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TMI BlogIncome-tax deduction from salaries during the financial year 1990-91 under section 192 of the Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... eseen circumstances. The aggregate tax thus calculated on the estimated income divided by 12 and rounded off to the nearest rupee is required to be deducted from the monthly salary. 3. The Finance Act, 1990, has raised the exemption limit for individuals from Rs.18,000 to Rs.22,000. Further, the lowest rate of tax of 20% has been extended from the previous limit of Rs.25,000 to Rs.30,000. An extract of Sub-paragraph (1) of Paragraph A of Part III of the First Schedule to the Finance Act, 1990, giving the tax rates applicable is at annexure I. Some of the other important changes brought out of the Finance Act, 1990, are: (i) Introduction of a new system of tax rebate on the gross amount of savings under section 88 by replacing the earlier provisions of section 80C relating to tax incentives for promoting savings. Under the new system, a person contributing to provident fund, life insurance, National Savings Certificates, etc., as earlier, will now be entitled to a tax rebate calculated at the rate of 20% the amount of such savings, etc. The maximum rebate allowance will be Rs.10,000. However, in the case of authors, playwrights, artists, musicians, actors, sportsmen (including ath ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cognised provident fund to the extent to which it is chargeable to tax under rule 6 of Part A of the Fourth Schedule to the Income-tax Act. Other items included in salary, profits in lieu of salary and perquisites are described in section 17 of the Income-tax Act. (iii) The value of perquisites by way of free or concessional residential accommodation, or motor car provided by employers to their employees shall be determined under rule 3 of the Income-tax Rules, 1962. It is, however, clarified that the use of any vehicle provided by a company or an employer for journey by the assessee from his residence to his office or other place of work or from such office or place to his residence shall not be regarded as a benefit or amenity granted or provided to him free of cost or at concessional rate for the purpose. (iv) Other benefits or amenities provided free of cost or at concessional rates to the employees like supply of gas, electric energy, water for household consumption, educational facilities, etc., should also be taken into account for the purpose of computing the estimated salary income of the employees during the current financial year (Example III at annexure II illustrates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the said clause, in relation to the employees who retire or become incapacitated or die on or after 1st January, 1986, or whose employment is terminated on or after the said date. Vide Notification GSR No. 405 (F.No.142/7/88-TPL) dated 28-4-1988 (See [1988] 172 ITR (St.) 76), the enhancement limit of Rs. 1,00,000 will be applicable for all the three purposes mentioned in the said clause in relation to the employees mentioned therein who retire or become incapacitated prior to such retirement or die on or after the first day of April, 1988, or whose employment is terminated on or after the said date. (b) Sub-clause (i) of clause (10AA) of section 10 provides for exemption of any payment received by an employee of the Central Government or a State Government as cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement or super- annuation or otherwise. (c) In the case of other employees, the exemption under section 10(10AA) will be determined with reference to the leave, to his credit at the time of retirement on superannuation or otherwise subject to a maximum of eight months leave. This exemption will be limited to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax Rules, 1962, the quantum of exemption allowable on account of grant of special allowance to meet expenditure on payment of rent shall be:-- (a) The actual amount of such allowance received by an employee in respect of the relevant period; or (b) The actual expenditure incurred in payment of rent in excess of 1/10 of the salary due for the relevant period; or (c) Where such accommodation is situated in Bombay, Calcutta Delhi or Madras, 50 per cent. of the salary due to the employee for the relevant period; or (d) Where such accommodation is situated in any other place, 40 per cent. of the salary due to the employee for the relevant period. whichever is the least. For this purpose, "salary" includes dearness allowance, i.e., if the terms of employment so provide, but excludes all other allowances and perquisites. It has to be noted that only the expenditure actually incurred on payment of rent in respect of residential accommodation occupied by the assessee subject to the limits laid down in rule 2A, qualifies for exemption from income- tax. Thus, house rent allowance granted to an employee who is residing in a house/flat owned by him is not exempt from income-tax. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and subject to the conditions indicated therein:-- (a) Any allowance granted to meet cost of travel on tour or on transfer including any allowance granted to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty; (b) Any special compensatory allowance in the nature of border area allowance or remote area allowance or difficult area allowance or disturbed area allowance; (c) Tribal area allowance; (d) Any allowance granted to an employee working in a transport system to meet his personal expenses during his duty performed in the course of running of such transport from one place to another; (e) Children education allowance; (f) Any allowance granted to an employee to meet the hostel expenditure of his child, and (g) Any allowance granted to meet the expenditure incurred on conveyance in the performance of duties of an office or employment of profit. (h) Any special compensatory allowance in the nature of composite hill compensatory allowance or high altitude allowance or uncongenial climate allowance or showbound area allowance or avalanche allowance. (i) Any allowance granted to meet the expenditure incurred on a help ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led to conveyance facilities. (b) The tax on employment within the meaning of clause (2) of article 276 of the Constitution of India, leviable by or under any law shall also be allowed as a deduction in computing the income of the salaried taxpayers under the head "Salaries". (c) A limited deduction is also allowed under clause (ii) of section 16 in respect of entertainment allowance. In the case of Government employees, this deduction is limited to one fifth of the employees' salary (exclusive of any allowance, benefit or other perquisite) or five thousand rupees, whichever is less. In the case of other employees deduction will be allowable only if the conditions laid down in the aforesaid clause are fulfilled. (viii) Under section 80CCA of the Income-tax Act, as amended by the Finance Act, 1990, 100% deduction will be allowed to an individual, a Hindu undivided family, and certain categories of persons or bodies of individuals, subject to a ceiling of Rs.40,000 in respect of: (1) any amount deposited under the National Savings Scheme; and (2) any amount paid to effect or keep in force a contract for such annuity plan of the LIC, as the Central Government may specify by notif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Linked Savings Scheme of the Mutual Funds specified under section 10(23D) of the Income-tax Act or of the Unit Trust of India. The deduction shall be allowed on so much of the amount invested as does not exceed Rs.10,000. When any amount in respect of which deduction has been allowed is returned to the assessee either by way of repurchase of the units by the Funds or Trust or on the termination of the Plan, it shall be deemed to be his income of the previous year in which the amount is returned. Further, where a Hindu undivided family has effected a partition or an association of persons is dissolved after deduction has been allowed to it, such amount on its return shall be deemed to be the income of the recipient. The Drawing and Disbursing Officers should satisfy themselves about the fact of investment made by the employees by calling for such information/particulars as they may deem necessary before allowing the deduction. Similarly, the Drawing and Disbursing Officers should ascertain from the employees about the return of the investment either by way of repurchase of the units by the Fund, etc., or on the termination of the Plan. In the case of such repurchase, etc., the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nent physical disability or mental retardation of the dependent relative has to be certified by a physican, surgeon, occulist or a psychiatrist, as the case may be, working in a Government hospital or a Government dispensary including a departmental dispensary or a hospital maintained by a local authority as per the Explanation thereto. Further, the amount of deduction will be reduced by the amount of income, if any, of the handicapped dependent relative. The Drawing and Disbursing Officers should, therefore, call for such particulars/certificates/information as they may deem necessary from the employee to verify the genuineness of the claim before allowing the deduction. (xii) No deduction should be made from the salary income in respect of any donations for charitable purposes. The tax relief on such donations as admissible under section 80G of the Act will have to be claimed by the taxpayer separately at the time of finalisation of the assessment. However, in cases where contributions to the National Defence Fund, Jawaharlal Nehru Memorial Fund, the Prime Minister's Drought Relief Fund, the National Children's Fund or the Indira Gandhi Memorial Trust are made, 50 per cent. of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akhapatnam. Explanation: "Urban Agglomeration" in relation to a place means the area for the time being included in the urban agglomeration of such place for the purpose of grant of house rent allowance by the Central Government to its employees under the orders issued by it from time to time in this regard. The disbursing authorities should satisfy themselves that all the conditions mentioned above are satisfied before such deduction is allowed by them to the assessees. They should also satisfy themselves in this regard by insisting on production of evidence of actual payment of rent. (xiv) Section 80RRA, as amended by the Finance Act, 1990, provides that where the gross total income of an individual who is a citizen of India, includes any remuneration received by him in foreign currency from any employer (i.e., a foreign employer or an Indian concern) for any services rendered by him outside India, an amount equal to the following shall be allowed as deduction in computing the total income of the individual: (i) fifty per cent. of the remuneration or (ii) seventy-five per cent. of such remuneration as is brought into India, by, or on behalf of, the assessee in accordance wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permanent physical disabilities or is subject to mental retardation to the extent specified by the Board, a deduction of Rs.15,000 is allowed. The Board has by Notification S.O.529(E), dated 17-7-1985 (See Income-tax (Fourth Amendment) Rules, 1985: [1985] 155 ITR (St.) 86), specified the physical disabilities which will be reckoned as permanent physical disabilities for purposes of deduction under this section. According to the said Notification, a permanent physical disability shall be regarded as a permanent physical disability for the purpose of clause (ii) of sub-section (1) of section 80U, if it falls in any one of the categories specified below, namely: (a) permanent physical disability of more than 50 per cent. in one limb; or (b) permanent physical disability of more than 60 per cent. in two or more limbs; (c) permanent deafness with hearing impairment of 71 decibels and above; and (d) permanent and total loss of voice. The deduction of Rs.15,000 from the total income can be allowed by the employer on the basis of a certificate from a Registered Medical Practitioner as to the employee's total blindness or permanent physical disability. In the case of employees sufferi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been referred to in section 80CCA(1)(ii), on the life of the individual, the wife or husband or any child of the individual: Provided that such contract does not contain a provision for the exercise by the insured of an option to receive a cash payment in lieu of the payment of the annuity. (iii) Any sum deducted from the salary payable by or on behalf of the Government to any individual, being a sum deducted in accordance with the conditions of his service for the purpose of securing to him a deferred annuity or making provision for his wife or children, in so far as the sum deducted does not exceed one-fifth of the salary. (iv) Any contribution made:-- (a) by an individual to any provident fund to which the Provident Funds Act, 1925, applies; (b) to any provident fund set up by the Central Government and notified by it in this behalf in the Official Gazette, where such contribution is to an account standing in the name of an individual, or a minor of whom he is the guardian; (c) by an employee to a recognised provident fund; (d) by an employee to an approved superannuation fund; it may be noted that "contribution" to any fund shall not include any sums in repayment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The stamp duty, registration fee and other expenses incurred for the purpose of transfer shall also be covered. Payment towards the cost of house property, however, will not include, admission fee or cost of share or initial deposit or the cost of the land (except where the consideration for the purchase of house property is a composite amount and the cost of land cannot be separately ascertained) or the cost of any addition or alteration to or renovation or repair of the house property which is carried out after the issue of the completion certificate by competent authority, or after the occupation of the house by the assessee or after it has been let out. Payments towards any expenditure in respect of which the deduction is allowable under the provisions of section 24 of the Income-tax Act will also not be included in payments towards the cost of purchase or construction of a house property. Where the house property in respect of which deduction has been allowed under these provisions is transferred by the taxpayer at any time before the expiry of five years from the end of the financial year in which possession of such property is obtained by him or he receives back, by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a must be invested in the eligible issue of capital within six months from the close of the subscription to the scheme. Further, pending investment in the eligible issue of capital, the Mutual Funds or the Unit Trust of India would be allowed to invest the funds in such Government securities as may be approved by the Board in this behalf. (2) That the tax concession under the new section 88A will not be available to any scheme floated by any Mutual Fund or the Unit Trust of India, the subscription to which closes after the 30th September, 1990. For the purpose of this section "eligible issue of capital" means an issue of equity shares which satisfies the following conditions, namely:-- (a) The issue is made by a public company formed and registered in India and the issue is wholly and is exclusively for the purpose of carrying on the business of:-- (i) construction, manufacture or production of any article or a thing not being an article or a thing specified in the list in the Eleventh Schedule; or (ii) providing a long-term finance for construction or purchase of houses in India for residential purpose, provided that in the case of a public company carrying on such activitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer/disbursing banks. (c) Sub-section (2B) enables a taxpayer to furnish particulars of income other than salaries to his employer who shall deduct out of the salary payment, the tax due on the total income subject to the condition that the total amount of tax deducted shall not be less than the amount deductible from income from salaries only. To meet the requirements of these provisions the Central Government have notified necessary amendments in the Income tax Rules, 1962, vide Notification No. S.O. 963(E), dated 29-10-87 (See [1987] 168 ITR (St.) 156). Detailed instructions in this regard were issued by the Department, vide Circular No.504 [F.No.275/138/87-IT(B)], dated 8-2-1988 (See [1988] 171 ITR (St.) 7) 10. (a) According to the provisions of section 203 of the Income-tax Act, every person responsible for deducting tax at source is required to furnish a certificate to the effect that tax has been deducted and to specify therein, inter alia, the amount deducted and other particulars that may be prescribed. The certificate has to be furnished within the prescribed period of one month to the person to whose account credit is given or to whom payment is made or the che ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al return, he shall, on an order passed by the income-tax authority, pay, by way of penalty, a sum which shall not be less than one hundred rupees, but which may extend to two hundred rupees for every day during which the failure continues. (d) According to the provisions of section 200 of the Income-tax Act, any person deducting any sum in accordance with the provisions of section 192 shall pay, within the prescribed time the sum so deducted to the credit of the Central Government. If he fails to deduct tax at source or after deducting fails to pay the tax to the credit of the Government, he shall be liable to action in accordance with the provisions of section 201. In this connection, attention is also invited to the provisions of section 276B of the Income-tax Act, according to which if a person fails to pay to the credit of the Central Government the tax deducted at source by him he shall be punishable with rigorous imprisonment for a term which shall be between three months and seven years and with fine. 11. While making the payment of tax deducted at source to the credit of the Central Government it may kindly be ensured that the correct amount of income-tax is recorded in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t bywhich the total income exceeds Rs. 50,000; (5) where the total income exceeds Rs. 1,00,000 Rs. 27,600 plus 50 per cent of the amount by which the total income exceeds Rs. 1,00,000. Surcharge on income-tax Typical Examples of Income-tax Calculations Example I Rs. Rs. 1. Total Salary Income (including allowances) 64,500 2. Deposits under National Savings Scheme 19,400 19,400 3. Contribution to Government provident fund 8,630 4. Payment towards life insurance premia 1,000 5. Contribution for participation in the Unit- linked Insurance Plan, 1971, made under section 19(1)(cc) of the Unit Trust of India Act, 1963 300 12,650 6. Deposits in a 10-year account or 15-year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959 500 7. C.G.E.I.S. 720 8. Subscription to National Savings Certificates VIII issue. 1,500 Computation of total income 1. Gross total salary income 64,500 2. Deduct : Amount of standard deduction under section 16(i) of the Income-tax Act, 1961. 33 1/3% of amount subject to maximum of Rs. 12,000 (-)12,000 3. Gross total income (1 minus 2) 52,500 4. Deduct : Under section 80CCA—Deposit under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000 4. Furniture at cost (including television set, radio set, refrigerator, other household appliances and air-conditioner) belonging to the company 40,000 5. (i) Furnished flat provided to the employee for which actual rent paid by the company (actual rent assumed to be equal to the fair rental value) 46,000 (ii) Rent recovered from the employee 12,000 6. Deposits under the National Savings Scheme 15,000 7. Contribution to the Recognised Provident Fund 11,000 8. L.I.P. 10,000 9. Subscription to National Savings Certificates VIII Issue 5,000 26,620 10. Interest accrued on investment in N.S.C. VI Issue 620 Computation of total income 1. Salary 65,000 75,000 2. Bonus 10,000 3. Valuation of perquisites : (a) Furnished flat at concessional rent under section 17(2), read with clauses (a) and (b) of rule 3 of the Income-tax Rules, 1962. Fair Rental Value (FRV) (assumed to be equal to actual rent Rs. 46,000) 10% of salary including bonus 7,500 Add: Excess of FRV over 60% of salary including bonus of Rs. 75,000 (i.e., Rs. 46,000 minus Rs. 45,000) 1,000 Add : Perquisite of the furniture (10% of cost, i.e., Rs. 40,000) 4,000 12,500 Less : Rent pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge calculation in the case of an employee posted in Delhi and repaying House Building Loan) Rs. Rs. 1. Total salary (including dearness allowance) 1,20,000 2. House rent allowance 12,000 3. City compensatory allowance 1,200 4. Deposits under the National Savings Scheme 30,000 5. Contribution to GPF, payment of LIC premium, etc. 16,500 6. Actual rent paid 25,200 7. Refund of loan taken for the construction of house which has been completed after 31-3-1987 but before 31-3-1991 12,000 Computation of total income 1. Salary (including dearness allowance and city compensatory allowance) 1,21,200 2. House rent allowance received 12,000 1,33,200 3. Less : Allowance under section 10(13A) Actual rent paid 25,200 Less : 10% of salary (-)12,000 13,200 (Actual amount of HRA received or expenditure on rent in excess of one-tenth of the salary or 50% of salary, whichever is the least) Rs. 12,000 (-) 12,000 1,21,200 4. Less : Standard deduction under section 16(i) at 331/3% subject of a maximum of Rs. 12,000 (-)12,000 5. Gross total income 1,09,200 6. Less : Deduction under section 80CCA (Deposits under NSS) (-)30,000 7. Total income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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