Employer’s-Guide-to-TDS-on-Salaries-for-FY-2024-25:-Compliance,-Rules-&-Updates

 Employer’s-Guide-to-TDS-on-Salaries-for-FY-2024-25:-Compliance,-Rules-&-Updates

Tax Deducted at Source (TDS) compliance is a crucial responsibility for employers in India. Under Section 192 of the Income Tax Act, 1961, employers must deduct TDS on salaries paid to employees. With the beginning of FY 2024-25, it is vital for businesses to stay updated on compliance requirements to avoid penalties and ensure seamless payroll operations.

Section 192 and Employer Obligations

What is Section 192?

Section 192 of the Income Tax Act governs the deduction of TDS on salaries. Unlike other TDS provisions, this section applies only to salary payments and mandates that the employer deduct tax at the time of payment based on the employee’s estimated income for the year.

Employer's Responsibilities:

• TDS Calculation: Employers must calculate TDS based on the applicable income tax slabs, considering exemptions, deductions, and rebates claimed by employees.
• Timely Deduction & Deposit: TDS must be deducted monthly and deposited with the government before the 7th of the following month.
• Issuance of Form 16: Employers must provide Form 16 to employees by June 15 of the following financial year.
• Filing of Form 24Q: Quarterly returns for TDS on salaries must be filed in Form 24Q.

Forms & Documentation Updates (Form 16, Form 24Q)

Form 16:

• Form 16 is a TDS certificate issued to employees that details their salary, tax deductions, and exemptions.
• Recent Updates: For FY 2024-25, the new format of Form 16 requires an accurate breakup of exempt allowances, deductions, and taxable perquisites.
• Employers must ensure Form 16 is issued in a timely and correct manner to avoid penalties and compliance issues.

Form 24Q:

• Form 24Q is the quarterly return for TDS on salaries.
• Updates for FY 2024-25:
  • Mandatory reporting of employee’s PAN and Aadhaar (if linked).
  • Detailed reporting of deductions under Section 80C to 80U.
  • New validation rules for digital filing.

Valuation of Perquisites (e.g., Rent-Free Accommodation)

Perquisites are additional benefits provided by employers to employees beyond their regular salary. These are taxable under the head 'Income from Salary' and require accurate valuation for TDS compliance.

Common Perquisites & Their Valuation:

• Rent-Free Accommodation:
  • If provided by the employer, it is taxable based on the salary and city category (metro or non-metro).
  • Standard valuation: 15% of salary in metro cities and 10% in non-metro cities.
• Company Car for Personal Use:
  • Taxable value depends on engine capacity and fuel costs borne by the employer.
• Employee Stock Option Plans (ESOPs):
  • Taxed as perquisites at the time of allotment based on fair market value (FMV).
• Medical Reimbursements:
  • Fully taxable except for specific exemptions under the Income Tax Act.

Employers must assess perquisites accurately to ensure correct TDS deduction.

Penalties for Non-Compliance and How to Avoid Them

Failure to comply with TDS regulations can result in severe penalties, including interest and prosecution under the Income Tax Act.

Common Non-Compliance Issues & Penalties:

1. Late Deduction of TDS:
   • Penalty: Interest @ 1% per month from the due date until the deduction date.
2. Late Payment of TDS:
   • Penalty: Interest @ 1.5% per month from the deduction date until the payment date.
3. Failure to File Form 24Q on Time:
   • Penalty: Rs. 200 per day until filing, up to the total TDS amount.
4. Failure to Issue Form 16 on Time:
   • Penalty: Rs. 100 per day per certificate.
5. Incorrect PAN Details in TDS Return:
   • Penalty: Rs. 10,000 to Rs. 1,00,000 under Section 272B.

How to Avoid Penalties:

• Use automated payroll and TDS software to calculate and deduct TDS accurately.
• Ensure timely deposits of deducted tax to avoid interest charges.
• Verify employee declarations and documents before finalizing tax deductions.
• Regularly update payroll systems for compliance with new tax regulations.
• Conduct periodic internal audits to ensure TDS compliance.

Best Practices for Accurate TDS Deduction

To streamline payroll management and ensure compliance, employers should follow these best practices:

1. Maintain Employee Declarations: Collect and verify Form 12BB from employees to account for deductions under 80C, 80D, HRA, and other exemptions.
2. Use Digital Payroll Systems: Automated payroll solutions can help accurately compute tax liability, deductions, and perquisites.
3. Stay Updated with Tax Laws: Regularly check for changes in tax rates, exemptions, and government notifications.
4. Timely TDS Payments & Returns: Set reminders for due dates to avoid interest and penalties.
5. Audit Salary & Perquisite Records: Periodically review salary components to identify discrepancies and rectify them before filing returns.

Conclusion

Ensuring proper TDS compliance for salaries in FY 2024-25 is essential for businesses to avoid penalties and maintain smooth payroll operations. Employers must diligently adhere to Section 192, keep up with documentation updates, correctly value perquisites, and implement best practices for accurate TDS deduction. By doing so, organizations can not only remain compliant but also foster trust and transparency with employees regarding tax obligations.

By optimizing payroll processes and leveraging automation, businesses can enhance compliance, minimize errors, and ensure seamless tax management in the upcoming financial year.

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