Income tax (TDS) on salary

Payroll can deduct income tax (TDS) from salary each month.

What it needs

• A TAN (income tax) registration. See Add statutory registrations.
• The staff member's PAN on their profile. Without a PAN, income-tax law can require TDS at a higher rate. X does not apply that rate: TDS is worked out the same way with or without a PAN. A pay run lists staff who have income tax due for the year and no PAN under Check before you finalise, so you can add it or ask your tax adviser. Staff whose income is under the tax-free limit are not listed.
• Components marked Taxable where they are. See Salary components.

How it is worked out

For each month, payroll projects the staff member's taxable salary for the whole tax year (April to March), works out the year's tax under the income-tax regime, takes away the tax already deducted this year, and spreads the rest over the months left.

TDS comes out of the salary you pay that month. In a month with no salary, no TDS is deducted. In a month whose salary is less than the TDS due, payroll deducts only what is left of the salary after PF, ESI, Professional Tax and labour welfare fund, so net pay never goes below zero. The tax not deducted is spread over the later months of the tax year.

Staff are taxed under the new regime. There are no tax-saving declaration or proof pages, so declarations are not taken into account.

The salary preview does not include income tax, because it depends on the year so far.

Warnings

No income-tax regime on file for the year means the tax slabs for that year are not in X. This warning is blocking: every person it affects is put on hold in the pay run. Tell support.

Income tax limited to this month's pay means the TDS due this month was more than the salary left to deduct it from. It does not hold their pay. The rest is added to the later months' TDS. In March, or in the person's last pay, there is no later month: ask your tax adviser how the rest is paid.

Income tax is due, but no PAN is on record means the person has income tax to pay this tax year and no PAN on their profile. It does not hold their pay and does not change their TDS. Add the PAN on their staff profile, and ask your tax adviser whether the higher no-PAN rate applies to them.

Paying it

X deducts TDS on the payslip and shows it in the wage register. You deposit it and send your quarterly statements on the income-tax portals yourself. See What you do on the government portals.