Hello everyone, looking for a suggestion about a concern raised by an employee regarding the calculation of monthly tax deductions. The employee has highlighted that the current deduction logic does not align with standard tax rules. According to the employee, the tax deducted on a monthly basis should depend on the actual amount received by the employee in that specific month, rather than being based on the projected tax to be deducted for the entire financial year. How we deduct the TAX: Projected Tax divided by 12, deduct the tax amount keeping the employee will stay with the Organization for a year. let me know which is the standard practice.

Hello Praveena, Tax from an employee should solely be calculated & deducted based on the "declaration" provided by them in the beginning of the fnancial year. As a practice, you should ask the employee to submit their "actual investment proof" in the month of Jan (1st half), so that if there's a differential amount either deducted excess or less then that could be adjusted in the next 3 months. This leaves no scope of any confusion.

Completely on the projected tax + declaration of investment This can be adjusted in end of the FY as per the proof submitted or not

Projected tax divided by 12 (assuming that the employee will stay with the company till end of the financial year). As per the income tax act: The employer is required to compute at the beginning of the financial year, the total salary income payable to an employee during the financial year. Further, the employer should also take into account any other income as reported by the employee. After considering the incomes exempt, deductions and relief, the tax liability of the employee should be determined on the basis of the rates in force for the financial year. Every month, 1/12 of this net tax liability as computed above is required to be deducted.

Yes, Tax calculation is based on projected income (assuming the employee will stay in the organization) and projected tax declaration (assuming the employee will submit the investment records). Few companies open the tax declaration in May (instead of April) So that, adjust the risk and impact.