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TMI BlogIncome-tax deduction from salaries during the financial year 1995-96 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 ..... l income exceeds 20 per cent. of the amount by which Rs. 40,000 but does not exceed the total income exceeds Rs.40,000. Rs. 60,000. 3. Where the total income exceeds Rs. 4,000 plus 30 per cent. of the Rs. 60,000 but does not exceed amount by which the total income Rs. 1,20,000 exceeds Rs. 60,000. 4. Where the total income exceeds Rs. 22,000 plus 40 per cent. of the Rs. 1,20,000 amount by which the total income exceeds Rs. 1,20,000 It may be noted that the income-tax exemption limit for individuals has been raised from Rs. 35,000 to Rs. 40,000 and that there is no surcharge applicable. 3. Section 192 of the Income-tax Act, 1961: 3.1 Every person who is responsible for paying any income chargeable under the head "Salaries" shall deduct income-tax on the estimated income of the assessees under the head "Salaries" for the financial year 1995-96. The income-tax is required to be calculated at the average of income-tax computed on the basis of the rates given above and shall be deducted at the time of payment. No tax will, however, be deducted at source in any case unless the estimated salary income including the value of perquisites, for the financial year exceeds Rs.40,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax made during the financial year. 3.6 The trustees of recognised provident funds, or any person authorised by the regulations of the fund to make payment of accumulated balances due to employees, shall, in cases where sub-rule (1) of rule 9 of Part A of the Fourth Schedule to the Act applies, at the time when accumulated balance due to an employee is paid, make therefrom the deduction provided in rule 10 of Part A of the Fourth Schedule. 3.7 There any contribution made by an employer, including interest on such contributions, if any, in an approved superannuation fund is paid to the employee, tax on the amount so paid shall be deducted by the trustees of the fund to the extent provided in rule 6 of Part B of the Fourth Schedule to the Act. 3.8 For the purposes of deduction of tax on salary payable in foreign currency, the value in rupees of such salary shall be calculated at the prescribed rate of exchange. 4. Persons responsible for deducting tax and their duties: 4.1 Under clause (i) of section 204 of the Act the "persons responsible for paying" for the purpose of section 192 means the employer himself or if the employer is a company, the company itself including the princi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of employees receiving salary income, the certificate has to be issued in Form No.16 which has been prescribed under the Board's Notification No. S.O. 148(E), dated 28th February, 1991. A specimen of the certificate is enclosed as annexure "II". This certificate is to be issued on the tax deductor's own stationery. If he fails to issue the TDS certificate to the person concerned as required by section 203, he will be liable to pay, by way of penalty, under section 272A, a sum which shall not be less than Rs.100 but which may extend to Rs.200, for every day during which the failure continues. 4.7 According to the provisions of section 203A of the Income-tax Act, it is obligatory for all persons responsible for deducting tax at source to obtain and quote the Tax Deduction Account No.(TAN) in the challans, TDS-certificates, returns etc. Detailed instructions in this regard are available in this Department's Circular No.497 [F.No.275/118/87-IT(B)], dated 9th October, 1987. If a person fails to comply with the provisions of section 203A, he will be liable to pay, by way of penalty, under section 272BB, a sum up to Rs.5,000. 4.8 According to the provisions of section 206 of the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eive their pension from a nationalised bank, the instructions contained in this circular shall apply in the same manner as they apply to salary income. The deduction from the amount of pension on account of standard deduction under section 16 and the tax rebate under section 88B (in the case of pensioners, resident in India, who are 65 years of age or more, and whose gross total income does not exceed Rs.1,00,000) will be allowed by the concerned bank at the time of deduction of tax at source from the pension, before making payment to the concerned pensioner. As regards the tax rebate under section 88 on account of contribution to life insurance, provident fund, NSC, etc., if the pensioners furnish the relevant details to the banks, the tax rebate at the specified rate may also be allowed. Necessary instructions in this regard were issued by the Reserve Bank of India to the State Bank of India and other nationalised banks, vide RBI's Pension Circular (Central Series) No.7/C.D.R./1992 (Ref. Co. DGBA.GA(NBS) No.60/GA.64(11 CVL)-91/92), dated 27th April, 1992, and, these instructions should be followed by all the branches of the banks, which have been entrusted with the task of paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t concessional rate for the purpose. (5) 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 3 at annexure "I" illustrates computation of some such perquisites). The valuation has to be done in accordance with rule 3 of the Income-tax Rules. (6) The value of any benefit or amenity granted or provided free of cost or at concessional rate by an employer to an employee (not being a director of the company or a person who has substantial interest in the company) is not regarded as perquisites received by the employee unless the employee's income under the head "Salary" exclusive of the value of any benefit or amenity not provided for by way of monetary payment exceeds Rs.24,000. 5.2 Incomes not included in "Salaries" (exemptions).- Any income falling within any of the following clauses shall not be included in computing the income from salaries for the purpose of section 192 of the Act:- (1) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (F.No.142/11/88-TPL), dated 8th June, 1988, at Rs.79,920. (5) Under section 10(10B), the retrenchment compensation received by a workman is exempt from income-tax subject to certain limits. The maximum amount of retrenchment compensation exempt is the sum calculated on the basis provided in section 25F(b) of the Industrial Disputes Act, 1947, or any amount not less than Rs.50,000 as the Central Government may, by notification specify in the Official Gazette, whichever is less. These limits shall not apply in the case where the compensation is paid under any scheme which is approved in this behalf by the Central Government, having regard to the need for extending special protection to the workmen in the undertaking to which the scheme applies and other relevant circumstances. (6) Under section 10(10C), as amended by the Finance Act, 1994, any payment received by an employee of the following bodies at the time of his voluntary retirement is exempted from income-tax to the extent of Rs.5 lakhs, provided the scheme of voluntary retirement has been framed in accordance with the guidelines prescribed under rule 2BA of the Income-tax Rules, 1962 : (a) a public sector company; (b) any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the 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. The disbursing authorities should satisfy themselves in this regard by insisting on production of evidence of actual payment of rent before excluding the house rent allowance or any portion thereof from the total income of the employee. Though incurring actual expenditure on payment of rent is a prerequisite for claiming deduction under section 10(13A), it has been decided as an administrative measure that salaried employees drawing house rent allowance up to Rs.600 per month ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spital maintained by the employer; (b) any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or of any member of his family - (i) in any hospital maintained by the Government or any local authority or any other hospital approved by the Government for the purposes of medical treatment of its employees; (ii) in respect of the prescribed diseases or ailments, in any hospital approved by the Chief Commissioner having regard to the prescribed guidelines; Provided that in a case falling in sub-clause (ii), the employee shall attach with his return of income a certificate from the hospital specifying the disease or ailment for which medical treatment was required and the receipt for the amount paid to the hospital. (c) premium paid by the employer in respect of medical insurance taken for his employes (under any scheme approved by the Central Government) or reimbursement of insurance premium to the employees who take medical insurance for themselves or for their family members (under any scheme approved by the Central Government); (d) reimbursement by the employer of the amount spent by an employee in obtaining medical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1, 1955. (iii) 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 under the head "Salaries". 5.4 Deductions under Chapter VI-A of the Act: The following deductions under Chapter VI-A of the Act are available: (1) Under section 80D, in the case of the following categories of persons, a deduction can be allowed for a sum not exceeding Rs.6,000 per annum to the extent payment is made by cheque out of their income chargeable to tax to keep in force an insurance on the health of the categories of persons mentioned below provided that such insurance is in accordance with the scheme framed by the Central Insurance Corporation of India as approved by the Central Government, popularly known as "Mediclaim". The categories of persons are: (a) where the assessee is an individual, any sum paid to effect or to keep in force an insurance on the health of the assessee or on the health of the wife or husband, dependent parents or dependent children of the assessee; (b) where the assessee is a Hindu undivided family, any sum paid to effect or to keep in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nitial assessment year and seven assessment years immediately succeeding the initial assessment year or until the loan referred to above together with interest thereon is paid by the assessee in full, whichever is earlier. For this purpose - (a) "approved charitable institution" means an institution established for charitable purposes and notified by the Central Government under clause 23C of section 10 or, an institution referred to in clause (a) of sub-section (2) of section 80G. (b) "financial institution" means a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of the Act); or any other financial institution which the Central Government may, by notification in the Official Gazette, specify in this behalf; (c) "higher education" means full-time studies for any graduate or post-graduate course in engineering, medicine, management, or, for post-graduate course in applied sciences or pure sciences, including mathematics and statistics; (d) "initial assessment year" means the assessment year relevant to the previous year, in which the assessee starts repaying the loan or inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The accommodation occupied by him for the purpose of his own residence is situated in any of the following places, namely:- (i) Agra, Ahmedabad, Allahabad, Amritsar, Bangalore, Bhopal, Calcutta, Coimbatore, Delhi, Faridabad, Gwalior (Lashkar), Hyderabad, Indore, Jabalpore, Jaipur, Kanpur, Lucknow, Ludhiana City, Madurai, Nagpur, Patna, Srinagar, Surat, Vadodra (Baroda) or Varanasi (Banaras) or the urban agglomeration of each of such places; or (ii) Bombay, Calicut, Cochin, Ghaziabad, Hubli-Dharwar, Madras, Solapur, Trivandrum or Vishakhapatnam. 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 employes 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. (6) Section 80RRA provides that where the gross total income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Government (Ministry of Finance, Department of Revenue, Foreign Tax Division, New Delhi). (It should also be ensured that the deduction is allowed with reference to the remuneration received in foreign currency in respect of the period of service outside India). (7) Section 80U allows deduction of forty thousand rupees in computing the total income of resident individual, who, at the end of the previous year, is suffering from a permanent physical disability (including blindness) or is subject to mental retardation, being a permanent physical disability, or mental retardation, specified in rule 11D of the Income-tax Rules, 1962, which is certified by a physician, surgeon, occulist or psychiatrist as the case may be, working in a Government hospital and which has the effect of reducing considerably such individual's capacity for normal work or engaging in a gainful employment or occupation. The expression "Government hospital" will include a departmental dispensary or a hospital maintained by a local authority as specified in the Explanation given below section 80DD. 6.Tax rebate: An assessee will be entitled to tax rebates under Chapter VIII of the Act as given below: (1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t also qualifies for deduction. (7) Anu sum paid as contribution:- (a) for participation in the Unit Linked Insurance Plan, 1971, of the Unit Trust of India; (b) for participation in any unit-linked insurance plan of the LIC mutual fund notified by the Central Government under clause (23D) of section 10. (8) Any subscription made to effect or keep in force a contract for such annuity plan of the Life Insurance Corporation as the Central Government may, by notification in the Official Gazette, specify. (9) Any subscription not exceeding rupees ten thousand, made to any units of any mutual fund, notified under clause (23D) of section 10, by the Unit Trust of India established under the Unit Trust of India Act, 1963, under any plan formulated in accordance with any scheme as the Central Government, may, by notification in the Official Gazette, specify in this behalf. (10) Any contribution made by an individual to any pension fund set up by any mutual fund notified under clause (23D) of section 10, or, by the Unit Trust of India established under the Unit Trust of India Act, 1963, as the Central Government may, by notification in the Official Gazette, specify in this behalf. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... repair of the house property which is carried out after the issue of the completion certificate by a competent authority, or after 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 provision 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 received back, by way of refund or otherwise, any sum specified in section 88(2)(xv), no deduction under these provisions shall be allowed in respect of such sums paid in such previous year in which the transfer is made and the aggregate amount of deduction of income-tax so allowed in the earlier years shall be added to the tax on the total income of the assessee with which he is chargeable for such assessment year. It may be noted that the amount which will qualify for tax rebate in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax would be required to be deducted. This income should be rounded off to the nearest multiple of ten rupees. 7.2 Income-tax on the estimated income from salary as shown in para 7.1 shall be calculated at the rates given in para 2. 7.3 The amount of tax rebates computed under para 6 shall be deducted from the income-tax calculated according to para 7.2. However, it is to be ensured that the tax rebates given as per para 6 is limited to the income-tax calculated as per para 7.2. 7.4 It is also to be noted that deductions under Chapter VI-A of the Act as mentioned in para 5.4 and the tax rebates as mentioned in para 6 are allowed only if the investments or the payments have been made out of the income chargeable to tax during the financial year 1995-96. 7.5 The amount of tax as arrived at para 7.3 should be deducted every month in equal instalments. The net amount of tax deductible should be rounded off to the nearest rupee. 8. Miscellaneous: 8.1 These instructions are not exhaustive and are issued only with a view to helping the employers to understand the various provisions relating to deduction of tax from salaries. Wherever there is any doubt, reference may be made to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income 80,000 -------------- Tax on total income 10,090 Rebate under section 88 on Rs.38,900@20% 7,780 Rebate under section 88 is admissible in r/o mutual funds up to Rs.10,000) ------------- Net tax payable 2,310 ======== EXAMPLE 3 (Illustrating valuation of perquisites and calculation of tax in the case of an employer of a private company, posted at Delhi) (Rs.) (Rs.) 1. Salary1,08,000 2. Bonus 12,000 3. Free gas, electricity, water etc. (actual bills paid by the company) 6,000 4. Furnished flat provided to the employee for which actual rent paid by the company 78,000 5. Rent received from the employee 12,000 6. Furniture at cost (including television, fridge, washing machine and air-conditioner) 50,000 7. Deposits in N.S.S. 12,000 8. Subscription to mutual fund 12,000 9. Life insurance premium 3,000 10.Subscription to National Savings Certificates (VIII Issue) 6,000 11.Contribution to recognised provident fund 24,000 ------------ 57,000 ======= Computation of total income and tax payable thereon (Rs.)(Rs.) 1. Salary1,08,000 2. Bonus 12,000 ------------- 3. Total of salary and bonus1,20,000 1,20,000 4. Valuation of perquisites: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved @ 3,000 p.m. 36,000 Less: Municipal taxes 6,000 ---------- 30,000 (i) One-fifth for repairs 6,000 (ii) Ground rent 500 (iii) Insurance 550 (iv) Interest on loan borrowed from HDFC/Government 7,000 (v) Vacancy allowance (vacant for three months) 7,500 -------- 21,550 ------------ 8,450 Losses carry forward under section 71A Losses for the last year Rs.9,450 (-) 9,450 ----------- (-) 1,000 INCOME FROM OTHER SOURCES : Bank interest 22,880 Dividend income 23,240 ---- ------ 46,120 ------------- 1,29,010 Less:Deduction Medical Ins. 80D 6,000 80L 13,000 80U 40,000 ---------- 59,000 -------------- Taxable income 70,010 Tax on Rs.70,010 comes to Rs.7,003 Rebate under section 88 GPF 10,000 Interest on NSC 1,000 CGEIS 1,400 PPF 2,400 ----------- 15,000 ======= Rebate at 20% on Rs.15,000 is Rs.3,000 Net tax payable Rs.4,003. EXAMPLE 6 (Income-tax calculation in the case of an employee posted at Delhi and repaying house building loan Mrs.X working with a bank in IndiaRs. Salary 36,000 Dearness allowance 28,000 House rent allowance 6,000 Leave encashment 5,000 Closing allowance 500 Subscription to CPF 3,600 NSC 10,000 Repayment of H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e first 11 months and Rs.543 for the last month during the financial year). EXAMPLE 8 (Income-tax calculation in the case of an employee whose medical treatment expenditure was borne by the employer) Rs. 1. Gross annual salary1,95,000 2. Medical expenditure directly paid by employer to private practitioner 25,000 3. Medical expenditure directly to hospital approved by Chief Commissioner of Income-tax 50,000 4. Reimbursement of medical expenses incurred by the employee in a hospital approved by Chief Commissioner 10,000 5. Expenditure on travelling abroad (including that of attendant)1,00,000 6. Expenditure incurred on stay and treatment abroad1,50,000 7. Out of (6) amount permitted by Reserve Bank of India1,00,000 8. Contribution to PF 12,000 9. LIC premium paid 5,000 10. Contribution to PPF 3,000 11. Purchase of NSC (VIII) 10,000 12. Repayment of principal of HRA 12,000 13. Subscription to UTI's MFP 8,000 Computation of total income and tax payable thereon Gross salary1,95,000 Add -Medical expenditure directly paid by employer to a private practitioner is not to be added as perquisite only to the extent of Rs.10,000 in view of proviso(v) to clause ..... X X X X Extracts X X X X X X X X Extracts X X X X
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