Wage tax

Wage tax is a tax collected directly from an employee’s wages by the employer, who acts as an intermediary. It is a withholding tax, meaning the amount is deducted at the source before the employee receives their pay.

Key Features Deducted at Source Employers withhold the tax from employees’ wages or salaries.

Purpose Serves as an advance payment towards the employee’s final income tax liability.

Scope Applies to wages, salaries, and other forms of compensation. Adjustment If the withheld amount exceeds the actual tax liability, the employee may receive a refund during tax assessment. If it is less than the liability, the employee pays the balance due.

Example: An employee earns ₹50,000 per month. The employer deducts ₹5,000 as wage tax. At the end of the financial year, if the total income tax liability is ₹45,000, the employee will get a ₹5,000 refund.