The Central Board of Direct Tax (CBDT) has modified the ‘method of tax collection’ from salary under the Income Tax Act for the financial year 2019-20.
On March 5, 2020, a circular was issued in the name of the Under Secretary to the
Government of India, Mr. Naveen Kapoor within which paragraph 3.1 under the heading ‘Method of Tax Collection’ was modified.
The subject-matter of the circular revolved around the income tax deduction from salaries during the financial year 2019-20 under Section 192 of Income Tax Act, 1961.
As per Section 192 of the Income Tax Act, 1961 the Tax Deducted at Source (TDS) is deducted at the payment of salary and not during the accrual of salary. The basic exemption limit as per the age that does not require TDS to be deducted are as follows:
| Age of the Indian resident | Minimum Income |
| A resident of India below 60 years | INR 2.5 Lakh |
| Senior Citizen above 60 but below 80 years | INR 3 Lakh |
| Super Senior citizen above 80 years | INR 5 Lakh |
At first, the salary of the employee is calculated after taking into consideration all the deductions applicable and then tax is calculated according to the tax rate applicable to an assessee. The tax calculation is usually done by the employer at the beginning of the financial year. The Tax Deducted at Source (TDS) to be deducted by dividing the estimated tax liability of the employee for the financial year by the number of months of his employment under the particular employer.
Therefore, the Circular explains provisions related to TDS on Salary under Section 192 of the Income Tax Act, 1961 applicable for Assessment Year 2020-21 or Financial Year 2019-20. Circular also explains the taxation of different components of Salary, Tax Treatment of Allowances, Perquisites, Retirement benefits, etc.
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