Hello everyone! Welcome back to my blog. Very glad
to know that many of you have gone through the Tax series -1. If you haven’t read the same, click here to read through the same to get a better understanding of this series. If you haven’t subscribed to this blog, please subscribe by clicking subscribe icon.
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A quick recap of contents in Series-1.
01.Difference between Income tax and GST.
02.Previous year and Assessment year.
03.Basic Exemption Limit and Assessee.
04.Concept of TDS.
Click here to get into any section of any act.
In continuation to Series-1, I would like to draw your attention to the following.
01.At what rate TDS will get deducted from salaries and what is the eligible salary for the requirement of TDS deduction?
02.What is advance tax
, why one needs to pay and how is it different from TDS?
03.Is there any risk if one has not paid advance tax?
04. What is FORM 16 and 26AS?
05. Interlink between the TDS Return, Form 16 and 26AS?
06. Final step employees need to do.
07.Live example on tax-saving exercise and how it will make your tax liability zero.
08.Conclusion.
Let’s move further.
Happy Reading!
01.At what rate TDS will get deducted from salaries and what is the eligible salary for TDS deduction?
TDS will get deducted based on your gross total income and estimated tax liability for that previous year. Hence, gross total income will be computed at the beginning of each year for arriving at estimated tax liability and deducting TDS thereon on monthly basis. For this purpose, employers will request their employees to submit all their estimated income details and their claims in or around the months of April or May to calculate the estimated tax liability for deducting TDS on an estimate basis from their salaries and finally in the month of January employers will request their employees to submit the actual amount of income tax details and tax-saving investment details to calculate the exact amount of tax liability for deducting final amount TDS from their salaries. In case, if an employee is of the opinion that an excess amount of TDS has got deducted from the start of the year from his salary, he has to choose to invest in the tax-saving investments specified in the act, before 31 march of the Previous year for reducing his tax liability and for getting a refund of TDS deducted. If an employee’s salary is between basic slab ₹2,50,000/- and ₹5,00,000/- he will not be liable for any tax due to the benefit u/s 87A, hence TDS will not be deducted from his salary.
02.What is advance tax, why one needs to pay that in the Previous Year itself and how is it different from TDS?
Ideally, Income tax related to the income earned during the Previous Year (PY)(FY 20-21)has to be paid in the AY(21-22). Contrary to this, Advance tax means the tax on income earned in the previous year (FY 20-21)will be paid in the Previous year itself(20-21).
The Basic difference between TDS and advance tax is that, in the case of TDS, an amount of estimated tax liability will be deducted by the payer (Employer) from the employee, however in the case of Advance Tax one has to voluntarily pay the estimated tax liability to the government if he has income from all the sources and the tax liability (after deducting TDS) from such income exceeds ₹10000.
03.Is there any risk if one has not paid advance tax?
Absolutely Yes, if a person whose estimated tax liability after reducing TDS, if any, exceeds ₹10000/- and has not paid any advance tax he will liable to interest at the time of filing of his return of income. (ITR).
What interest a person will be liable to pay if he has not paid advance tax?
Interest u/s 234B will be applicable if the assessee has not paid 90% of advance tax payable before 31/3/2021
Interest u/s 234C will be applicable if the assessee has deferred instalments of advance tax or non-payment of advance tax instalments within the due date specified under the act.
Hence, it is advisable for everyone to pay advance tax if his estimated tax liability(after reducing TDS) exceeds ₹10,000.
04. What is Form 16 and 26 AS?
Well, if you are a salaried employee, you would have been
aware of the FORM 16 certificate which will be given by your employers. I’m not
sure whether you would have aware of FORM 26 AS.
What is FORM 16?
Form 16 is basically a certificate that employers will issue to their employees. It provides a validation that TDS has been deducted by an employer and deposited with the government authorities on behalf of an employee. It gives a detailed summary of the salary paid to an employee and the TDS deducted. An employee can have multiple FORM 16s if he has worked with multiple employers during the previous year.
What is FORM 16A?
Likewise, FORM 16A is the certificate that is given by other Payers who have deducted tax from us.
In simple terms, if you are getting a TDS certificate from your employer it can be called FORM 16 if it is from other than the employer it can be called FORM 16A.
To illustrate this, If a person works with three employers during the year, he will be getting three FORM 16 certificates from all those three employers. After the end of the year in the efiling site,26 AS certificate will get generated in the efiling site which consists of TDS credits deducted by all these employers and other payers.
What is FORM 26AS?
Form 26 AS is a form that contains details of all taxes you have paid during the previous year. It can be generated by the assessee itself from logging in to the efiling site. Form 26AS contains TDS deducted by all employers, other payers, advance tax and self-assessment tax paid by the assessee. Also if any person deposited in the bank any amount exceeding 10 lacs the same will be trigged in FORM 26 AS of assessee.
05.What is the interlink between TDS Return, Form 16 and 26AS?
As we discussed earlier, Companies will deduct TDS from their employees and other vendors while making payments. The TDS that has been deducted during the month (say For example April 2021) will be remitted to the government within 7 days from the end of the month in which TDS is deducted( in our example,7th May 2021).
Thereupon companies will file TDS Return to department(NSDL) for every quarter (Say, April -June)containing details of TDS remitted during that quarter within 1 month from the end of that quarter(in our example,31/7/2021).
Later on, Department will process the TDS return, usually, it will take around 7 days(in our example,7/8/2021) for CPC to process the same.
Employers or Companies will download the certificates that are generated from Traces and are required to submit the same to Payees (employees)within 15 days from the date of filing of return(in our example,15/8/2021).
FORM 16A certificate will get generated Quarterly, and FORM 16 will get generated annually.
For the month of March alone, all these dates will get extended for one month,
For instance, TDS deducted for the month of March 2021 shall be remitted to the government before 30/04/2021 and TDS return shall be filed by the employer within 31/05/2021, Form 16 will get generated and shall be submitted within 15 days i.e, 15/06/2021. Once TDS Return is processed TDS entries will get reflected in FORM 26 AS.
Hence it is very crucial for everyone to reconcile his income with FORM 16 and 26 AS to check any entries are missed to reflect in 26 AS.
06.Final step employees need to do.
If a person desires to reduce his tax liability to zero or to reduce the amount of TDS that will get deducted from his salary, or willing to get a refund of TDS deducted, he can save tax by making investments specified in Chapter VI A of income tax (80C,80D,80E etc.,) before 31/3/2021. to make sure that his Gross total income doesn’t exceed 5,00,000/- so as to avail the benefit of Rebate u/s 87A.
After Year-end he can get Form 16, Form 16A, download 26 AS from the e-filing site and can file his income tax return before the due date. Thereon once ITR is filed department will process the same and will credit the Income-tax and TDS refunds to his bank account.
07.Conclusion.
So, friends, we have completed the basics of income tax law relating to salaried employees.
Hope you all have enjoyed reading both Tax series 1&2.
If you find this content and explanation useful, please comment your feedback, raise your queries in the comments section and share with your friends, relatives, colleagues so that they can get a basic idea of income tax and can plan properly to reduce their tax liability and can get the refund of taxes paid and TDS deducted.
Stay tuned! to my website to get insight knowledge about tax.
I will soon release my next series, which will contain advanced topics relating to income tax relating to salaried employees like a detailed explanation on each exemption and deductions to reduce your tax liability.
Please subscribe to my website and follow my blog by entering your email id in the mailbox available in the gadget’s icon to get an update about the Tax series -3.
Thank you,
NaniBalu.
Professional Blogger.
If you need any personalized consultation help regarding your IT filing, GST, TDS and accounting work Click here to contact me.
