How to make TDS flat deduction for contractual employees?

Consultants or contract-based employees have a different tax calculation method than regular full-time employees. Since there is no employer-employee relationship, their income cannot be taxed under the head of Income from Salaries. Therefore, they cannot file ITR 1 or ITR 2 forms while submitting their Income Tax Returns. Contract-based employees need to disclose their income under the head of Income from Business or Profession and file their Income Tax Returns using ITR Form 3 or ITR Form 4. Typically, TDS is deducted at a flat rate of 10% for such employees. Companies deduct TDS on payments to contract employees under different sections such as Section 194J, Section 194H, or Section 194D.

This article demonstrates how to make TDS flat deductions for contractual employees on Keka

Click on Payroll (1). Go to Settings (2) and find Pay Groups (3). If there are multiple pay groups, find the relevant one and under Actions, find the configure icon (4) and click on it. 

On this page, go to Salary Structures (1) below the pay group's name. Now, click on Custom Salary (2) and then on the one that is created for the contractual employees, and click on the edit icon (3). 

The option to make flat TDS deductions can be enabled only in custom salary sturctures.

In this window, find and select the option that says: 'Deduct flat income tax based on the formula below'. Now the Add formula option will appear.

In the window that opens next, you can add the formula (1) in the space provided. Also there is a list of available components (2) which can be used in the formula, just click on the component and it will be inserted in the field. Once done, click Add (3) to update the formula in this salary structure.

The formula will be visible under the 'Deduct flat income tax based on the formula below' (1) option.

Now click on Update (2) to save new configurations for this salary structure. 

Now you know how to make TDS flat deductions for contractual employees. If you have any more queries, please go through the other articles. If necessary, you can talk to our product experts who are always ready to help you.