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TMI BlogDeduction of tax at source-Income-tax deduction from salaries during the financial year 1983-84 under section 192 of the Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... e income-tax Act, 1961, were intimated. 2. Sub-section (1) of the said section provides that the person responsible for paying any income chargeable under the head "Salaries" shall, at the time of making payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee for that financial year. The provisions of sub-section (3) are intended for making adjustments of excess or shortfalls of inadvertent nature and/or due to unforeseen circumstances. Thus, the aggregate tax calculated on the estimated income divided by twelve and rounded to the nearest rupee is required to be deducted from the monthly salary. 3. In the Finance Act, 1983, some modifications have been made. An extract of Sub-Paragraph 1 of Paragraph A of Part III of the First Schedule is at Annexure I. 4. The substance of the main provisions of law in so far as they relate to income chargeable under the head "Salaries" on which tax is to be deducted at source during the financial year 1983-84, is given hereunder:- (i) No tax will be deductible at source in any c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxpayer under the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974, is not allowable as deduction in computing his taxable income. Accordingly, such deposit has to be ignored for the purpose of determining the amount of income-tax deductible at source. (vi) Under section 16 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), the taxable salary is to be computed after providing standard deduction. The standard deduction is to be allowed of an amount equal to 25 per cent. of the salary subject to a maximum of Rs. 6,000. For this purpose, the term "salary" will include fees, commission, perquisites or profits in lieu of or in addition to salary, but will not include any payments received by the employees which are specifically exempt from tax under clause (10), (10A), (10AA), (10B), (11), (12) and (13A) of section 10 of the Act. Thus, house rent allowance to the extent exempt under section 10(13A) of the Act will not be taken into account for the purposes of computing the amount of the standard deduction. It is to be noted that standard deduction on the above basis is to be allowed irrespective of whether any expenditure incidental to employment is actually i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut will exclude all other allowances or perquisites. The expression "recognised provident fund" has been defined in section 2(38) of the Act to mean a provident fund which has been and continues to be recognised by the Commissioner in accordance with the rules contained in Part A of the Fourth Schedule to the Act and includes a provident fund established under a scheme framed under the Employees' Provident Funds Act, 1952. (c) The additional monetary ceiling of 1/5th of salary or Rs. 10,000, whichever is less, will not be applicable to the contributions to the provident funds referred to in sub-clauses (iii) and (iv) of clause (a) of sub-section (2) of section 80C. Such provident funds are:- A. Government Provident Fund and Railway Provident Fund; B. Provident Fund established by such local authorities and institutions as are mentioned in the Schedule to the Provident Fund Act, 1925, and those notified by the Government from time to time under section 8(3) of that Act; and C. Any provident fund set up by the Central Government and notified by it in the Official Gazette-Public Provident Fund set up under the Public Provident Fund Act, 1968, is an example of such a fund. (d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 house rent allowance from the total income of the employee. However, the Hon'ble Punjab and Haryana High Court has held in the case of Commissioner of Income-tax v. Justice S.C. Mittal [1980] 121 ITR 503, that even in the case of an assessee occupying his own house, the house rent allowance received from the employer is not liable to tax subject to the limits imposed under section 10(13A) of the Act and rule 2A. That judgment had not been accepted by the Department and an appeal has been filed after Special Leave was granted by the Hon'ble Supreme Court. The disbursing authorities may, however, allow exemption in respect of house rent allowance granted to every employee assessable/assessed to income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, being accommodation in the occupation of the assessee, the value of which is to be determined under clause (i) or, as the case may be, clause (ii) of sub-section (2) of section 23; and (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 (Laskhar), Hyderabad, Indore, Jabalpur, Jaipur, Kanpur, Lucknow, Ludhiana City, Madurai, Nagpur, Patna, Pune (Poona), Srinagar, Surat, Vadodara (Baroda) or Varanasi (Banaras) or the Urban agglomeration of each of such places, and (ii) Bombay, Calicut, Cochin, Ghaziabad, Hubli-Dharwar, Madras, Sholapur, 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 employees under the orders issued by it from time to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses wholly, necessarily and exclusively in the performance of duties of an office or employment of profit. (xii) 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 of an Indian concern) for any services rendered by him outside India, 50 per cent. of such remuneration will be deducted in computing the taxable income. It also provides that where the assessee renders continuous service abroad for more than 36 months, the remuneration received by him for any period of service after the expiry of the said 36 months will not qualify for any deduction. 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 only 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 appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal income computed in accordance with the provisions of the Act should be rounded off to the nearest multiple of ten rupees by ignoring the fraction which is less than five rupees and increasing the fraction which amounts to five rupees or more, to ten rupees. The net amount of tax deductible should be similarly rounded off to the nearest rupee. (xv) Section 201 provides:- (1) If any such person and in the cases referred to in section 194 the principal officer and the company of which he is the principal officer does not deduct or after deducting fails to pay the tax as required by or under this Act, he is or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax: Provided that no penalty shall be charged under section 221 from such person, principal officer or company unless the Income-tax Officer is satisfied that such person or principal officer or company, as the case may be, has without good and sufficient reasons failed to deduct and pay the tax. (1A) Without prejudice to the provisions of sub-section (1) if any person, principal officer or company as is referred to in that sub-sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it can be made in one or more instalments of his choice at any time during the financial year. A person who is required to pay advance tax, is liable to make the deposit (in one sum or in instalments of his choice) on or before the date on which the last instalment of advance tax is payable by him. 7. These instructions are not exhaustive and are issued only with a view to helping the employers to understand the various relevant provisions. Wherever there is difference of opinion, a reference should also always be made to the provisions of the Income-tax Act, 1961, and the relevant Finance Act through which the changes in the tax structure are made. 8. These instructions may please be brought to the notice of all disbursing officers and State Undertakings under the control of the State Government. 9. In case any assistance is required the ITO concerned and/or the Local Public Relations Officer may be approached for the same, who will, if necessary, obtain the orders of higher authorities in the matter. 10. Copies of this Circular are available with the Director of Inspection (Research, Statistics Public Relations) 6th Floor, Mayur Bhawan, Connaught Circus, New Delhi - 110 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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