How to Deduct Tax at Source (TDS) on Salary Step by Step

How to Deduct Tax at Source on Salary Step by Step

Step 1

Gross Salary (including salary received from former employer, if details are submitted) and the value of benefits or perquisites or amenities provided free of cost or at concessional rate to the employee.

Step 2

Deduct the receipts which are exempt from income tax under Sec.10, such as, leave travel concession, gratuity, commuted pension, leave salary, retrencment compensation, payment on voluntary retirement, house rent allowance, allowlances specified u/s 10(14)etc., if include in income from salary.

Step 3

Allow deduction for entertainment allowance, if eligible, and also Profesional tax, if any to arrive at net taxable salary. Standard deduction is not available from A.Y. 2006-07.

Step 4

Allow set off of any loss under the head 'house property' relating to a self-occupied residential house on account of interset on loan subject to a Maximum of Rs. 30,000.(Rs. 1,50,000 in case of loan taken on or after 1.4.1999 for construction or purcahse of house within three years from the end of thefinancial year in which the loan was taken). Particulars of such loss shall be furnished by the employee in a statement duly verified by the employee, alongwith a certificate from the person to whom interest is payable on the capital borrowed.

Step5

Deduct the amount invested in LIC, P.F., P.P.F., repayment of housing loan, subscription of certain equity shares or debentures tuition fees etc. subject to maximum of Rs. 1,00,000.

Step 6

Deduct the amount contribution to notified Pension Scheme by employees of Central Government or any other employer.

Step 7

Deduct the amount of health insurance premium (Mediclaim), subject to a maximum of Rs. 15,000.

Step 8

Deduct the amount of expenditure incurred, if any, on the medical treatment, training and rehabilitation or the amount deposited in a scheme of LIC or UTI for the maintenance of a handicapped dependent relative. Deduction allowable is Rs. 50,000 (Rs. 75,000 in case of severe disability), irrespective of the amount of expenditure incurred.

Step 9

Deduct the amount paid to a financial institution or an approved chartiable institution, towards interest on a loan taken for higher eduction, without any limit.

Step 10

Deduct the amount of house rent paid by the employee for his own residence, subject to specifieed conditions. Maximum deduction allowable is Rs. 2000 p.m.

Step 11

Deduct allowance for physical disability.

Step 12

Total Income as computed above should be rounded off to the nearest multiple of Rs. 10.

Step 13

Calculate Income Tax

Step 14

Divide the amount of tax as calculated in Step 13 by twelve, to arrive at 'monthly deduction' of tax from salary.