TDS deductions to the Income Tax Department. It is not just a formality but a legal requirement that ensures transparency and proper credit of TDS to the employees.
This form must be filed every quarter and contains details such as the PAN of employees, salary paid, deductions claimed, tax computed, tax deducted, and challan details of tax deposited.
Due Dates for Filing Form 24Q
The quarterly filing of Form 24Q has specific deadlines that employers must follow:
- First quarter (April to June): 31st July
- Second quarter (July to September): 31st October
- Third quarter (October to December): 31st January
- Fourth quarter (January to March): 31st May
Timely filing of returns ensures that employees receive correct information in their Form 16 and that their tax credits are reflected accurately in Form 26AS.
Structure of Form 24Q
Form 24Q is divided into two annexures, each serving a different purpose.
Annexure 1 contains deductee-wise details of TDS deducted against each challan and must be filed for all four quarters. This ensures that every deduction made by the employer is matched with the corresponding deposit into the government account.
Annexure 2 is filed only for the fourth quarter and provides a complete breakup of salary, deductions claimed, other income declared by the employee, and the total tax liability. This annexure acts as a final reconciliation of the employee’s tax situation for the year.
Responsibility of the Employer
The obligation to deduct TDS, deposit it, and file Form 24Q lies entirely with the employer. This responsibility is not merely procedural but carries legal consequences in case of default. Employers must also ensure that details are accurate, as discrepancies can cause mismatches in employees’ records and lead to difficulties when they file their own income tax returns.
Employers are also expected to issue Form 16 to employees once the annual return has been filed. The accuracy of Form 16 depends directly on the correctness of the details furnished in Form 24Q.
Online and Offline Filing of Form 24Q
Form 24Q can be filed either online or offline. However, for certain categories of deductors, electronic filing is mandatory. These include government deductors, companies, persons whose accounts are subject to audit under section 44AB, and deductors where the number of deductees in a statement exceeds twenty.
For others, the return can still be filed physically at designated TIN facilitation centers. Regardless of the method, accuracy and timeliness remain critical factors.
Preparation of Return
Employers can prepare the return using the free Return Preparation Utility provided by NSDL e-Governance. This tool simplifies the process by allowing employers to enter details in a structured format and generate the required files for submission. Once the return is prepared, it can be submitted at TIN facilitation centers or uploaded online, depending on the requirement of the deductor.
Employers must also verify the control totals and other summary information to ensure the correctness of the data before submission. Errors in filing can lead to rejections or mismatches in employee records.
Importance of Compliance with TDS on Salary
The compliance framework around TDS on salary is designed to ensure that the government receives a steady flow of revenue and that employees are not burdened with large tax payments at the end of the year. For employers, maintaining compliance not only avoids interest and penalties but also builds trust among employees who rely on accurate deduction and reporting for their tax filings.
Non-compliance can result in notices from the tax department, financial liabilities in the form of interest and penalties, and reputational issues. Employers should therefore treat TDS obligations with the same seriousness as any other statutory requirement.
Compliance Responsibilities of Employers
Employers are entrusted with the responsibility of ensuring that TDS on salary is deducted and deposited in accordance with the provisions of the Income Tax Act. Compliance extends beyond mere deduction; it includes timely deposit of tax, filing accurate returns in Form 24Q, and issuing Form 16 to employees.
The following steps summarize the key compliance responsibilities of an employer:
- Estimate the taxable income of each employee by considering salary, allowances, deductions, and other declared income.
- Calculate the TDS liability using applicable slab rates and rebates.
- Deduct the correct TDS amount from salary payments.
- Deposit the deducted TDS to the credit of the government within prescribed timelines.
- File quarterly returns through Form 24Q with accurate details.
- Issue Form 16 to employees after the end of the financial year.
Failure to comply with any of these steps can lead to financial and legal consequences.
Interest for Delays and Defaults
The Income Tax Act prescribes interest for two primary types of defaults in relation to TDS on salary:
Interest for Failure to Deduct TDS
If an employer fails to deduct TDS from the salary of an employee when required, interest is charged at the rate of 1 percent per month or part of a month. This interest is calculated from the date on which tax should have been deducted up to the date it is actually deducted.
Interest for Failure to Deposit TDS
In situations where TDS has been deducted but not deposited to the government’s credit within the due date, interest is charged at the rate of 1.5 percent per month or part of a month. This interest is calculated from the date of deduction until the date of actual payment.
The interest payable is mandatory and cannot be waived. Employers must calculate and pay the interest amount before filing the TDS return to avoid rejection or mismatches.
Penalties for Non-Compliance
In addition to interest, penalties are imposed for failure to file Form 24Q or for filing it late.
Late Filing of Form 24Q – Section 234E
A fee of 200 rupees per day is levied for each day of delay in filing Form 24Q. However, the total fee cannot exceed the amount of TDS that was required to be deducted.
Non-Filing of Form 24Q – Section 271H
If the deductor fails to file Form 24Q altogether, the penalty ranges from 10,000 rupees to 1,00,000 rupees. This penalty is in addition to the fee under section 234E.
Relief from Penalty under Section 271H
An employer will not be charged penalty under section 271H if the following conditions are fulfilled:
- The TDS deducted has been deposited with the government.
- The applicable fee and interest have been paid.
- The return is filed within one year from the due date.
This provision offers some relief to deductors who may have defaulted but take corrective action within the extended period.
Common Mistakes in Filing Form 24Q
While filing Form 24Q, errors are common and often result in notices or mismatches in employee records. Some of the frequent mistakes include:
- Incorrect reporting of PAN of employees.
- Errors in challan details such as CIN or BSR codes.
- Mismatch between TDS deducted and TDS deposited.
- Incorrect break-up of salary or deductions claimed.
- Late filing of returns leading to interest and penalties.
Employers should double-check data before filing and use available validation utilities to minimize the chances of errors.
Related Forms Associated with Salary TDS
Form 24Q is the central document for reporting salary TDS, but several other forms are directly linked to the process. These include Form 16 and Form 27A.
Form 16 – Annual TDS Certificate
Form 16 is issued by the employer to the employee as a certificate of TDS deducted and deposited on salary. It contains details of salary income, exemptions, deductions, taxable income, and the amount of TDS deducted.
Form 16 is generated based on the data submitted by the employer in Form 24Q. It must be issued by 15th June following the end of the financial year. In case the employee misplaces the certificate, the employer may issue a duplicate, clearly marked as such.
Form 27A – Control Chart
Form 27A is a summary statement that accompanies Form 24Q. It serves as a control chart and contains the control totals for the number of deductees, total amount paid, tax deducted, and tax deposited. This form ensures that the data filed in the return is consistent and reconciles with the totals.
Importance of Form 16 for Employees
For employees, Form 16 is one of the most critical documents for filing their annual income tax returns. It not only provides evidence of TDS deducted and deposited but also gives a detailed breakup of salary, allowances, and deductions. Any mismatch between Form 16 and the records available in Form 26AS can create difficulties for the employee while filing returns.
Thus, employers must ensure that Form 24Q is filed accurately, as it directly affects the correctness of Form 16.
Procedure for Filing Form 24Q
The filing procedure for Form 24Q involves a few systematic steps:
- Download the Return Preparation Utility from the NSDL e-Gov portal.
- Enter details of deductor, employees, salary, deductions, TDS deducted, and challan information.
- Validate the file using the File Validation Utility to check for errors.
- Submit the validated file either online or at a TIN facilitation center.
- Ensure that Form 27A accompanies the submission if filing offline.
Employers should also maintain proper records and backup of the filed returns to handle any future queries or audits.
Impact of Errors in Form 24Q on Employees
Errors in filing Form 24Q do not only affect the employer but also have a direct impact on employees. For instance, if the PAN of an employee is reported incorrectly, the TDS deducted will not be credited to the correct account. This can result in the employee being unable to claim the credit of TDS while filing their income tax return.
Similarly, incorrect challan details may lead to mismatches that delay the reflection of TDS in Form 26AS. Such errors increase the compliance burden for employees and can strain employer-employee relations.
Correcting Errors in Form 24Q
If mistakes are identified in a filed return, employers can file a revised return. The revised return must contain the correct details and is submitted in the same manner as the original. Filing revised returns ensures that employees receive accurate Form 16 and that their tax credits are reflected correctly.
Employers should not delay in filing revised returns, as prolonged mismatches can cause financial stress for employees during their tax return filing process.
Role of Technology in Compliance
With the growing emphasis on digitization, electronic filing of returns has simplified the compliance process. Tools like the Return Preparation Utility and File Validation Utility help employers prepare accurate returns. Online filing also provides immediate acknowledgments and reduces the chances of physical errors.
However, technology also requires employers to stay updated with software changes, utility upgrades, and digital signatures required for online submissions. Regular training of payroll and finance teams becomes necessary to avoid compliance issues.
The Financial Impact of Non-Compliance
The consequences of non-compliance with TDS provisions are not limited to penalties and interest. They can also affect the working capital of an organization. For example, delayed deposits attract an interest rate of 1.5 percent per month, which can accumulate quickly for large payrolls.
Additionally, penalties under section 271H can significantly increase the financial burden. Beyond direct costs, reputational damage and strained employee relations add to the intangible losses for the employer.
Employer Obligations Beyond Deduction
Deducting TDS from salaries is only the beginning of employer responsibilities. Employers must take a series of steps after deduction to remain fully compliant.
Timely Deposit of TDS
Once TDS is deducted, it must be deposited with the government by the due date. Deposits must be made monthly, with a specific relaxation for deductions made in March, where the due date is 30th April. Any delay leads to interest and possible penalties.
Filing Accurate Returns
Quarterly returns in Form 24Q must be filed with complete and accurate details. Errors in returns not only lead to penalties but also disrupt the tax credit mechanism for employees. Employers should ensure validation before submission.
Issuance of Form 16
Employers must issue Form 16 to employees after the close of the financial year. This certificate acts as proof of TDS deducted and enables employees to file their income tax returns accurately. Issuance by 15th June is mandatory, and failure to do so can cause financial inconvenience to employees.
Importance of Record-Keeping in TDS Compliance
Record-keeping plays a central role in ensuring accuracy and avoiding disputes in TDS compliance.
Employee Declarations
Employers need to maintain records of declarations submitted by employees, such as investment proofs, rent receipts, and other documents that affect tax computation. Proper documentation ensures that the correct taxable income is calculated.
Challan Details
Each TDS deposit of TDS is accompanied by a challan. Employers should preserve all challan copies with accurate BSR codes, dates, and amounts. These challans serve as proof of payment in case of queries from tax authorities.
Salary Registers and Payroll Records
Maintaining payroll data with complete details of salary structure, allowances, deductions, and TDS ensures transparency. These records are often required for audits or inquiries from the tax department.
Digital Archives
Employers increasingly rely on digital record-keeping systems to manage TDS compliance. Archiving electronic records ensures easy retrieval and reduces the risk of physical loss.
Practical Challenges in Filing Form 24Q
Despite the availability of utilities and systems, employers often face challenges while filing Form 24Q.
Handling Multiple Employees
For large organizations, managing data for hundreds or thousands of employees can be complex. Even a small error in PAN entry or challan details may lead to mismatches in multiple records.
Declarations of Other Income
Employees may declare income from sources other than salary, such as interest or rental income. Incorporating this into the Form 24Q filing for Annexure 2 requires careful calculation and verification.
Changes in Tax Laws
Frequent changes in income tax laws, slab rates, or exemptions create challenges in ensuring accuracy. Employers need to stay updated to prevent miscalculations.
Employee Turnover
When employees join or leave during the financial year, employers must adjust tax calculations accordingly. Managing mid-year adjustments adds to the complexity of compliance.
Annexure 1 and Annexure 2 in Practice
Annexure 1 and Annexure 2 form the core of Form 24Q, and employers must understand their practical implications.
Annexure 1
Filed in all quarters, Annexure 1 contains deductee-wise details of TDS against each challan. In practice, this requires precise mapping of employees to challans and ensuring there are no mismatches in reporting.
Annexure 2
Filed only in the last quarter, Annexure 2 reflects the comprehensive breakup of salary, deductions, and other income declared by the employee. Employers must collect proofs and declarations before March to ensure accurate reporting. Annexure 2 directly affects the correctness of Form 16.
Role of Form 16 in Employee Tax Compliance
Form 16 is the most important document for employees, and its accuracy depends entirely on the correct filing of Form 24Q.
Content of Form 16
It includes salary details, exemptions under allowances, deductions under sections such as 80C and 80D, taxable income, and TDS deducted.
Timing of Issue
Form 16 must be issued by 15th June following the financial year. Employees rely on it for filing their income tax returns, and any delay can affect their compliance timelines.
Duplicate Issuance
If employees lose Form 16, employers can issue a duplicate. It must be clearly marked as duplicate to avoid misuse or duplication of tax credits.
Form 27A as a Control Mechanism
Form 27A is filed along with Form 24Q and serves as a summary statement for control purposes.
Key Details in Form 27A
It includes totals for number of deductees, total salary payments, total TDS deducted, and TDS deposited. This helps tax authorities reconcile the figures with the detailed annexures.
Importance in Compliance
Errors in Form 27A totals may cause rejection of the TDS return. Employers must ensure that figures match exactly with the annexures before submission.
Strategies to Ensure Compliance
Employers can adopt several strategies to minimize errors and avoid penalties.
Regular Reconciliation
Periodic reconciliation between payroll records, challan payments, and TDS deducted ensures accuracy. Monthly checks reduce the risk of year-end discrepancies.
Employee Communication
Employers should maintain open communication with employees regarding declaration deadlines and proof submission. Clear timelines help in avoiding last-minute errors.
Automation of Payroll and TDS
Using payroll software integrated with TDS calculation reduces manual errors. Automated systems update slab rates and deductions, ensuring compliance with current laws.
Training and Awareness
Regular training of payroll staff in TDS laws, return preparation, and use of utilities helps organizations remain compliant and adapt to legal changes.
The Role of Technology in Filing Form 24Q
Technology has transformed TDS compliance. Employers now rely on advanced software and online systems to simplify the filing process.
Return Preparation Utility
The utility provided by NSDL e-Gov allows employers to prepare returns systematically. It ensures uniformity and reduces chances of mismatched entries.
File Validation Utility
This utility validates the return file before submission, pointing out errors in challan details, PAN entries, or calculations. Correcting errors before submission reduces rejection rates.
Digital Signatures
For online submission, employers must use digital signatures, which provide authentication and security. Digital filing also offers instant acknowledgment from the system.
Integration with Payroll Systems
Modern payroll systems can generate TDS data in the required format for filing Form 24Q. This reduces manual effort and improves efficiency.
Employee Benefits from Proper Filing of Form 24Q
Accurate filing of Form 24Q ensures that employees receive proper credit for TDS deducted.
Seamless Reflection in Form 26AS
When returns are filed correctly, TDS details reflect in employees’ Form 26AS without discrepancies. This simplifies the process of filing income tax returns for employees.
Avoidance of Tax Credit Issues
Errors in Form 24Q may prevent TDS from being credited to the correct PAN, forcing employees to resolve mismatches. Proper filing eliminates such problems.
Confidence in Employer Compliance
When employees receive accurate Form 16 and see timely reflection of TDS, it builds confidence in the employer’s compliance practices.
Consequences of Poor Compliance
Poor compliance with TDS obligations under Form 24Q affects both employers and employees.
For Employers
Employers may face interest, penalties, and scrutiny from tax authorities. Non-compliance damages the credibility of the organization and may lead to financial strain.
For Employees
Employees may face difficulties in claiming TDS credit, delays in refunds, and complications in filing returns. This affects employee morale and trust in the employer.
Best Practices for Employers
Employers can follow certain best practices to remain compliant:
- Deduct TDS accurately each month by factoring in all employee declarations.
- Deposit TDS before due dates to avoid interest.
- Validate return files thoroughly before submission.
- Reconcile payroll data with challan payments regularly.
- Provide employees with clear guidelines on proof submission.
- Use automated payroll and TDS systems to reduce errors.
- Keep updated with legal changes to slab rates and exemptions.
- Maintain all records digitally for easy retrieval during audits.
Future of TDS Compliance and Digitalization
The future of TDS compliance is moving toward complete digitalization. Authorities are focusing on reducing manual intervention by improving automated matching systems and real-time data validation. Employers must adapt by upgrading their systems and processes to align with the digital framework.
With initiatives like online challan payments, centralized processing, and instant acknowledgments, the compliance process is expected to become faster, more accurate, and employee-friendly.
Conclusion
Form 24Q plays a pivotal role in the Indian taxation framework as it directly governs the collection and reporting of tax deducted at source on salary income. It serves not only as a compliance obligation for employers but also as a vital document for employees, ensuring that their deducted tax is correctly credited and reflected for smooth income tax return filing.
Throughout this series, we explored the legal framework, procedural aspects, and practical implications of Form 24Q. Employers are bound by responsibilities that go far beyond mere deduction of tax—they must deposit it promptly, file accurate quarterly returns, maintain meticulous records, issue Form 16 on time, and use Form 27A for proper control reporting. Each stage of this process is critical in ensuring transparency and protecting the interests of employees.
We also examined the challenges employers face, such as managing large employee data, handling mid-year changes, incorporating additional income declarations, and staying updated with frequent tax law amendments. These complexities highlight the importance of technology, automation, and regular reconciliation to reduce errors and streamline compliance.
For employees, correct filing of Form 24Q ensures their TDS details reflect seamlessly in Form 26AS, eliminating discrepancies during personal income tax return filing. A well-structured compliance process strengthens trust between employer and employee while also protecting organizations from penalties, interest, and reputational risks associated with non-compliance.
As tax administration moves toward greater digitalization, the role of Form 24Q is set to become more streamlined and integrated with real-time data validation and automated reconciliation. Employers who adopt best practices, invest in payroll technology, and maintain transparency in communication with employees will find compliance not only manageable but also beneficial in the long run.
Ultimately, Form 24Q is more than a statutory requirement; it is the bridge that connects salary disbursements with tax compliance, safeguarding the interests of both the government and taxpayers. By understanding its framework, respecting due dates, maintaining accurate records, and embracing digital solutions, employers can fulfill their obligations efficiently while ensuring employees enjoy a seamless taxation experience.