Statutory position — s.192: the employer deducts at the average rate on his own estimate of the year's salary, and the declarations exist to correct the estimate
CBDT Circulars & InstructionsCuts both ways
I run payroll. Section 192 has no threshold and no percentage in it like every other TDS section does — so how much am I supposed to deduct, and which of my employee's declarations am I actually obliged to act on?
Section 192 does not work like the rest of Chapter XVII-B: there is no threshold below which you need not deduct and no flat percentage to apply. You deduct, at the time of payment, "at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee under this head for that financial year" — that is, you build the employee's whole year's salary, work out the tax on it at the slab rates, divide that tax by that salary, and apply the resulting rate to each payment. Everything else in the section exists to make that estimate accurate: sub-section (2) lets the employee bring in salary from another employer in Form 12B, (2A) lets him bring in relief under section 89 in Form 10E, (2B) lets him bring in other income, other tax deducted or collected and a house property loss in Form 12BAA, (2D) obliges you to collect evidence of his claims in Form 12BB, and (2C) obliges you to give him back a statement of his perquisites in Form 12BA. Sub-sections (1A) and (1B) let you choose to pay the tax on a non-monetary perquisite yourself instead of deducting it, and section 115BAC(1A) is the default regime from assessment year 2024-25, so your estimate is made under it unless the employee tells you otherwise. This is the section as it stood after Act No. 15 of 2024 with effect from 1 October 2024; it governs salary paid up to 31 March 2026, after which section 392 of the Income-tax Act, 2025 takes over.
Statutory position — s.192(1C), s.191(2) and s.156(2): the eligible start-up ESOP deferral, its three triggers, the fourteen-day period, and the fact that it defers the employee's own tax too
CBDT Circulars & InstructionsCuts both ways
My client works for a start-up and has exercised his options. He has no cash and the shares cannot be sold. Is there any deferral, and does it cover his own tax or only his employer's TDS?
This is stage one — the perquisite on exercise — and yes, there is a deferral, but only where the employer is an eligible start-up referred to in s.80-IAC. It covers BOTH sides. Section 192(1C) defers the employer's obligation to deduct or pay tax on the perquisite, and s.191(2) defers the employee's own obligation to pay income-tax on it directly, in identical terms; s.156(2) defers payment of the tax or interest included in a notice of demand on the same income. In every one of the three, the tax must be paid within FOURTEEN DAYS of the EARLIEST of three events: the expiry of forty-eight months from the end of the relevant assessment year; the date of sale of the specified security or sweat equity share; and the date the employee ceases to be the employee. All three sub-sections apply to income of an assessment year beginning on or after 1 April 2021, and all three were inserted by the Finance Act, 2020, which came into force on 1 April 2020.
