You've been waiting for your internship stipend all month long but you don't know how much of your stipend you'll get. That's because of this three-lettered acronym TDS (Tax Deduction at Source) which everyone except you seems to know how it works.
Let's face it, getting your first salary is a big deal. But first salaries come with its fair share of surprises and one of them is TDS. If you're like me and have no idea about TDS and how it works then this blog might be useful to you.
According to the Income Tax Act in India, employers are required to deduct tax at source (i.e before giving you your monthly salary). The government probably does this partly to help us pay our taxes properly and partly so that we don't spend all the money and have nothing to pay them later on :P. So the way it works is the employer deducts your tax before paying you your monthly salary and at the end of the year after you have filed your returns you'll get back any amount that is due to you under the law of the land.
But how much money is deducted?
| Income Tax Slab | Tax Rate for Individual Below the Age Of 60 Years |
|---|---|
| Up to ₹2,50,000 | No tax baby! |
| ₹2,50,001 to ₹5,00,000 | 5% of total income exceeding ₹2,50,000 |
| ₹5,00,001 to ₹10,00,000 | ₹12,500 + 20% of total income exceeding ₹5,00,000 |
| Above ₹10,00,000 | ₹1,12,500 + 30% of total income exceeding ₹10,00,000 |
Taxes on internship stipends are deducted just like full-time jobs. This table should help you figure out how much tax you'd be paying. Take your internship stipend, multiply it by 12 and wherever you land, that's the amount of tax that would be deducted. But there's a catch, this table is only applicable to you if you have submitted your PAN card to the organization. If you haven't then 20% of tax would be deducted! So be sure to submit your PAN card information to your organization guys.
Also after deduction your taxes, your employer will give you a TDS certificate certifying that they have indeed deducted your taxes. These certificates generally go something like Form 16 or Form 16 A. This is proof that your money has been deducted and paid to the government. You can claim your money back while filing returns.
How to claim your returns? I'll post a blog on that later, for now, enjoy your first salary :).
PS - Three cheers to all the companies that manage to do something something and not deduct TDS for interns (Asli Messiah!). Also as you can probably see, different companies have different ways of deducting taxes for interns and your company might do something else than what's described above.
PPS - Tax laws are subject to the government's whims and may change any time.
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