When it comes to income tax compliance in India, salaried employees often hear about Section 192B of the Income Tax Act. This provision plays an important role in ensuring that taxes are deducted from your salary before it even reaches your account. While Section 192 deals with the TDS on salary, Section 192B provides for an additional 2% tax deduction on top of the regular TDS in specific cases. But what does this mean for you as an employee, and when does it apply? Let’s break it down in detail.
What is Section 192B of Income Tax Act?
Section 192B is a part of the TDS (Tax Deducted at Source) provisions under the Income Tax Act, 1961. While Section 192 deals with salary payments, Section 192B specifically mandates an additional 2% tax deduction on top of the regular TDS in certain cases.
The purpose of this additional deduction is to ensure that taxes are appropriately collected when there are arrears of salary, bonuses, or specific taxable allowances that might push an employee’s income into a higher tax bracket during the financial year.
Key Features of Section 192B
- Covers salaried income – Section 192B applies only to employees receiving income under the head ‘Salaries.’
- Additional 2% deduction – This deduction is over and above the regular TDS calculated under Section 192.
- Tax deducted at payment time – The law clearly states that tax shall be deducted at source at the time of actual payment of salary, not at the time of accrual.
- Covers arrears and bonuses – It also deals with the taxability of arrears of salary received by an employee.
Why Was Section 192B Introduced?
The idea behind Section 192B was to avoid situations where employees face large tax dues at the end of the year because of additional income that wasn’t accounted for in their original TDS calculation.
For example:
If you earn a salary of ₹10,00,000 per annum and later receive arrears of ₹2,00,000 from a previous year, the employer recalculates your tax liability for the current year, considering your total salary as ₹12,00,000. This may push you into a higher tax slab, requiring an additional 2% TDS deduction to cover the shortfall."
How Does TDS Under Section 192B Work?
Here’s the step-by-step process:
- Calculate regular TDS under Section 192 based on the employee’s estimated annual income.
- Identify additional income such as arrears, bonuses, or allowances received during the year.
- Recompute tax liability considering the new total income.
- Deduct the additional 2% tax on top of regular TDS for the remaining months of the financial year.
Also Read: Assessment Year (AY) – The Year Your Income is Taxed and Assessed
Impact on Arrears of Salary
One of the most important aspects of Section 192B is that it deals with the taxability of arrears of salary received by an employee. This is where Section 89(1) relief may also come into play.
If you receive arrears that increase your tax liability, you can claim relief under Section 89(1) to reduce the impact. However, the employer is still required to deduct TDS on the revised income as per Section 192B.
Important Points for Employees
- If you receive arrears, bonus, or ex-gratia payments, expect your employer to deduct higher TDS for the remaining months of the financial year.
- Ensure that your Form 16 reflects the total income and the total tax deducted, including the extra 2% deduction under Section 192B.
- If excess TDS is deducted, you can claim a refund while filing your ITR.
Example Calculation
Let’s understand with a quick example:
- Monthly salary: ₹80,000
- Annual salary: ₹9,60,000
- Bonus in December: ₹1,50,000
- New total income: ₹11,10,000
The employer recalculates TDS for ₹11,10,000, applies applicable slab rates, and deducts an additional 2% TDS on top of the regular monthly TDS to ensure there’s no tax shortfall.
TDS Payment Time
It’s important to note that tax shall be deducted at source at the time of actual payment of salary, not when it is due. This ensures timely tax collection and reduces the risk of defaults.
TDS on Salary Payments Under Section 192B
Section 192B works hand-in-hand with Section 192, which deals with salary payments and the computation of TDS based on the employee’s income slab. Section 192B simply adds a layer of protection for the tax department by collecting an additional 2% where necessary.
When is Additional TDS Not Applicable?
Section 192B’s extra 2% deduction doesn’t apply in every case. It generally applies in scenarios where:"
- Arrears of salary push the employee into a higher tax bracket.
- Bonus or incentives significantly increase taxable income mid-year.
It does not apply to non-salary income or allowances exempt from tax.
Section 192B and Year-End Tax Adjustments
In many cases, employers adjust TDS deductions in the last quarter of the financial year if they realize that the employee’s total income has increased significantly. This proactive adjustment prevents large tax dues when filing ITR.
Employee’s Role in TDS Compliance
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Update your employer about additional income from other jobs to ensure correct TDS deduction.
- Submit investment proofs on time to avoid excess deduction.
- Check your salary slips and Form 16 for accurate deductions under both Section 192 and Section 192B.
Also Read: Form 16: Everything You Need to Know About Your Salary TDS Certificate
Penalties for Non-Compliance
If an employer fails to deduct the required TDS under Section 192B, the Income Tax Department can impose penalties, interest, and even disallow expenses for the employer.
Conclusion
Section 192B of the Income Tax Act ensures that taxes are deducted accurately on salary income, especially when there are arrears, bonuses, or mid-year income hikes. By mandating an additional 2% tax deduction on top of the regular TDS, it protects employees from unexpected tax burdens and ensures smooth compliance for employers.
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