There are three ways to calculate TDS and we follow these 3 methods in Sumopayroll:
Efficiently calculate employee TDS using our ‘Monthly’ TDS Calculation, factoring in payments up to the pay period month.
- Monthly
- Estimated
- Yearly
1. Monthly Method:
In ‘Monthly’ TDS Calculation, we will be considering only the amount paid to the employees till the Month of the pay period.
For example, Consider an employee has a Gross Salary of 50,000 /- and Deductions as 2,107 /- for the month of September.
First, we need to calculate the Taxable Income for that Month.
Taxable Income : 50,000 – 2,017 (Gross – Deductions) : 47,983 /-
And now we need to calculate the Total Taxable Income up to September for that employee. Let’s consider it as 2,39,915 /- (47,983 * 5)So Total Taxable Income for that employee will be Total Taxable Income (Till September) = 47,983 + 2,39,915 = 2,87,898 /-
Now let’s calculate TDS for the Total Taxable Income using the slabs.
TDS = 2,87,898 – 2,50,000 (slab1) (Tax = 0) = 37,898 * 0.05 (slab2) (Tax = 1,894.9) = 1,894.9
TDS = 1,894.9 /-
As there is no TDS for previous Months we are not removing anything from the TDS and this would be the TDS for the month of September and the same calculation will be followed for the Upcoming months also.
If there are any TDS paid for the Previous Months then we would simply remove that amount from TDS calculated for that month.
For example, Total TDS paid for previous Months is 500/- then TDS would be
TDS = 1,894.9 – 500 = 1,394.9
TDS = 1,394.9 /-
2. Estimated Method :
In the Estimated calculation, we will be calculated TDS depending on the previous month’s salaries.
For example, let’s consider an Employee has 50,000 salaries for the first 5 months and got a hike of for the 6th month as 60,000. Let’s see how we will be calculating TDS for this Employee
First, we need to Calculate the Taxable Income for the Pay-period
Taxable Income = 60,000 – 2,017 (Gross – Deductions) = 57,983 /-
Now let’s calculate the yearly Taxable Income for that employee to calculate the TDS
Yearly Taxable Income is calculated as ( Taxable Income * remaining months from that pay period in fiscal year) + ( Total Taxable Income till that pay period )
Yearly Income = (57,983 * 7) + (47,983 * 5) = 6,45,796 /-
So the Total Taxable Income for that employee would be 6,45,796 /-
Let’s calculate Tax for the Yearly Income for this Employee
Yearly TDS = 6,45,796 – 2,50,000 ( slab1 ) ( Tax = 0) = 3,95,796 – 2,50,000 ( slab2 ) ( Tax1 = 2,50,000 * 0.05 = 12,500 ) = 145796 ( slab3 ) ( Tax2 = 1,45,796 * 0.2 = 29159.2 )
Yearly TDS = Tax1 + Tax2 = 12,500 + 29,159.2 = 41,659.2 /-
Now let’s remove the Total TDS paid from the Previous Months from Yearly TDS
Yearly TDS = 41,659.2 – 11,524.65 ( Yearly TDS – TDS paid till now ) = 30,134.55 /-
Now let’s calculate the Monthly TDS for the Employee the formula for that would be
Monthly TDS = Yearly TDS / Remaining Months in that Fiscal Year
Monthly TDS = 30,134.55 / 7
TDS = 4,304.93 /-
3. Yearly Method :
In the Yearly calculation, we will be calculated TDS depending on the compensation.
For example, let’s consider an Employee has 60,000 salary
First, we need to Calculate the Taxable Income
Taxable Income = 60,000 – 2,107 (Gross – Deductions) = 57,893 /-
Now let’s calculate the yearly Taxable Income for that employee to calculate the TDS
Yearly Taxable Income is calculated as ( Taxable Income * 12 )
Yearly Income = 57,893 * 12 = 6,94,716 /-
So the Total Taxable Income for that employee would be 6,94,716 /-
Let’s calculate Tax for the Yearly Income for this Employee
Yearly TDS = 6,94,716 – 2,50,000 ( slab1 ) ( Tax = 0) = 4,44,716 – 2,50,000 ( slab2 ) ( Tax1 = 2,50,000 * 0.05 = 12,500 ) = 194716 ( slab3 ) ( Tax2 = 194716* 0.2 = 38943.2 )
Yearly TDS = Tax1 + Tax2 = 12,500 + 38943.2 = 51,443.2 /-
Now let’s calculate the Monthly TDS for the Employee the formula for that would be
Monthly TDS = Yearly TDS / Total months
Monthly TDS = 51,443.2 / 12
TDS = 4286.93/-
– Income Tax Slabs to use our – Free TDS calculator to calculate TDS for your employees.
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