According to the Income Tax Act of 1961, a citizen of India is liable to pay Income Tax (IT) to the Income Tax department, based on several factors related to their income such as the overall revenue from all sources, their residential status, and more. As a result, employers generally deduct their income tax and file it with the IT Department. This tax is commonly referred to as TDS or Tax Deducted at Source.
Once the TDS is deducted from their salary, the company is liable to pay that amount to the IT authorities while filing their taxes. On the other hand, the employee should also submit their Income Tax details on time. However, what happens if the employee defaults on their tax filing? What is their responsibility in their employees’ tax filing? Let us find out!
How can Employers deduct Tax from Employees’ Salaries?
Under the provisions of the Income Tax Act of 1961, income tax is deducted by the employer before the employee is paid their income. Since the tax is being deducted at the source of payment, it is referred to as the ‘Tax Deducted at Source’ or ‘TDS’. The TDS amount should be deposited with the IT department on behalf of the employee within the financial year, and the employer is responsible for its accurate on-time payment. As a result, employee management software provides options to undertake this task easily.
As a result, the employer is also required to furnish Form 16 to the employee whose TDS has been deducted from their salary. This Form 16 has two parts, A and B, wherein Part ‘A’ consists of employer and employee details such as their names, PAN, TAN, etc. while Part ‘B’ includes the salary, deductions, taxes, etc.
How is TDS calculated according to the provisions of the Income Tax Act, 1961?
When it comes to TDS deducted from employee salaries, it is calculated as a percentage of their taxable total income. Let us take the example of an employee X whose annual salary is ₹6,00,000 and falls under the 10% Income Tax bracket.
Hence, we will use the standard formula to calculate TDS:
TDS = Taxable Income x TDS Rate
In our case, the TDS Rate is 0.1 since X falls under the 10% Income Tax slab.
So, their TDS will be
TDS = ₹6,00,000 x 0.1 = ₹60,000
What is the Relevance of Form 16 issued by the employer?
The relevance of Form 16 lies in the fact that it is proof of income of the employee as well as the income tax paid by them. The Form 16 is divided into 2 parts, A and B, and Part B provides the details of the taxes deposited by the company on behalf of the employee.
As a result, Form 16 can be used for various purposes such as loan and credit card approval, getting a visa issued, etc. Similarly, it also helps the employee understand the exact amount deducted as income tax from their salaries, and the amount deposited by their organization with the government, which would also be visible on their employee self service portal.
What is the Company’s Responsibility in their Employees’ Tax-filing?
Deducting the Income Tax as TDS from the employee’s salary and depositing it with the Income Tax Department is a major responsibility of the employer, with respect to that employee’s tax filing. Similarly, another major duty is to furnish the employee with Form 16, which contains in-depth information on the employee’s income details, along with the company and employee’s information.
Failure to furnish the employee with Form 16 before 31st May of the assessment year leads to a fine of ₹100 per day until the day it is shared with the employee. On the other hand, the employee can also register a written complaint against their employer in case of any discrepancies. They need to submit this complaint to the Assessing Officer (AO), who will initiate an inquiry against the organization.
However, the company is not liable in any manner if the employee accepts the Form 16 furnished by their organization and makes any changes to it without the knowledge of the company.
Conclusion
To conclude, and to answer the primary query, “What is the Company’s Responsibility in their Employees’ Tax-filing?”, it is to furnish them with Form 16 and deposit the TDS deducted from employee salaries with the Income Tax Department. It is important to note that they are not liable for any changes made to Form 16 or other documents by the employee once it is handed over to them.
