9911796707
TMI BlogInstructions for deduction of tax at source from salaries during the financial year 1999-2000X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 per cent, of the amount Rs. 50,000 but does not exceed by which the total income Rs. 60,000 exceeds Rs. 50,000 3. Where the total income exceeds Rs. 1,000 plus 20 per cent of Rs. 60,000 but does not exceed the amount by which the total Rs. 1,50,000 income exceeds Rs. 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. The amount of income-tax so computed shall be reduced by the amount of rebate of income-tax calculated under Chapter VIIIA and the income-tax so reduced shall be increased by a surcharge @ 10% of such income-tax. 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. No surcharge shall be payable by a non-resident. Section 192 of the Income-tax Act, 1961 : Broad Scheme of tax deduction at source from Salaries etc. 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 assessee under the head Salaries for the financial year 1999-2000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 income and the tax deducted thereon had not been taken into account. In other words, the DDO can take into account the loss from house property only for working out the amount of total tax to be deducted. While taking into the account the loss from house property, the DDO shall ensure that the assessee files declaration in Form No. 12C and encloses therewith a computation of such loss from house property. Such loss may be shown in column 7 of Form No. 16. 3.4 (i) For the purpose of computing loss under the head Income from house property in respect of a self-occupied resi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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. In the absence of such a certificate from the employee, the employer should deduct income-tax on the salary payable at the normal rates : Circular No. 147, dated 28-10-1974. 4.4 According to the provisions of section 200, any person deducting any sum in accordance with the provisions of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 penalty, under section 272BB, a sum of upto Rs. 5,000. 4.8 According to the provisions of section 206 of the Income-tax Act, read with rules 36A and 37 of the Income-tax Rules, the prescribed person in the case of every office of 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 Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eserve 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 banks are bound under section 203 to issue certificate of tax deducted in Form No. 16 to the pensioners also vide CBDT Circular No. 761, dated 13-1-1998. 4.12 Where non-residents are deputed to work in India and taxes are borne by the employer, if any refund becomes due to the employee after he has already left India and has no bank account in India by the time the assessment orders are passed, the refund can be issued to the employer as the tax has been borne by it : Circular No. 707, dated 11-7-1995. 4.13 TDS certificates issued by Central Government departments which are making payments by book adjustment, should be accepted by the Assessing Officers if they indicate that credit has been effected to the Income-tax Department by book adjustment and the date of such adjustment is given therein. In su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 way of bonus on such policy. For the purposes of this sub-clause, the expression Keyman insurance policy shall have the meaning assigned to it in clause (10D) of section 10. 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 fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n case any such share, security is directly or indirectly, offered to any assessee by the company or any other person on behalf of such company, the difference between the market value of stock and the cost at which it is offered to the employee shall be taxed as perquisite. This benefit shall be taxed in the year in which the right for such option is exercised by the employee or is exercised and transferred in the name of any other person by him. It is further provided that the difference between the market value on the date of exercise of option and the sale consideration in the event of sale by the employee would be taxed as capital gains in his hands. Section 79 of the Companies (Amendment) Act, 1999 (21 of 1999) provides that a company may issue sweat equity shares of a class of shares to its employees or directors. These shares may be issued at a discount or for consideration other than cash for providing know-how or making available rights in nature of intellectual property rights by whatever name called. The value of such shares will be treated as perquisite in the year in which such option is exercised by the employee or director as the case may be. Where the amount paid f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, 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 ten months leave. This exemption will be further limited to the maximum amount specified by the Government of India Notification No. S.O. 1015(E), dated 27-11-1997 at Rs. 2,40,000. (5) Under section 10(10B), the retrenchment compensation received by a workmen 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant period ; or (b) The actual expenditure incurred in payment of rent in excess of 1/10 of the salary due for the relevant period; or (c) Where such accommodation is situated in Bombay, Calcutta, Delhi or Madras, 50% of the salary due to the employee for the relevant period; or (d) Where such accommodation is situated in any other place, 40% of the salary due to the employee for the relevant period, whichever is the least. For this purpose, Salary includes dearness allowance, i.e., if the terms of employment so provide, but excludes all other allowances and perquisites. It has to be noted that only the expenditure actually incurred on payment of rent in respect of residential accommodation occupied by the assessee subject to the limits laid down in rule 2A, qualifies for exemption from income-tax. Thus, house rent allowance granted to an employee who is residing in a house/flat owned by him is not exempt from income-tax. 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 ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said clause. (12) Clause (18) of section 10 provides for exemption of any income by way of pension received by an individual or family pension received by any member of the family of an individual who has been in the service of the Central Government or State Government and has been awarded Param Vir Chakra or Maha Vir Chakra or Vir Chakra or such other gallantry award as may be specifically notified by the Central Government. (13) 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), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 a date prior to 1st April, 1955. 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) As per section 80CCC, where an assessee being an individual has in the previous year paid or deposited any amount out of his income chargeable to tax to effect or keep in force a contract for any annuity plan of Life Insurance Corporation of India for receiving pension from the Fund referred to in clause (23AAB) of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect to the provisions of this section be allowed a deduction of a sum of forty thousand rupees of the previous year. The handicapped dependent means a person who is a relative of individual or a member of HUF and is not dependent on any person other than such individual of HUF for his support and maintenance and is 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 individuals 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 local authority as per Explanation given below section 80DD. It would be sufficient if the employee furnishes a medical certificate from a Government Hospital and, a declaration in writing duly signed by the claimant certifying the actual amount of expenditure on account of medical treatment (including nursing) training and rehabilitation of the handicapped de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of this section, any amount paid by him in the previous year, out of his income 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 (2C) 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 that Act); or any other financial inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons: (a) the assessee has not been in receipt of any House Rent Allowance specifically granted to him which qualifies for exemption under section 10(13A) of the Act; (b) the assessee files the declaration in Form No. 10BA. (Annexure VI). (c) 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. 2,000 per month, whichever is less, the total income for working out these percentages will be computed before making any deduction under section 80GG. (d) 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. The Drawing and Disbursing Authorities should satisfy themselves that all the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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, or of 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 the rebate. (7) Any sum paid as contribution in the case of an individual, for himself, spouse or any child, (a) for participation in the Unit Linked Insurance Plan, 1971 of the Unit Trust of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme of any development authority, housing board etc. The deduction will also be allowable in respect of re-payment of loans borrowed by an assessee from the Government, or any Bank or Life Insurance Corporation, or 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 cooperative 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 competent authority, or after the occupation of the house by the assessee or after it has been let out. Payments towards any expenditure in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... public company shall have the meaning assigned to it in section 3 of the Companies Act, 1956 (1 of 1956); (iv) public financial institution shall have the meaning assigned to it in section 4A of the Companies Act, 1956. (15) Subscription to any units of any mutual fund referred to in clause (23D) of section 10 and approved by the Board on an application made by such mutual fund in the prescribed form : Provided that where a deduction is claimed and allowed under this clause with reference to the cost of units, the cost of such units shall not be taken into account for the purposes of sections 54EA and 54EB : Provided further that this clause shall apply if the amount of subscription to such units is subscribed only in the eligible issue of capital of any company. Explanation - For the purposes of this clause eligible issue of capital means an issue referred to in clause (i) of Explanation to clause (xvi) in sub-section (2) of section 88. (16) Subject to the limits mentioned for the various items, the entitlement to tax-rebate will be calculated at the rate of 20% of the total amount of the aforesaid savings etc., in the case of individuals, and at the rate of 25% in the case of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Further, tax payable so arrived at shall be increased by surcharge at the rate of ten per cent to arrive at the total tax payable. 7.4 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 1999-2000. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IP 10,000 CTD 36,000 76,000 or Rs. 12,000 whichever is less 12,000 Tax payable 1,42,000 Add : Surcharge @ 10% 14,200 Total tax payable 1,56,200 Note - Where a person makes investment as per section 88(2)(i) to 88(2) (xv) the qualifying amount is Rs. 60,000. However whereas further investment of Rs. 10,000 and above is made in the shares, debentures or units of Mutual Fund as per section 88(2)(xvi) and section 8(2)(xvii) the qualifying amount becomes Rs. 70,000 and a maximum rebate of Rs. 14,000 (20% of 70,000) is allowable. For Assessment year 2000-2001 Example 4 Calculation of Income-tax in the case of assessee having handicapped dependent Particulars (Rupees) (i) Gross salary 3,20,000 (ii) amount spent on treatment of dependent who is handicapped 7,000 (iii) Amount paid to LIC with regard to annuity for the maintenance of handicapped dependent 40,000 (iv) GPF contribution 25,000 (v) LIP paid 10,000 Computation of Tax 1. Gross salary 3,20,000 2. Less : Standard deduction 20,000 3,00,000 Less : Deduction under section 80DD(1) 40,000 (Restricted to Rs. 40,000 only) 2,60,000 Tax on Rs. 6,00,000 52,000 Rebate under section 88 GPF 25,000 LIP 10,000 35,000 Rebate @ 20% of 35,000 7,000 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal income 3,060 Less : Tax rebate restricted to Rs. 3,060 Tax payable Nil Note - Tax rebate is restricted to tax on total income. For Assessment year 2000-2001 Example 7 (Illustrating valuation of perquisites and calculation of tax in the case of an employee of a private company, posted at Delhi) Particulars (Rupees) 1. Salary 1,08,000 2. Bonus 12,000 3. Free gas, electricity, water etc. (actual bills paid by 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. Subscription to Mutual Fund 88 (xvii) 12,000 8. Life Insurance Premium 3,000 9. Subscription to NSC (VIII) issue 18,000 10. Contribution to Recognised PF 24,000 11. Contribution to infrastructure bonds under section 88(xvi) 15,000 72,000 Computation of total incomeand tax payable thereon Rs. 1. Salary 1,08,000 2. Bonus 12,000 3. Total of salary 1,20,000 4. Valuation of perquisites : (a) Furnished flat at concessional rent Rs. (please see sec. 17(2) of the IT Act) @ 10% of salary including bonus 12,000 (b) Add : Excess of (FRV) over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (Rupees) 1. Gross annual salary 1,95,000 2. Medical expenditure directly paid by employer to private practitioner 25,000 3. Medical expenditure directly paid 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 abroad 1,50,000 7. Out of (6) amount permitted by Reserve Bank of India 1,00,000 8. Contribution to P.F 12,000 9. LIC premium paid 5,000 10. Contribution to PPF 3,000 11. Purchase of NSC (VIII) issue 10,000 12. Repayment of principal of HBA* 12,000 13. Subscription to UTIs MEP 8,000 Computation of total income and tax payable thereon Gross salary 1,95,000 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted at source (enclose certificates) issued under section 203 Place ........................................... Date ........................................... ....................................................... Signature of the employee Verification I,..........................................., do hereby declare that what is stated above is true to the best of my knowledge and belief. Verified today, the .......................... day of ....................... 19....................... Place ........................................... Date ........................................... ....................................................... Signature of the employee Annexure III Form No. 16 . : Certificate under section 203 of the Income-tax Act, 1961 for tax deducted at source from income chargeable under the head Salaries Annexure IV Rule 2BB : Amendment in rule 2BB - Income-tax (Eighth Amendment) Rules, 1995 Annexure V Rule 2BB : Amendment in rule 2BB - Income-tax (Seventh Amendment) Rules, 1998 Annexure VI Form No. 10BA : Declaration to be filed by the assessee claiming deduction under section 80GG - Income-tax (Nineteenth Amendment) Rules, 1998 - Circular - Trade Notic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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