TDS on salary

Calculating the TDS to be deducted from an employee receiving monthly salary could be a little more complicated than doing it for external professional services.

First, it is required to forecast what will be the total gross income of an employee during the whole year. This calculation should include the earning he or she may have got from a previos employeer if the recruitment has been done in the middle of the financial year.

Then, you will need to calculate the liability of tax payment based on the income. For example, a person earning from 1.5 lakhs to 3 lakhs is liable to 10% tax on the amount above the first 1.5 lakhs. Subsequently, there are other slabs at different rates which every year may vary therbexact figures. Thus, it is important to check those slabs while calculating.

Once you know the total tax liability, then you should divide that amount by the nuber of months remaining in the financial year (12 if it is the beginning of the year) and deduct that amount every month.

Remember to file the TDS payments every quarter before the 15th of next month!

Education cess to be removed from TDS payments

Until now, whenever you made a deduction at source for tax (TDS) you also had to deduct an additional percentage which would be destined directly for education budget in India.

This extra percentage would somehow complicate calculations by producing odd figures. For example, the TDS for professional services is 10% plus a 3% for education cess on that, which would take it to a total figure of 10.3%. It doesn't sound like a big deal, but in fact it makes calculations and filling up of forms more tedious than they should be, as you have to specify them separately.

I have been told that the education cess figure will be removed from the payments on 1 October 2009 onwards. Thus now it will be only the 10% in the case of professional services, which makes it quite easy for the fomalities.

I understand this will not apply to all TDS concepts, but I will get to know more details only once we are closer to October 1.

TDS Calculation for professionals abroad

After a few hours at the C.A.'s office today, dicussing this and various issues, I have clarified the following with respect to tax deduction at source (TDS) for payments to professionals outside India.

As I said in my previous post, the TDS should be calculated depending on the country to which the money will go. The percentage will vary from country to country based on the treatise India may have with them.

However, those payees which do not carry out their service in India and will not do it throughout the financial year are excempted from this TDS. That means that, if the payee will not come to India to carry out its service, and always does it remotely, you will not need to deduct any tax and you can make the payment in full.

TDS for Payments Abroad

During all this time with my company being part of an international group of companies we have always been doing jobs for them and receiving their payments without any problem, just like the payments of other clients abroad.

But short time ago we got something done from one of our collaborators abroad, and realized that it is not that easy to do payments the other way around. For payments to other parties abroad you also need to calculate TDS and it could be quite complex.

India has different treatises with different countries, thus a different TDS applies for each country and each concept. Furthermore, there are some countries with which there is no treatise, and it is not very clear what TDS should be deduted (e.g. Argentina, which is my case).

Be careful before making payments abroad, ask your CA to do some research. Otherwise you may end up being disallowed that payment and having to pay tax for it as if it were your profit.

There seems to be an exception in case your payee is an individual who never has been to India and you are paying for professional services... But my CA is still doing research on that.

Back to business

It has been a long time from my previous post. The reason for that is a combination of several factors that made it really impossible to have any time, not so much for writing, but for thinking... which is what I need most for writing! I went in a business cum pleasure trip to Mexico... that involved a lot of preparation, and a lot of catching up with pending work upon arrival (one month trip makes many things pile up!).

Besides that, we have lunched a new service at Encyclomedia i.e. my company, thus I had to spend a lot of time setting up that, and at the same time helping out the person who is now in charge of the other services of the company. Some projects have finally started to come on this and work seems to be rolling, so now I'm somehow more at peace... of course, that doesn't mean I am without working a lot.

I have left several doubts unanswered from some readers, but I think I will better go ahead to discuss things about taxes. But if the doubt still there, you can ask me again.

The photo is the view I had from the beach-house at which I was studying and resting near Hermosillo, Mexico: at Bahía de Kino. By the way, this is my first post to the blog through e-mail.