TDS Liability of new employee joined middle of the financial year

[Pradeep Jain]

Dear Sir,

Let us know the what would be Income Tax liability ( TDS) of the employer in case of :-

- an employee joined the company middle of the year  say June'2012 and not in position to submit neither  the earning certificate  nor form 16 from the past employer.

Presently ,we have been calculating the TDS on the basis of notional annual income on the basis of current monthly payment.

What method to be adopted for appropriate payment of TDS on behalf of the employee to the Income Tax Department

Regards

Early response is highly appreciated.

[CS Swati D Rawat]

The Income Tax Act (ITA) enjoins the employer to compute the tax liability of the employee on the basis of the rates in force and to deduct the tax at the average rate computed on the basis of the same. Thus, the employer is required to compute at the beginning of the financial year, the total salary income payable to an employee during the financial year. Further, the employer should also take into account any other income as reported by the employee. After considering the incomes exempt, deductions and relief, the tax liability of the employee should be determined on the basis of the rates in force for the financial year. Every month, 1/12 of this net tax liability as computed above is required to be deducted.

 In the instant case, the company is deducting taxes which is incorrect i.e. in excess of the tax that should have been deducted.

As advised:

• tax be deducted on the salary to be paid by the company and ignore the salary already received by the employee from previous employer;
• tax be deducted at average rate for each month;
• the employee can would report the salary from both the employers in his return of income and claim the tax deducted by both the employers.

[Pradeep Jain]

Thank you very much for prompt reply.

Further we seek your opinion on  responsibility of  new Employer to collect declaration in  Form 12-B from the Emplyee about  his / her taxable  income from  previous employer. If an employee submit declaration whether this amount would be included in the computation of total income.

Regards

Pradeep Jain

 

 

[CS Swati D Rawat]

section 192(2) deals with situations where an individual is working under more than one employer or has changed from one employer to another. It provides for deduction of tax at source by such employer (as the taxpayer may choose) from the aggregate salary of the employee who is or has been in receipt of salary from more than one employer. The employee is now required to furnish to the present/chosen employer details of the income under the head “Salaries” due or received from the former/other employer and also tax deducted at source therefrom, in writing and duly verified by him and by the former/other employer. The present/ chosen employer will be required to deduct tax at source on the aggregate amount of salary (including salary received from the former or other employer).

 

AI Summary

Tax Deduction at Source: employer should deduct tax on current employer salary unless aggregate income is declared. Employers must compute annual tax liability using applicable rates and deduct one twelfth monthly of the net tax after accounting for exemptions and deductions. If a new employee cannot produce proof of prior employment income, the employer may deduct tax on the salary payable by the current employer at the average monthly rate; if the employee furnishes a verified declaration (Form 12B) of prior salary and TDS, the employer may aggregate both employers' salaries and deduct on the combined amount under section 192(2).