Instructions for deduction of tax at source from salary during financial year 1970-71 at the rates specified in Part III of First Schedule to Finance Bill, 1970 - Income Tax - 36/1970

Circular No. 36 Dated 25/3/1970 FINANCIAL YEAR 1970-71 Instructions for deduction of tax at source from salary during financial year 1970-71 at the rates specified in Part III of First Schedule to Finance Bill, 1970 1. I am directed to invite a reference to this Ministrys Letter F. No. 12/41/69-ITCC, dated 5-4-1969, on the subject of deduction of income-tax from salaries paid during the year 1969-70. The Finance Bill introduced in the Parliament on February 28, 1970, provides, inter alia, the rates at which income-tax has to be deducted during the financial year 1970-71 from income chargeable under the head Salaries. These rates will be applicable to deduction of tax from salaries paid or payable on or after April 1, 1970. An extract from Paragraph A of Part III of the First Schedule to the Finance Bill, 1970, insofar as it relates to levy of income-tax on salaries is enclosed herewith [Annex I]. It is requested that pending the passing of the Finance Bill, 1970, deductions of tax from salaries may be made during the financial year 1970-71 according to the rates in the said Schedule. A couple of examples of calculation are given in Annex II. 2. The substance of the main provisions in the law insofar as they relate to income from salaries on which tax is to be deducted at source during the financial year 1970-71, is given hereunder : (1) No tax will be deductible at source in any case unless the estimated salary income for the financial year exceeds Rs. 5,000. (2) While computing the taxable income, the disbursing officers should allow a deduction of 60 per cent of the first Rs. 5,000 and 50 per cent of the balance of the qualifying amount of payments towards life insurance premia, contributions to provident fund and deposits in a 10-year account or 15-year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959. The qualifying amount of these items taken together will be limited to 30 per cent of the estimated salary [after the deduction, if any, for profession tax, etc., referred to in item (5) and for expenditure on travelling referred to in item (7) hereinbelow] or Rs. 15,000, whichever is less. (3) The total income computed in accordance with the provisions of the Act should be rounded off to the nearest multiple of ten rupees by ignoring the fraction which is less than five rupees and increasing the fraction which amounts to five rupees or more, to ten rupees. The net amount of tax deductible should be similarly rounded off to the nearest rupees. (4) No deduction should be made from the salary income in respect of any donations for charitable purposes. The tax relief on such donations will have to be claimed by the taxpayer separately at the time of the finalisation of the assessment. However, in cases where contributions to the National Defence Fund, Jawaharlal Nehru Memorial Fund or the Prime Ministers Drought Relief Fund are made by deduction from the pay bills, 55 per cent of such contributions may be deducted in computing the taxable income of the employee. Care should be taken to see that the aggregate of such contributions for the year is not less than Rs. 250. Disbursing officers should show the total contributions in the remarks column of the return under section 206. (5) In cases where deductions are claimed on account of tax on professions, trades, callings or employments levied under any State or Provincial Act the same may be allowed from the total income for purposes of deduction of tax at source on production of proof by the assessee before the disbursing officer. The adjustment in this behalf in the tax deductible at source may be made in the last month. (6) No deduction should be made from the salary income in respect of any expenditure on the purchase of books and other publications. (7) The Income-tax Act provides for standard deductions in the case of salaried taxpayers in respect of expenditure on travelling for the purposes of employment, provided they are not in receipt of a conveyance allowance. The amounts of these standard deductions, as proposed by the Finance Bill, 1970, are given below : Category of taxpayers Amount of standard deduction for every month or part of the month comprised in the period of employment or during which the conveyance has been used for the purpose of employment Rs. 1. Taxpayers owning motor cars 200 2. Taxpayers owning motor cycles, scooters or other mopeds 60 3. Taxpayers other than those referred to at items (1) and (2) 30 In the case of taxpayers owning motor cars, motor cycles, scooters or other mopeds, the standard deduction is admissible only if the conveyance is registered in the employees name and not in the name of any other person even though such employee may claim to have purchased it from his own funds. (Each employee claiming such deduction will furnish to the disbursing authority a certificate that the conveyance is registered in his own name.) The standard deduction of Rs. 30 per month is admissible to such of the salaried taxpayers who do not own any conveyance as also to those who own a bicycle or any other conveyance, not being a motor car, motor cycle, scooter or other moped. The deduction of the appropriate amount for expenditure should be allowed in calculating the tax to be deducted at source from the salary income. The standard deductions mentioned above will not be available to an employee who is in receipt of a conveyance allowance whether as such or as part of his salary. (8) In the case of an employee in receipt of a conveyance allowance, the disbursing officer may exclude from the salary of the employee that part of the conveyance allowance which is equal to the amount that was treated as exempt under section 10(14) by the Income-tax Officer in the last completed assessment of the employee. For this purpose, the employee concerned should furnish to the disbursing authority a declaration as to the amount of the conveyance allowance which was treated as exempt from tax in his last completed income-tax assessment specifying also the year to which such assessment relates. (9) Attention is also invited to the provisions of section 276B, wherein it is provided that if a person without reasonable cause or excuse fails to deduct or after deducting fails to pay the tax as required under the provision of Chapter XVII-B, he shall be punishable with rigorous imprisonment for a term which may extend to six months, and shall also be liable to fine which shall be not less than a sum calculated at the rate of fifteen per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid. 3. If any changes are made in the Finance Bill, 1970, before it is passed into law, the same will be communicated to you in due course. Circular : No. 36 [F. No. 275/42/70-ITJ], dated 25-3-1970. ANNEX I - EXTRACT FROM PART III OF FIRST SCHEDULE TO FINANCE BILL, 1970 Paragraph A In the case of every individual or Hindu undivided family or unregistered firm or other association of persons or body of individuals, whether incorporated or not, or every artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 of the Income-tax Act, not being a case to which any other Paragraph of this Part applies : Rates of income-tax (1) where the total income does not exceed Rs. 5,000 Nil; (2) where the total income exceeds Rs. 5,000 but does not exceed Rs. 10,000 10 per cent of the amount by which the total income exceeds Rs. 5,000; (3) where the total income exceeds Rs. 10,000 but does not exceed Rs. 15,000 Rs. 500 plus 17 per cent of the amount by which the total income exceeds Rs. 10,000; (4) where the total income exceeds Rs. 15,000 but does not exceed Rs. 20,000 Rs. 1,350 plus 23 per cent of the by which the total income exceeds Rs. 15,000; (5) where the total income exceeds Rs. 20,000 but does not exceed Rs. 25,000 Rs. 2,500 plus 30 per cent of the amount by which the total income exceeds Rs. 20,000; (6) where the total income exceeds Rs. 25,000 but does not exceed Rs. 30,000 Rs. 4,000 plus 40 per cent of the amount by which the total income exceeds Rs. 25,000; (7) where the total income exceeds Rs. 30,000 but does not exceed Rs. 40,000 Rs. 6,000 plus 50 per cent of the amount which the total income exceeds Rs. 30,000;by (8) where the total income exceeds Rs. 40,000 but does not exceed Rs. 60,000 Rs. 11,000 plus 60 per cent of the amount by which the total income exceeds Rs. 40,000; (9) where the total income exceeds Rs. 60,000 but does not exceed Rs. 80,000 Rs. 23,000 plus 70 per cent of the amount by which the total income exceeds Rs. 60,000; (10) where the total income exceeds Rs. 80,000 but does not exceed Rs. 1,00,000 Rs. 37,000 plus 75 per cent of the amount by which the total income exceeds Rs. 80,000; (11) where the total income exceeds Rs. 1,00,000 but does not exceed Rs. 2,00,000 Rs. 52,000 plus 80 per cent of the amount by which the total income exceeds Rs. 1,00,000; (12) where the total income exceeds Rs. 2,00,000 Rs. 1,32,000 plus 85 per cent of the amount by which the total income exceeds Rs. 2,00,000 : Provided that, for the purposes of this Paragraph in the case of Hindu undivided family which at any time during the previous year relevant to the assessment year commencing on April 1, 1971, satisfies either of the following two conditions, namely : (a) that it has at least two members entitled to claim partition who are not less than eighteen years of age, or (b) that it has at least two members entitled to claim partition who are not lineally descended one from the other and who are not lineally descended from any other living member of the family : (i) no income-tax shall be payable on a total income not exceeding Rs.7,000; (ii) where the total income exceeds Rs. 7,000 but does not exceed Rs. 7,660 the income-tax payable thereon shall not exceed forty per cent of the amount by which the total income exceeds Rs. 7,000. Surcharge on income-tax The amount of income-tax computed in accordance with the preceding provision of this Paragraph shall be increased by a surcharge for purposes of the Union calculated at the rate of ten per cent of such income-tax. ANNEX II - TYPICAL EXAMPLES OF INCOME-TAX CALCULATION Example I Rs. 1. Total salary income 9,500 2. Contributions to general provident fund 720 3. Payment towards life insurance premia 500 4. Gross salary income 9,500 5. Deduct : 60 per cent of the contributions to general provident fund and life insurance premia (60 per cent of Rs. 1,220) 732 6. Balance taxable income 8,768 [The tax has to be worked out on Rs. 8,770 after rounding off to the nearest multiple of ten rupees.] 7. Income-tax payable on Rs. 8,770 i.e., 10 per cent of Rs. 3,770 377.00 8. Surcharge at 10 per cent on income-tax 37.70 9. Total tax payable rounded off to 415.00 Note : No deductions from tax should be allowed on account of personal allowances and dependent parent allowance, as these are proposed to be discontinued. Example II Rs. Salary income 28,088 Provident fund contributions 3,500 Life insurance premium 6,275 Profession tax payable 138 [The employee maintains a motor car registered in his own name and is likely to use it for 11 months for official purposes.] Rs. Total salary as above 28,088 Less Rs. - Profession tax 138 - Allowance for expenditure and wear and tear on account of maintenance of motor car at Rs. 200 p.m. for 11 months 2,200 2,338 25,750 Less : Deduction on account of provident fund and life insurance premium paid Rs. 9,775 in all but limited to 30 per cent of Rs. 25,750, i.e., Rs. 7,725 at 60 per cent of the first Rs. 5,000 = Rs. 3,000 and at 50 per cent on the balance of Rs. 2,725 = Rs. 1,363 4,363 Resultant income 21,387 Rounded off to 21,390 Income-tax on Rs. 21,390 (Rs. 2,500 plus 30 per cent on the balance of Rs. 1,390) 2,917.00 Union surcharge at 10 per cent 291.70 Total tax payable 3,208.70 Rounded off to 3,209.00 Note : No deductions from tax should be allowed on account of personal allowances as these are proposed to be discontinued.