For many salaried employees, the period from January to March often brings a shock, because the TDS deducted from salary suddenly increases during these months. This problem especially occurs with those people who have chosen the old tax regime. The reason for this is the method of tax calculation.
How is TDS deducted throughout the year?
At the beginning of every financial year (April), the company asks employees for information about their potential tax-saving investments, like PF, ELSS, Insurance, Home Loan Interest, HRA etc. On the basis of these declarations, the company estimates the tax for the year and deducts TDS in 12 months. From April to December, TDS is based only on your declared investment and not on the actual investment.
- where does the problem start
- Often people are not able to actually invest as much as they show in April.
- someone’s savings are reduced
- someone postpones investment
Someone has given higher amount of 80C or NPS
When the company asks for proof in January and you are not able to provide the documents, then the company has to remove that discount. This increases your taxable income and the remaining tax is deducted from the salary for three months of January-March. For this reason TDS increases suddenly.
an easy example
- Suppose your annual salary is Rs 12 lakh.
- You claimed an investment of Rs 2 lakh in April.
- The company deducted TDS of about Rs 6,000 every month on the same basis.
- But till January you invested only Rs 1 lakh.
- Now the exemption of Rs 1 lakh will be removed and the additional tax will be adjusted in just 3 months, due to which TDS will increase.
If invested but did not provide proof
If you have invested but are not able to provide the proof to the company on time, TDS may still increase. However, there is no need to panic, you can claim all the deductions while filing ITR and the excess tax deducted will be given as refund.
Why is this problem only in the old tax regime?
Many exemptions like 80C, HRA, home loan interest are available in the old tax regime, hence proof is necessary. There are most of the exemptions in the new tax regime, so TDS there generally remains constant.
lessons for employees
If you are in the old tax regime then declare your investment wisely in April. Keep tracking your investments throughout the year. Complete the investment before January. Submit the proof on time and by doing so you will not be hit with TDS in the last months.