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TMI BlogInstructions for deduction of tax at source from salaries during the financial year 2000-2001X X X X Extracts X X X X X X X X Extracts X X X X ..... which Rs. 50,000 but does not exceed the total income exceeds Rs. 50,000 Rs. 60,000 3. Where the total income exceeds Rs, 1,000 plus 20 per cent of the amount Rs. 60,000 but does not exceed by which the total income exceeds Rs. 1,50,000 60,000 4. Where the total income exceeds Rs. 19,000 plus 30 per cent of the Rs. 1,50,000 amount by which the total income exceeds Rs. 1,50,000. Surcharge on income-tax The amount of income-tax so computed shall be reduced by the amount of rebate of income-tax calculated under Chapter VIII-A and the income- tax so reduced shall be increased by a surcharge : (a) @ 10% of such income-tax where the total income exceeds sixty thousand rupees but does not exceed one lakh fifty thousand rupees; (b) at the rate of fifteen per cent of such income-tax where the total income exceeds one lakh fifty thousand rupees. However, the total amount payable as income-tax and surcharge shall not exceed the total amount payable as income-tax on a total income of Rs. 60,000 by more than the amount of income that exceeds Rs. 60,000. Further having total income exceeding Rs. 1,50,000, the total amount payable as income-tax and surcharge shall not ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsity established or incorporated by or under a Central, State or Provincial Act, and includes an institution declared under section 3 of the University Grants Commission Act, 1956 (3 of 1956), to be University for the purpose of the Act. 3.4 Sub-section (2B) of section 192 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) vide Annexure II. Such income should not be a loss under any such head or other than the loss under the head Income from house property for the same financial year. The person responsible for making payment (DDO) shall take such other income and tax, if any, deducted at source from such income, and the loss, if any, under the head Income from house property into account for the purpose of computing tax deductible under section 192 of the Income-tax Act. It is, however, provided that this sub-section shall not in any case have the effect of reducing the tax deductible except where the loss under the head Income from house property has been taken into account, from income under the head Salaries below the amount that would be so deductible if the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Fourth Schedule to the Act applies, at the time when accumulated balance due to an employee is paid, make therefrom the deduction specified in rule 10 of Part A of the Fourth Schedule. 3.7 Where 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. 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, and, if the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment of pension are required to issue such certificates. In the case of employees receiving salary income including pension, the certificate has to be issued in Form No. 16 which has been prescribed under Boards Notification No. S.O. 148(E), dated 28-2-1991. A specimen of the certificate is enclosed as Annexure III. This certificate is to be issued on the tax-deductors own stationery within one month from the close of the financial year, i.e., by April 30 of every year. 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 be Rs. 100 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 Departments Circular No. 497 [F. No. 275/118/87-IT(B), dated 9-10-1987]. If a person fails to comply with the provisions of section 203A, he will be liable to pay, by way of pena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 deductions 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: refer Para 6) 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 RBIs Pension Circular (Central Series) No. 7/C.D.R./1992 (Ref.CO: DGBA: GA(NBS) No. 60/GA.64 (11CVL)-91/92), dated the 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. Further all branches of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 employees 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. Contributions made by the employer in excess of 12% of the salary of the employee, along with interest applicable, shall be included in the income of the assessee for the previous year. Other items included in salary, profits in lieu of salary and perquisites are described in section 17 of the Income-tax Act. The scope of term profit in lieu of salary has been amended so as not to include interest on contributions or any sum received under a Keyman insurance policy including the sum allocated by wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 which 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 applicabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d five lakh rupees : (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 Cooperative Society; (f) a university established or incorporated or under a Central, State or Provincial Act, or, 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 Institute 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. (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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: (i) 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. (ii) 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 CBDT has prescribed guidelines for the purpose of clauses (i) and (ii) of section 10(14) vide Notification No. SO 617(E) [F. No. 142/9/95-TPL] da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich 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 employees (under any scheme approved by the Central Government, or the 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 of Rs. 15,000 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 employees gross total income, as computed before including the said expenditure, does not exceed Rs. 2 lakhs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in the computation of his total income, of the whole of the amount paid or deposited (excluding interest or bonus accrued or credited to the assessees account, if any) as does not exceed the amount of ten thousand rupees in the previous year. Where any amount paid or deposited by the assessee has been taken into account for the purposes of this section, a rebate with reference to such amount shall not be allowed under section 88. (2) Under section 80D, in the case of the following categories of persons, a deduction can be allowed for a sum not exceeding Rs. 10,000 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 General 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, ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cified schemes of LIC or UTI. Therefore, DDOs may not insist production of vouchers/bills by the employees for having incurred expenditure on medical treatment of their handicapped dependents for allowing the deduction under section 80DD for the purpose of computing tax deductible at source. (Ref. CBDT Circular No. 775, dated 26-3-1999). (4) Under section 80DDB, where an assessee who is resident in India has, during the previous year, actually incurred any expenditure on the medical treatment of such disease or ailment as may be specified in rule 11DD made in this behalf by the Board (a) for himself or a dependent relative, in case the assessee is an individual, (b) for any member of a Hindu undivided family in the case the assessee is a member of a Hindu undivided family The assessee shall be allowed a deduction of a sum of forty thousand rupees in respect of that previous year in which such expenditure was actually incurred. However, an assessee or his dependent relative or any member of a Hindu undivided family of the assessee and who is a senior citizen the deduction of a sum of Rs. 60,000 shall be allowed in respect of that previous year in which such expenditure was ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. (6) 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, DDOs., on due verification, may allow donations to the following bodies to the extent of 50% of the contribution : i. Jawaharlal Nehru Memorial Fund, ii. The Prime Ministers Drought Relief Fund, iii. The National Childrens Fund, iv. The Indira Gandhi Memorial Trust, v. The Rajiv Gandhi Foundation, and to the following bodies to the extent of 100% of the contribution : i. National Defence Fund or the Prime Ministers National Relief Fund, ii. The Prime Ministers Armen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the conditions mentioned above are satisfied before such deduction is allowed by them to the assessee. They should also satisfy themselves in this regard by insisting on production of evidence of actual payment of rent. (8) Section 80U allows deduction of forty thousand rupees in computing the total income of a 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 individuals 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(4). Tax rebate 6. An assessee, being an individual, will be entitled to tax rebates under Chapter VIII of the Act as given below : (1) Payment of insurance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 receives 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. 20,000. 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 comple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 16,000 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 on investments made as above, excluding that mentioned in paras 14 & 15, will be Rs. 60,000 and in the case of authors, sportsmen etc. Rs. 70,000. (17) Under section 88B, an assessee being an individual resident in India, who is of the age of sixty five years or more at any time during the previous year shall be entitled to a deduction from the amount of income-tax (as computed before allowing the deductions under this Chapter VIII) on his total income, with which he is chargeable for any assessment year, of an amount equal to one hundred per cent of such income-tax or an amount of fifteen thousand rupees, whichever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .4 It is also to be noted that deductions under Chapter VIA 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 2000-2001. 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. 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, 2000. 8.2 In case any assistance is required, the Assessing Officer/the local Public Relation Officer of the Income-tax Department may be contacted. 8.3 These instructions may please be brought to the notice of all disbursing officers and undertakings including those under the control of the Central/State Government. Circular : No. 798, dated 30-10-2001. Annexure I For assessment year 2001-2002 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yable 51,750 Example 3 Calculation of income-tax in the case of an employee where Medical Treatment expenditure was borne by the employer Particulars (Rupees) 1. Gross salary 3,00,000 2. Medical reimbursement by employer on the treatment of self and dependent family member 30,000 3. Contribution to GPF 20,000 4. LIP 20,000 5. Repayment of House Building Advance 25,000 6. Investment in infrastructure Bond under section 88(xvi) 20,000 Computation of Tax Gross Salary 3,00,000 Add : Perquisite in respect of reimbursement of Medical Expenses in excess of Rs. 15,000 in view of section 17(2)(v) 15,000 3,15,000 Less : Standard deduction 20,000 Taxable income 2,95,000 Tax thereon 62,500 Rebate under section 88 GPF 20,000 LIC 20,000 Repayment of House Building 20,000 Advance (Maximum) Investment in Infrastructural Bonds under section88(xvi) 20,000 Total 80,000 Rebate @ 20% on Rs. 80,000 16,000 Tax payable 46,500 Add : Surcharge @ 15% 6,975 Total Tax payable 53,475 Notes : Repayment of house building advance is restricted to Rs. 20,000 under section 88(xv) of Income-tax Act, 1961. (ii) Total qualifying amount for rebate is Rs. 60,000 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Valuation of perquisites: (a) Furnished flat at concessional rent Rs (please see section 17(2) of the IT 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) 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 1,31,000 (d) Add : Perquisite of free gas, electricity etc. 6,000 Gross total Income 1,37,000 Less : Standard deduction under section 16(i) 20,000 1,17,000 Tax on Total Income of Rs. 1,17,000 12,400 Tax Rebate under section 88 Provident Fund 24,000 Subscription to NSC VIII issue 18,000 LIP 3,000 Subscription to Mutual Fund 12,000 Contribution to Infrastructural Bond 15,000 72,000 Tax Rebate @ 20% 14,400 Tax on Total Income 12,400 Tax rebate (restricted) 12,400 Tax Payable Nil Example 6 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 Particulars (Rs.) 1. Salary 1,18,000 2. Dearness allowance 36,000 3. House Rent Allowance 12,000 4. Special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Employer to a private practi-tioner is not to be added as perquisite only to the extent of Rs. 15,000 in view of proviso (v) to sub-clause (v) of clause (2) of section 17. Hence the balance to be added back as perquisite. 10,000 - Medical expenditure directly paid by employer to a hospital approved by Chief Commissioner and reimbursement of such expenditure in respect of any ailment as prescribed in Notification No. 9107, dated 7-10-1992 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. - Expenditure on travelling for the purpose of treatment abroad (including expenditure on travelling and of one attendent). This is not to be available in this case as assessees gross total income exceeds Rs. 2 lakh. (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 in view of condition (B) to sub-clause (vi) of clause (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 onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing women) 5,000 Total Rebate 9,000 9,000 Tax payable Nil Note : In the case of a women assessee who is of 65 years age or more, she will be entitled to rebate only under section 88B of the Act meant for senior citizens and not under section 88C of the Act. Annexure II Form for sending particulars of income under section 192(2B) for the year ending 31st March, 2000 1. Name and address of the employee 2. Permanent Account Number 3. Residential status 4. Particulars of income under any head of income other than Salaries (not being a loss under any such head other than the loss under the head Income from house property) received in the financial year (i) Income from house property .................... (in case of loss, enclose computation thereof) (ii) Profits and gains of business or profession .................... (iii) Capital gains .................... (iv) Income from other sources (a) Dividends (b) Interest (c) Other incomes (specify) Total .................... 5. Aggregate of sub-items (i) to (iv) of item 4 6. Tax deducted at source (enclose certificates) issued under section 203 Place ........................................ Date ... ..... X X X X Extracts X X X X X X X X Extracts X X X X
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