TDS : The period from January to March often comes as a shock to many salaried employees, as the TDS deduction from salaries increases suddenly during these months. This problem is particularly prevalent among those who have opted for the old tax regime due to the method of tax calculation.
How TDS is deducted throughout the year?
At the beginning of each financial year (April), the company asks employees for information about their potential tax-saving investments, such as PF, ELSS, insurance, home loan interest, HRA, etc. Based on these declarations, the company estimates the tax for the year and deducts TDS over 12 months. From April to December, TDS is based only on your declared investments, not on actual investments.
Where does the problem begin?
Often people are not able to actually invest as much as they show in April.
One’s savings dwindle
Someone postpones an investment
Someone might have told you a higher amount for 80C or NPS.
When the company asks for proof in January and you fail to provide the documents, they are forced to remove the exemption. This increases your taxable income, and the remaining tax is deducted from your salary for the three months of January and March. This is why the TDS suddenly increases.
Suppose your annual salary is Rs 12 lakh.You claimed an investment of Rs 2 lakh in April.On the same basis, the company deducted TDS of approximately Rs 6,000 every month. 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 you invested but did not provide proof
If you’ve made an investment but failed to provide proof to the company on time, your TDS may still increase. However, there’s no need to worry; you can claim all deductions when filing your ITR and receive a refund of any excess tax.
Why is this problem only in the old tax regime?
The old tax regime offers several exemptions, such as Section 80C, HRA, and home loan interest, so proof is required. The new tax regime doesn’t have most exemptions, so TDS is generally stable.
If you’re in the old tax regime, declare your investments carefully in April. Track your investments throughout the year. Complete your investments before January. Submit proofs on time, and this will prevent TDS shocks in the final months.