Income-tax deduction from salaries during the financial year 1995-96 under section 192 of the Income-tax Act, 1961 - Income Tax - 724

Income-tax deduction from salaries during the financial year 1995-96 under section 192 of the Income-tax Act, 1961. Circular No. 724 Dated 29/9/1995 Reference is invited to Circular No. 690, dated 1st September, 1994, wherein the rates of deduction of income-tax from the payment of income under the head "Salaries" under section 192 of the Income-tax Act, 1961, during the financial year 1994-95, were intimated. The present circular contains the rates of deduction of income-tax from the payment of income chargeable under the head "Salaries" during the financial year 1995-96 and explains certain related provisions of the Income-tax Act, 1961. 2. Finance Act, 1995 : According to the Finance Act, 1995, income-tax is required to be deduction under section 192 of the Income-tax Act, 1961, from income chargeable under the head "Salaries" for the financial year 1995-96 (i.e. assessment year 1996-97) at the following rates : Rates of income-tax 1. Where the total income does not Nil exceed Rs. 40,000. 2. Where the total 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.40,000 (Some typical examples of computation of tax are given at annexure "I"). 3.2 Sub-section (2) of section 192 deals with situations where an individual is working under more than one employer or has changed from one employer to another. It provides for deduction of tax at source by such employer (as the taxpayer may choose) from the aggregate salary of the employee who is or has been in receipt of salary from more than one employer. The employee is now required to furnish to the present/chosen employer details of the income under the head "Salary" due or received from the former/other employer and also tax deducted at source therefrom, in writing and duly verified by him and by the former/other employer. The present employer will be required to deduct at at source on the aggregate amount of salary (including salary received from the former or other employer). 3.3 Sub-section (2A) of section 192 provides that in respect of salary payment of employees of the Government, company, co-operative society, local authority, university, institution, association of body, deduction of tax at source may be made after allowing relief under section 89(1), whenever salary, etc., is paid in arrears or in advance. 3.4 Sub-section (2B) enables a taxpayer to furnish particulars of income under any head other than "Salaries" and of any tax deducted at source thereon in the prescribed form (No.12C). Such income under any other head should not be a loss. The employer shall take such other income and tax, if any, deducted at source from such income, into account for the purpose of computing tax deductible under section 192 of the Income-tax Act, 1961. However, if such aggregation results in tax deductible which is less than in the case where income under the head "Salaries" alone is taken into account for computing tax deductible, then such aggregation under sub-section (2B) is not permissible. In other words, a loss from any other source cannot be adjusted by the DDO against salary income. To meet the requirements of these provisions, the Central Government have enacted rule 26B in the Income-tax Rules. Detailed instructions in this regard were issued by the Department vide Circular No. 504 [F.No.275/138/87-IT(B)], dated 8th February, 1988. 3.5 The provisions of sub-section (3) of section 192 are intended for making adjustment for any excess or shortfall in the deduction of tax 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 principal officer thereof. 4.2 The tax determined as per para 7 should be deducted from the salary under section 192 of the Act. 4.3 Section 197 enables the taxpayer to make an application in Form No. 13 to his Assessing Officer is satisfied that the total income of the taxpayer justifies the deduction of income-tax at any lower rate or no deduction of income-tax, he may issue an appropriate certificate to that effect which should be taken into account by the Drawing and Disbursing Officer while deducting tax at source. 4.4 According to the provisions of section 200, 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 in the prescribed manner (vide rule 30 of the Income-tax Rules, 1962). In the case of deductions made by, or, on behalf of the Government, the payment has to be made on the day of the tax deduction itself. In other cases, the payment has to be normally made within one week of the deduction. 4.5 If a person fails to deduct tax at source, or, after deducting, fails to pay the tax to the credit of the Central Government within the prescribed time, he shall be liable to action in accordance with the provisions of section 201. Sub-section (1A) of section 201 lays down that such person shall be liable to pay simple interest at 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 tax is actually paid. Section 271C lays down that if any person fails to deduct tax at source, he shall be liable to pay, by way of penalty, a sum equal to the amount of tax not deducted by him. Further, section 276B lays down that if a person fails to pay to the credit of the Central Government within the prescribed time the tax deducted at source by him, he shall be punishable with rigorous imprisonment for a term which shall be within 3 months and 7 years and with fine. 4.6 According to the provisions of section 203, every person responsible for deducting tax at source is required to furnish a certificate to the payee to the effect that tax has been deducted and to specify therein the amount deducted and certain other particulars. This certificate, usually called the TDS certificate, has to be furnished within a period of one month from the end of the relevant financial year. In the 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 Income-tax Act, 1961, read with rules 36A and 37 of the Income-tax Rules, the prescribed person in the case of every office of the Government, the principal officer in the case of every company, the prescribed person in the case of every local authority or other public body or association, every private employer and every other person responsible for deducting tax under section 192, from "Salaries" shall, after the end of each financial year, prepare and deliver, by 31st May following the financial year, an annual return of deduction of tax to the designated/concerned Assessing Officer. This return has to be furnished in Form No. 24. If a person fails to furnish in due time the annual return, he shall 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, so, however, that this sum shall not exceed the amount of tax which was deductible at source. 4.9 The Drawing and Disbursing Officers should satisfy themselves about the actual deposits/subscriptions/payments made by the employees, by calling for such particulars/information as they deem necessary before allowing the aforesaid rebate. In case the DDO is not satisfied about the genuineness of the employee's claim regarding any deposit/subscription/payment made by the employee, he should not allow the same, and the employee would be free to claim the rebate on such amount by filing his return of income and furnishing the necessary proof, etc., therewith, to the satisfaction of the Assessing Officer. It may also be mentioned here that the deposits/subscriptions/payments towards the items qualifying for the tax rebate should be made out of the employee's income chargeable to tax. 4.10 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 the relevant challan. It may also be ensured that the right type of challan is used. The relevant challan for making payment of tax deducted at source from salaries is No. 9 with "Blue colour Band". Where the amount of tax deducted at source is credited to the Central Government through book adjustment, care should be taken to ensure that the correct amount of income-tax is reflected therein. 4.11 In the case of pensioners who receive who receive 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 payment of pensions. 5.Estimation of income under the head "Salaries": 5.1 Income chargeable under the head "Salaries.- (1) The following income shall be chargeable to income-tax under the head "Salaries". (a) any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not; (b) any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him; (c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year. (2) For the removal of doubts, it is clarified that where any salary paid in advance is included in the total income of any person for any previous year it shall not be included again in the total income of the person when the salary becomes due. Any salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from the firm shall not be regarded as "Salary". (3) "Salary" includes wages, fees, commissions, perquisites, profits in lieu of, or, in addition to salary, advance of salary, annuity or pension, gratuity, payments in respect of encashment of leave, etc. It also includes the annual accretion to the employee's account in a recognised provident fund to the extent it is chargeable to tax under rule 6 of Part A of the Fourth Schedule of 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. It may be noted that, since salary includes pensions, tax at source would have to be deducted from pension also, if otherwise called for. However, no tax is required to be deducted from the commuted portion of pension as explained in clause (3) of para 5.2 of this circular. (4) 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. (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 value of any travel concession or assistance received by or due to an employee from his employer or former employer for himself and his family, in connection with his proceeding (a) on leave to any place in India or (b) on retirement from service, or, after termination of service to any place in India is exempt under clause (5) of section 10 subject, however, to the conditions prescribed in rule 2B of the Income-tax Rules, 1962. For the purpose of this clause, "family" in relation to an individual means:- (i) The spouse and children of the individual; and (ii) the parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the individual. It may also be noted that the amount exempt under this clause shall in no case exceed the amount of expenses actually incurred for the purpose of such travel. (2) Death-cum-retirement gratuity or any other gratuity is exempt to the extent specified from inclusion in computing the total income under clause (10) of section 10. (3) Any payment in commutation of pension received under the Civil Pension (Commutation) Rules of the Central Government or under any similar scheme applicable to the members of the civil services of the union, or holders of civil posts/posts connected with defence, under the union, or civil posts under a State, or to the members of the all India services/defence services, or, to the employees of a local authority or a corporation established by a Central, State or Provincial Act, is exempt under sub-clause (i) of clause (10A) of section 10. As regards payments in commutation of pension received under any scheme of any other employer, exemption will be governed by the provisions of sub-clause (ii) of clause (10A) of section 10. (4) 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 on superannuation or otherwise, is exempt under sub-clause (i) of clause (10AA) of section 10. In the case of other employees, this exemption will be determined with reference to the leave to their credit at the time of retirement on superannuation, or otherwise, subject to a maximum of eight months' leave. This exemption will be further limited to the maximum amount specified by the Government of India Notification No. S.O. 553(E) (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 other company; (c) an authority established under a Central, State or Provincial Act; (d) a local authority; (e) a co-operative society; (f) a university established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a university under section 3 of the University Grants Commission Act, 1956; (g) any Indian Institute of Technology within the meaning of clause (g) of section 3 of the Institutes of Technology Act, 1961; (h) such institute of management as the Central Government may, by notification in the Official Gazette, specify in this behalf. It may also be noted that where this exemption has been allowed to any employee for any assessment year, it shall not be allowed to him for any other assessment year. It may be further noted that any such scheme in relation to a company referred to at (b) above, and, a co-operative society referred to at (e) above, has to be approved by the Chief Commissioner, or; as the case may be, the Director-General of Income-tax. (7) Any sum received under a life insurance policy, including the sum allotted by way of bonus on such policy other than any sum received under sub-section (3) of section 80DDA. (8) Any payment from a provident fund to which the Provident Funds Act, 1925 (19 of 1925), applies (or from any other provident fund set up by the Central Government and notified by it in this behalf in the Official Gazette). (9) Under section 10(13A) of the Income-tax Act, 1961, any special allowance specifically granted to an assessee by his employer to meet expenditure incurred on payment of rent (by whatever name called) in respect of the residential accommodation occupied by the assessee is exempt from income-tax to the extent as may be prescribed, having regard to the area or place in which such accommodation is situated and other relevant considerations. According to rule 2A of the Income-tax Rules, 1962, the quantum of exemption allowable on account of grant of special allowance to meet the expenditure on payment of rent shall be :- (a) The actual amount of such allowance received by an employer in respect of the relevant period; or (b) The actual expenditure incurred in payment of rent in excess of one-tenth 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 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 will be exempted from production of rent receipt. It may, however, be noted that this concession is only for the purpose of tax-deduction at source, and, in the regular assessment of the employee, the Assessing Officer will be free to make such enquiry as he deems fit for the purpose of satisfying himself that the employee has incurred actual expenditure on payment of rent. (10) Clause (14) of section 10 provides for exemption of the following allowances:- (a) Any special allowance or benefit granted to an employee to meet the expenses incurred in the performance of his duties as prescribed under rule 2BB subject to the extent to which such expenses are actually incurred for that purpose. (b) Any allowance granted to an assessee either to meet his personal expenses at the place of his posting or at the place he ordinarily resides or to compensate him for the increased cost of living, which may be prescribed and to the extent as may be prescribed. However, the allowance referred to in (ii) above should not be in the nature of a personal allowance granted to the assessee to remunerate or compensate him for performing duties of a special nature relating to his office or employment unless such allowance is related to his place of posting or residence. The Central Board of Direct Taxes has prescribed guidelines for the purpose of clauses (i) and (ii) of section 10(14), vide Notificiation No. S.O. 617(E), dated 7th July, 1995 (F. No. 142/9/95-TPL). These guidelines are effective from 1st July, 1995. This is enclosed as annexure "III". (11) Under section 10(15)(iv)(i) of the Income-tax Act, interest payable by the Government on deposits made by an employee of the Central Government or a State Government or a public sector company from out of his retirement benefits, in accordance with such scheme framed in this behalf by the Central Government and notified in the Official Gazette is exempt from income-tax. By Notification No.F.2/14/89-NS-II, dated 7th June, 1989, as amended by Notification No.F.2/14/89-NS-II, dated 12th October, 1989, the Central Government has notified a scheme called Deposit Scheme for Retiring Employees, 1989, for the purpose of the said clause. (12) Under section 17 of the Act, exemption from tax will also be available in respect of :- (a) the value of any medical treatment provided to an employee or any member of his family, in any hospital 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 treatment for himself or any member of his family from any doctor, not exceeding in the aggregate Rs.10,000 in an year; (e) As regards medical treatment abroad, the actual expenditure on stay and treatment abroad of the employee or any member of his family, or, on stay abroad of one attendant who accompanies the patient, in connection with such treatment, will be excluded from perquisites to the extent permitted by the Reserve Bank of India. As regards the expenditure incurred on travel abroad by the patient/attendant, it shall be excluded from perquisites only if the employee's gross total income, as computed before including the said expenditure, does not exceed Rs.2 lakhs. 5.3 Deductions under section 16 of the Act: (i) Under section 16 of the Income-tax Act, 1961, the taxable salary is to be computed after making a standard deduction equal to 33-1/3 per cent. of the salary, subject to the following limits: (a) Rs.18,000 in the case of women whose total income, before making the standard deduction, does not exceed Rs.75,000 in the financial year. (b) Rs.15,000 in any other case, not covered by (a). This deduction will be available also to all persons drawing pension during the financial year at the same rate and subject to the same ceilings. It may be noted that the standard deduction in full will be admissible even to those employees who are entitled to conveyance facilities. Where, in the case of an assessee, salary is due from, or paid or allowed by, more than one employer, the deduction under this clause shall be computed with reference to the aggregate salary due, paid or allowed to the assessee and shall in no case exceed the amount specified under this clause. (ii) A deduction is also allowed under clause (ii) of section 16 in respect of any allowance in the nature of an entertainment allowance specifically granted to the assessee by his employer subject to certain limits. In the case of a Government employee, a sum equal to one-fifth of his salary (exclusive of any allowance, benefit or other perquisite) or five thousand rupees whichever is less is allowable as deduction. In the case of a non-Government employee, deduction for entertainment allowance to the extent specified in sub-clause (b) of clause (ii) of section 16 will be given only if the allowance is regularly received by him from his present employer from the date prior to April 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 force an insurance on the health of any member of the family; (c) where the assessee is ab association of persons or a body of individuals consisting, in either case, only of husband and wife governed by the system of community of property in force in the State of Goa and the Union Territories of Dadra and Nagar Haveli and Daman and Diu, any sum paid to effect or to keep in force an insurance on the health of any member of such association or body or on the health of the dependent children of the members of such an association or body. (2) Under section 80DD, deduction of Rs.15,000 is allowed in the case of resident individuals who incur expenditure on the medical treatment (including nursing), training and rehabilitation of a handicapped dependent relative suffering from permanent physical disability (including blindness) or mental retardation, specified in rule 11A of the Income-tax Rules, 1962. The deduction will be available to all assessees without any restriction with regard to their total income. The permanent physical disability or mental retardation of the dependent relative has to be certified by a physician, surgeon, occulist or a psychiatrist, as the case may be, working in a Government hospital, including a departmental dispensary or a hospital maintained by a local authority as per Explanation given below section 80DD. The Drawing and Disbursing Officers should, therefore, call for such particulars/certificates/information from the employees as they deem necessary to verify the genuineness of the claim before they allow this deduction. (3) Under section 80E of the Act, a deduction will be allowed in respect of repayment of loan taken for higher education, subject to the following conditions: (i) In computing the total income of an assessee, being an individual, these shall be deducted, in accordance with and subject to the provisions of this section, any amount paid by him in the previous year, out of his income chargeable to tax, by way of chargeable to tax, by way of repayment of loan, taken by him from any financial institution or any approved charitable institution for the purpose of pursuing his higher education, or interest on such loan; Provided that the amount which may be so deducted shall not exceed twenty-five thousand rupees. (ii) The deduction specified above shall be allowed in computing the total income in respect of the initial 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 interest thereon. (4) No deduction should be allowed by the DDO from the salary income in respect of any donations made 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 in the return of income. However, in cases where contributions are made to the National Defence Fund, the Jawaharlal Nehru Memorial Fund, the Prime Minister's Drought Relief Fund, the National Children's Fund, the Indira Gandhi Memorial Trust or the Rajiv Gandhi Foundation, 50 per cent. of such contributions may be deducted in computing the total income of the employee. Similarly, donations to the Prime Minister's National Relief Fund, the Prime Minister's Armenia Earthquake Relief Fund, the Africa (Public Contributions-India) Fund, the National Foundation for Communal Harmony and the Chief Minister's Earthquake Relief Fund, Maharashtra, will be eligible for 100 per cent. deduction. It is to be noted that all eligible donations, without any limit, will be deductible under the provisions of section 80G. (5) Under section 80GG of the Act, an assessee is entitled to a deduction in respect of house rent paid by him for his own residence at the places specified under rule 11B of the Income-tax Rules, 1962. Such deduction is permissible subject to the following conditions:- (a) the assessee has not been in receipt of any house rent allowance specifically granted to him which qualifies for exemption under section 10(15A) of the Act; (b) he will be entitled to a deduction in respect of house rent paid by him in excess of 10 per cent. of his total income, subject to a ceiling of 25 per cent. thereof or Rs.1,000 per month, whichever is less. The total income for working out these percentages will be computed before making any deduction under section 80GG. (c) The assessee does not own: (i) any residential accommodation himself or by his spouse or minor child or where such assessee is a member of a Hindu undivided family, by such family, at the place where he ordinarily resides or performs duties of his office or carries on his business or profession; or (ii) at any other place, any residential accommodation being accommodation in the occupation of the assessee, the value of which is to be determined under sub-clause (i) of clause (a), or as the case may be, clause (b) of sub-section (2) of section 23; (d) 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 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, 50 per cent. of the remuneration only shall be allowed as deduction in computing the total income of the individual. The assessee would have to file the return of income and claim higher rate of deduction at 75 per cent. under section 80RRA(i) (ii) if he is entitled for it. In the case of an employee of the Central Government or any State Government, or, a person who was, immediately before taking up the service outside India, in the employment of the Central Government or any State Government, the deduction will be allowed if the service of the employee is sponsored by the Central Government. In the case of any other individual, the deduction will be allowed only if he is a "technician" and the terms and conditions of his service outside India are approved for the purpose of the said section by the Central Government or the prescribed authority. It is pertinent to note that the deduction is to be allowed with reference to the remuneration received by the individual in foreign currency for services outside India. Thus, if the remuneration is paid to the Indian technician, etc., partly in the Indian currency and partly in foreign currency, the amount paid in the Indian currency will not be taken into account for the purposes of deduction under section 80RRA. Likewise, if a part of the remuneration, although paid in foreign currency, relates to service rendered in India, then such part of the remuneration will also not qualify for deduction under section 80RRA. The expression "foreign employer" has been defined in Explanation (b) to section 80RRA to mean (i) the Government of a foreign state; or (ii) a foreign enterprise; or (iii) any association or body established outside India. While allowing the deduction under this section, documentary evidence should be obtained on the following points: (a) In the case of an individual who is in the employment of the Central Government or any State Government, the fact of his service having been sponsored by the Central Government; (b) In the case of any other individual being a technician, the fact of the terms and conditions of his service outside India having been approved in this behalf by the Central 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) Payment of insurance premium to effect or to keep in force an insurance on the life of the individual, the wife of or husband or any child of the individual. (It may be noted that any premium or other payment made on a policy as is not in excess of 10 per cent. of the sum assured, will alone qualify for deduction); (2) Any payment made to effect or to keep in force a contract for a deferred annuity, not being an annuity plan as is referred to in item (8) herein below 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; (3) 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. (4) Any contribution made: (a) by an individual to any provident fund to which the Provident Fund 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, or whom he is a 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 loan. (5) Any deposit in a ten year account or a fifteen year account under the Post Office Savings Bank (Cumulative Time Deposit) Rules, 1959, as amended from time to time, where such sums are deposited in an account standing in the name of an individual, or a minor, for whom he is the guardian. (6) Any subscription:- (a) to any such security of the Central Government or any such deposit scheme as the Central Government may, by notification in the Official Gazette, specify in this behalf; (b) to any such saving certificates as defined under section 2(c) of the Government Saving Certificate Act, 1959, as the Government may, by notification in the Official Gazette, specify in this behalf. Interest on NSC (VI Issue) and NSC (VIII Issue) which is deemed investment 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. (11) Any subscription made to any such deposit scheme of, or, any contribution made to any such pension fund set up by, the National Housing Bank, as the Central Government may, by notification in the Official Gazette, specify in this behalf. (12) Any subscription made to any such deposit scheme (not being a scheme the interest on deposits whereunder qualifies for deduction under section 80L), as the Central Government may by notification in the Official Gazette, specify for the purpose of being floated by (a) public sector companies engaged in providing long-term finance for construction or purchase of houses in India for residential purposes, or, (b) any authority constituted in India by, or, under any law, enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both. (13) Any sums paid by an assessee for the purpose of purchase or construction of a residential house property, the income from which is chargeable to tax under the head "Income from house property" (or which would, if it had not been used for the assessee's own residence, have been chargeable to tax under that head) where such payments are made towards or by way of any instalment or part payment of the amount due under any self-financing or other scheme of any development authority, under any self-financing or other scheme of any development authority, housing board etc. The deduction will also be allowable in respect of repayment of loans borrowed by an assessee from the Government, or any bank or the Life Insurance Corporation, or the National Housing Bank, or certain other categories of institutions engaged in the business of providing long-term finance for construction or purchase of houses in India. Any repayment of loan borrowed from the employer will also be covered, if the employer happens to be a public company, public sector company or a university established by law or a college affiliated to such university, or a local authority or a co-operative society. 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 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 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 respect of this item will not exceed Rs.10,000. In respect of repayment of loans taken for the purchase or construction of a new residential house property the construction of which does not get completed by the end of the financial year 1994-95, no tax rebate in respect of these items shall be admissible to the employees. (14) Subject to the limits mentioned for the various items, the entitlement to tax rebate will be calculated at the rate of 20 per cent. of the total amount of the aforesaid saving, etc., in the case of individuals, and at the rate of 25 per cent. in the case of an author or playwright or artist or musician or actor or sportsman (including an athlete) whose income derived from the exercise of his profession as such author/playwright/artist/musician/actor/sportsman/athlete constitutes twenty-five per cent or more of his total income. The maximum tax-rebate allowable will be Rs.12,000 generally, and Rs. 17,500 in the case of authors, playwrights, artists, musicians, actors, sportsmen and athletes. There will, therefore, be an overall limit for savings which will qualify for tax-rebate. In the case of individuals, the limit will be Rs.60,000 and in the case of authors, sportsmen, etc. Rs.70,000. (15) Section 88B provides for special relief to senior citizens (individuals of the age of 65 years and above). The tax rebate in their case is 40 per cent. and the gross total income qualifying limit for this purpose is R.1,00,000/-. Thus, all individuals of, and above, the age of 65 years will be allowed a rebate of 40 per cent. of the amount of income-tax payable by them (as computed before allowing the deduction under Chapter VIII of the Income-tax Act, 1961), subject to the condition that their gross total income does not exceed Rs.1,00,000. 7.Calculation of income-tax to be deducted: 7.1 Salary income for the purpose of section 192 shall be estimated as follows: (a) First compute the gross salary as mentioned in para 5.1 excluding all the incomes mentioned in para 5.2; (b) allow deductions mentioned in para 5.3 from the figure arrived at (a); (c) allow deductions mentioned in para 5.4 from the figure arrived at (b) ensuring that the aggregate of the deductions mentioned in para 5.4 does not exceed figure of (b) and if it exceeds, it should be restricted to that amount. This will be the amount of income under the head "Salaries" on which income-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 the provisions of the Income-tax Act, 1961, the Income-tax Rules, 1962, and the Finance Act, 1995. 8.2 In case any assistance is required, the Assessing Officer/the local Public Relations Officer of the Income-tax Department may be contacted. 8.3 These instructions may please be brought to the notice of al disbursing officers and undertakings including those under the control of the Central/State Government, etc. 8.4 Copies of this circular are available with the Director of Income-tax (Research, Statistics and Publications and Public Relations) 6th floor, Mayur Bhavan, Connaught Circus, New Delhi 110 001. (Sd.) Y.P. Vashishat, Under Secretary, Central Board of Direct Taxes. ANNEXURE - I EXAMPLE 1 (Calculation of income-tax in the case of a woman employee having gross salary income up to Rs.75,000) (Rs.)(Rs.) 1. Gross salary income (including allowances)75,000 2. Contribution to G.P.F.12,000 ) ) 3. Central Government Employees Insurance 720 ) ) 4. Payment towards LIC 1,000 ) ) 5. Subscription to an approved mutual fund 5,000 ) ) 6. Subscription to an NSC (VIII) issue 3,000 ) 21,720 Computation of total income and tax payable thereon 1. Gross salary income75,000 2. Less: Standard deduction 18,000 ----------- 57,000 Tax on Rs.57,000 3,400 Tax rebate at 20% on Rs.21,7203,400 --- ----- Income-taxN i l ====== EXAMPLE 2 (Illustrating calculation of house rent allowance under section 10(13A) in respect of residential accomodation situated in Delhi) (Rs.)(Rs.) 1. Salary 49,500 2. Dearness allowance 43,680 3. House rent allowance 9,600 4. CCA 1,200 5. House rent paid 18,000 6. General Provident Fund 24,000 7. Life insurance premium 2,500 8. Cumulative Time Deposit 2,400 9. Contribution to mutual fund 12,000 Computation of total income and tax payable thereon for assessment year 1996-97 (Rs.)(Rs.) 1. Salary+DA+CCA 94,380 House rent allowance 9,600 ------------ 2. Total salary income1,03,980 3. Less: House rent allowance exempt under section 10(13A) (a) Actual amount of HRA received = 9,600 (b) Expenditure on rent in excess of 10 per cent. of salary (including D.A. as presumed that D.A. is taken for retirement benefit) (18,000-9,318 = 8,682) (-) 8,682 -------------- 95,298 Less: Standard deduction under section 16(i) at 33-1/3%subject to a maximum rounded off (-) 15,00080,298 ------------- Total 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: (a) Furnished flat at concessional rent (please see section 17(2) of the I.T.Act) 10% of salary including bonus 12,000 (b) Add: Excess of (FRV) over 60% of salary including bonus (i.e., Rs.78,000 - 72,000) 6,000 (c) Add: Perquisite of the furniture (10% of cost, i.e., 10% of Rs.50,000) 5,000 ------------ 23,000 Less:Rent recovered by co. (-) 12,000 ------------- 11,000 11,000 (d) Add: Perquisite of free gas, electricitry, etc. 6,000 ------------ Gross total income1,37,000 Less: Standard deduction under section 16(i) 15,000 -------------- 1,22,000 Tax on total income of Rs.1,22,000 22,800 Rebate under section 88 on Rs.55,000 @20% 11,000 (Rebate under section 88 is admissible in r/o mutual funds up to Rs.10,000) -------------- 11,800 ========= EXAMPLE 4 (Illustrating valuation of perquisite and calculation of tax in the case of an employee of a private company posted at Delhi and repaying housing building loan) (Rs.)(Rs.) 1. Salary 48,000 2. Dearness allowance 36,000 3. House rent allowance12,000 4. Special duties allowance 2,400 5. Subscription to units of mutual fund 6,000 6. Provident fund 12,000 7. L.I.P. 2,000 8. Deposit in NSS 6,000 9. Rent paid by the employee for house hired by him 18,000 10.Repayment of house building loan taken by the employee from LIC 12,000 Computation of total income and tax payable thereon 1. Gross salary 98,400 Less: House rent allowance exempt under section 10 (13A): (a) Actual amount of HRA received 12,000 (b) Expenditure on rent in excess of 10% of salary (including D.A.) as personal D.A. is included for retirement benefits (18,000 - 10% of 84,000 = 9,600) or, (c) 50% of salary (including D.A.) 42,000 (-) 9,600 ------------ Total salary income 88,800 Less: Standard deduction 15,000 ------------- Net taxable total income73,800 ====== Tax on total income 8,140 Tax rebate under section 88 (i) Unit mutual fund 6,000 (ii) Provident fund 12,000 (iii) LIP 2,000 (iv) NSS 6,000 (v) Repayment of HRA 10,000 ----------- 36,000 Tax rebate at 20% 7,200 ----------- Net tax payable 940 ======== EXAMPLE 5 (Illustrating calculation of income-tax in the case if a handicapped employee) Name of the assessee:X.Y.Z. Assessment year :1996-97 Status:Individual INCOME FROM SALARY : Salary 83,890 INCOME FROM HOUSE PROPERTY: ARV/Rent received @ 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 HB loan taken from the employer 6,000 Actual rent paid for accommodation12,000 Computation of total income and tax payable thereon 1. Gross salary (36,000+28,000+6,000+5,000 +500 = 75,500) 75,500 2. Less: House rent allowance exempt under section 10(13A) (A) Actual rent paid 12,000 (B) 50% of salary (including D.A.) 32,000 (C) Expenditure on rent in excess of 10% of salary (including D.A.only) e.g. (12,000 - 6,400 = 5,600) whichever is least, therefore, Rs.5,600 is exempt 5,600 ----------- 3. Total salary income 69,900 4. Less: Standard deduction Rs.18,000 or 33-1/3% whichever is less 18,000 ---------- (in respect of a woman where total income (i.e., taxable income) before51,900 deducting standard deduction does not exceed Rs.75,000) ----------- 5. Net taxable total income51,900 6. Tax on total income (i) Up to Rs.60,000 2,380 7. Tax rebate under section 88 (a) Total of savings: (i) Contribution to PF 3,600 (ii) Deposit to PPF 5,000 (iii) NSC 10,000 (iv) Repayment to HB loan 6,000 ----------- 24,600 (b) Tax rebate 20% of 24,600 = 4,920 but maximum to Rs.2,380 2,380 Net tax payableNil EXAMPLE 7 (Illustration of calculation of HRA under section 10(13A) in respect of an employee situated in Delhi) Assessment year 1996-97 Rs. Rs. 1. Salary (basic) 60,000 2. Dearness allowance 50,000 3. HRA 18,000 4. CCA 1,500 5. Actual rent paid 24,000 6. Contribution to GPF, PPF 30,000 7. Purchase of tax saving mutual fund 15,000 8. Purchase of NSC 10,000 A. Total income of salary (1+2+4+1,11,500 B. HRA 18,000 C. Total salary income1,29,500 D. Less: HRA exempt under section 10(13A) Least of following (i) Actual HRA received 18,000 (ii) Expenditure on rent in excess of 10% of salary (24,000 - 11,000) 13,000 (iii)50% of salary 55,000 13,000 1,16,500 E. Less: Standard deduction under section 16(i) at 33-1/3% subject to a maximum of Rs.15,000 15,000 1,01,500 ---------------- F. Tax on it up to 40,000Nil 40,000 - 60,000 at 20% 4,000 60,000 - 1,01,500 at 30%12,450 6,450 Tax on income of Rs.1,01,500 = Rs. 16,450 ----------- G. Rebate under section 88 (i) GPF, PPF 30,000 (ii) Mutual fund 10,000 (iii) Post Office NSC 10,000 ---------- 50,000 Tax rebate at 20% = 10,000 H. Balance tax payable Rs.16,450 - Rs.10,000 = 6,450. (Average monthly deduction comes to Rs.537 during the 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 (v) of sub-section (2) of section 17. Hence the balance to be added back as perquisite 15,000 - Medical expenditure directly paid by employer to a hospital approved by Chief Commissioner and reimbursement of such expenditure in respect of any of ailment as prescribed in Notification No.9107, dated October 7, 1992, is exempt under section 17(2)(v)(ii). Hence, there will be no perquisite in respect of amounts of Rs. 50,000 and Rs.10,000 as mentioned in item No. 3 and item No.4 respectively of the problem .- Expenditure on travelling for the purpose of treatment abroad (including expenditure on travelling and of one attendant). This is not to be available in this case as assessee's gross total income exceeds Rs.2 lakhs (Salary Rs.1,95,000 + Rs.15,000 the perquisite in respect of treatment from private practitioner). Hence, the same is to be added back as perquisite in view of condition (B) to clause (vi) of sub-section (2) of section 17.1,00,000 -Medical expenditure on treatment abroad is to be exempt only to the extent approved by RBI. Hence, out of Rs.1.5 lakhs spent, only Rs.1 lakh to be exempt and the balance of Rs.50,000 are liable to be added back. In view of condition (A) to clause (vi) of sub-section 2 of section 17. 50,000 ------------------ Gross total income 3,60,000 Tax thereon 1,19,000 Rebate under section 88 PF12,000 LIC 5,000 PPF 3,000 NSC10,000 UTI (MEP) 8,000 HBA10,000 ----------- Total48,000 Admissible at 20% 9,600 ---------- 1,09,400 ======== Tax payable comes to Rs.1,09,400 (Average monthly deduction comes to Rs.9,116 for the first eleven months and Rs.9,124 for the last month during the financial year).