Skip to content

CA Intermediate · Taxation · Tax Deduction at Source and Collection of Tax at Source

Under section 394 of the Income-tax Act, 2025 (tax year 2026-27), consider a company paying salary to an employee. Which statement about the tax deduction from salary is correct?

The employer deducts tax at the average rate of income-tax worked out on the employee's estimated income for the tax year, applying the slab rates of the regime chosen. It is not a flat percentage, not a fixed threshold, and not the maximum marginal rate.

  1. ATax is deducted at the flat rate of 10% on the gross salary
  2. BTax is deducted at the average rate of income-tax computed on the estimated income of the employee for the tax yearCorrect
  3. CTax is deducted only if salary exceeds Rs 10 lakh
  4. DTax is deducted at the maximum marginal rate

Explanation

Tax on salary is deducted at the average rate of tax computed on the employee's estimated total income for the tax year, after considering applicable slab rates and permitted deductions or the regime opted. Flat 10%, a Rs 10 lakh threshold, or the maximum marginal rate are not the rule.

Did you get it right without looking?

One question tells you little. A timed set on Tax Deduction at Source and Collection of Tax at Source shows your real accuracy, how long you take and where you lose marks.

Practise Tax Deduction at Source and Collection of Tax at SourceFree diagnostic mock

More Tax Deduction at Source and Collection of Tax at Source questions