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CMA Intermediate · Direct and Indirect Taxation · Salaries

Under section 392 of the Income-tax Act, 2025, at what rate must the person responsible for paying salary deduct tax at source, and when?

The payer must deduct tax when the salary is paid, at the average rate computed on the rates in force for that tax year applied to the employee's estimated salary income for the year. It is not a flat rate or a year-end deduction.

  1. AAt the average rate on the estimated salary income for the tax year, at the time of paymentCorrect
  2. BAt a flat 10% of each payment, at the end of the tax year
  3. CAt the maximum marginal rate, when the return is filed
  4. DAt the rate in force in the year the salary was earned, only on arrears

Explanation

Section 392(1) requires deduction at the time of payment at the average rate of income-tax computed on the rates in force for the tax year in which payment is made, on the estimated income under Salaries for that year. A flat 10% applies only to certain provident fund payments, not regular salary.

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