Income Tax 2025

Appearance

B.—Deduction and collection at source

Salary and accumulated balance due to an employee. ​

392(1) ​

Any person responsible for paying any income chargeable under the head “Salaries” shall deduct income-tax on the amount payable and this deduction shall be made at the time of such payment at the average rate of income-tax computed on the basis of the rates in force for the tax year in which the payment is made, on the estimated income of the assessee under this head for such year.

392(2) ​

  • (a) Without prejudice to the provisions of sub-section (1), the person responsible for paying any income in the nature of a non-monetary perquisite chargeable to tax under section 17(2), may pay, at his option, tax on the whole or part of such income without making any deduction therefrom, at the time when such tax was deductible under sub-section (1);
  • (b) the tax under clause (a) shall be determined at the average rate as per sub-section (1), on the income chargeable under the head “Salaries” including the income referred to in the said clause, and shall be construed as a tax deductible at source from the income under the head “Salaries”, and be subject to the provisions of this Chapter.

392(3) ​

Any person, being an eligible start-up referred to in section 140, responsible for paying any income of the nature specified in section 17(1)(d) in any tax year, shall deduct or pay, tax on such income, on the basis of rates in force for the tax year in which the specified security or sweat equity share is allotted or transferred, within the time as specified for the payee in section 289(3).

392(4) ​

  • (a) The person responsible for paying under sub-section (1), shall take into account the following particulars furnished by the assessee, at his option, in such form and manner as prescribed, for the purpose of making deduction under the said sub-section and such particulars shall have an effect of increasing or decreasing the tax to be deducted:— (i) any income under the head “Salaries” due or received by the assessee, from any other employer or employers during the tax year; (ii) any relief allowable under section 157, where the assessee being a Government servant, or an employee in a company, co-operative society, local authority, university, institution, association or body is entitled for such relief; (iii) any loss under the head “Income from house property”; (iv) any income chargeable under any other head of income, [not being a loss under any such head other than the loss specified in sub-clause (iii)]; (v) any tax deducted or collected at source under this Chapter;
  • (b) the tax deductible from income under the head “Salaries” shall not be reduced in any case, except on account of–– (i) loss under the head “Income from house property”; and (ii) the tax deducted and collected as per other provisions of this Chapter.

392(5) ​

The person responsible for paying any income chargeable under the head “Salaries” to the assessee—

  • (a) shall furnish a statement in such form and manner, as prescribed, with correct and complete particulars of perquisites or profits in lieu of salary paid, along with their value, to the assessee;
  • (b) shall, for the purposes of estimating income of the assessee or computing tax deductible under sub-section (1), obtain from the assessee the evidence or proof or particulars of prescribed claims (including claim for set off of loss) under the provisions of this Act in such form and manner, as prescribed; and;
  • (c) may, increase or reduce the amount to be deducted under this section for adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the tax year.

392(6) ​

  • (a) The trustees of a recognised provident fund, or any person authorised by the regulations of the fund to make payment of the accumulated balances due to employees shall, in cases where paragraph 9 of Part A of Schedule XI applies, at the time an accumulated balance due to an employee is paid, make therefrom the deduction provided in paragraph 10 of Part A of Schedule XI;
  • (b) Where any contribution made by an employer, including interest on such contributions, if any, in an approved superannuation fund is paid to the employee, tax on the amount so paid shall be deducted by the trustees of the fund to the extent provided in paragraph 7 of Part B of Schedule XI.

392(7) ​

  • (a) The trustees of the Employees’ ‘Provident Funds Scheme, 1952, made under section 5 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952; or
  • (b) any person authorised under such scheme to make payment of accumulated balance due to employees, shall at the time of payment of accumulated balance due to the employee participating in a recognised provident fund, deduct income-tax thereon at the rate of 10%, where the aggregate amount of such payment is fifty thousand rupees or more, and such accumulated balance is includible in his total income owing to the provisions of paragraph 8 of Part A of Schedule XI not being applicable.
Explanation

Section Summary: ​

Section 392 of the Income Tax Act deals with the deduction and collection of tax at source (TDS) on income under the head "Salaries" and on accumulated balances due to employees (e.g., provident fund or superannuation fund payouts). It outlines the responsibilities of employers, trustees, or other entities responsible for making such payments, including how to calculate and deduct tax, and the conditions under which tax can be adjusted or paid directly by the employer.

Key Changes: ​

  1. Non-Monetary Perquisites (392(2)): Employers now have the option to pay tax on non-monetary perquisites (e.g., company-provided housing, cars) on behalf of employees without deducting it from their salary. This is a new flexibility introduced to simplify compliance for employers and employees.
  2. Start-Ups (392(3)): Eligible start-ups are given specific provisions for deducting tax on income from specified securities or sweat equity shares, aligning with their unique compensation structures.
  3. Adjustments for Tax Deduction (392(4) and (5)): Employers must now consider additional details provided by employees (e.g., income from other employers, house property losses, or other tax deductions) to adjust the TDS amount accurately.
  4. Provident Fund and Superannuation Payouts (392(6) and (7)): Trustees or authorized persons must deduct tax at 10% on provident fund payouts exceeding ₹50,000 if the amount is taxable under the law.

Practical Implications: ​

  1. For Employers:

    • Employers must calculate TDS on salaries based on the employee’s estimated annual income and applicable tax rates.
    • They can now pay tax on non-monetary perquisites directly, reducing the burden on employees.
    • Employers must collect and verify additional details from employees (e.g., income from other sources, losses) to ensure accurate TDS calculations.
    • Start-ups must comply with specific TDS rules for employee stock options or sweat equity shares.

  2. For Employees:

    • Employees must provide accurate details of their income, losses, and deductions to their employer to ensure correct TDS calculations.
    • Non-monetary perquisites may no longer reduce their take-home salary if the employer opts to pay the tax directly.

  3. For Trustees of Provident/Superannuation Funds:

    • Trustees must deduct tax at 10% on provident fund payouts exceeding ₹50,000 if the amount is taxable.
    • Superannuation fund payouts are also subject to TDS as per the specified rules.

Critical Concepts: ​

  1. Non-Monetary Perquisites: Benefits provided by employers that are not in cash (e.g., housing, cars, club memberships). These are taxable under Section 17(2).
  2. Specified Securities/Sweat Equity Shares: Equity shares issued by start-ups to employees as part of their compensation, often at a discount or as a reward for contributions.
  3. Average Rate of Tax: The effective tax rate calculated based on the employee’s total estimated income and applicable tax slabs.
  4. Accumulated Balance: The total amount payable to an employee from a provident fund or superannuation fund, including contributions and interest.

Compliance Steps: ​

  1. For Employers:

    • Calculate TDS on salaries based on the employee’s estimated annual income and tax rates.
    • Collect and verify details from employees regarding other income, losses, and deductions.
    • Adjust TDS amounts for any excess or shortfall from previous deductions.
    • File TDS returns and issue Form 16 to employees.

  2. For Trustees:

    • Deduct tax at 10% on provident fund payouts exceeding ₹50,000 if taxable.
    • Ensure compliance with TDS rules for superannuation fund payouts.

  3. For Employees:

    • Provide accurate details of income, losses, and deductions to the employer.
    • Ensure proper documentation for non-monetary perquisites and other income sources.

Examples: ​

  1. Non-Monetary Perquisites:

    • An employee receives a company car worth ₹10,000 per month as a perquisite. The employer can choose to pay the tax on this benefit directly instead of deducting it from the employee’s salary.

  2. Provident Fund Payout:

    • An employee receives ₹60,000 from their provident fund upon retirement. Since the amount exceeds ₹50,000 and is taxable, the trustees deduct 10% TDS (₹6,000) before paying the balance.

  3. Start-Up Equity Shares:

    • A start-up issues sweat equity shares worth ₹1,00,000 to an employee. The employer deducts TDS on this amount based on the applicable tax rates at the time of allotment.

This section ensures that tax is deducted accurately and efficiently, while also providing flexibility for employers and clarity for employees and trustees.