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TMI BlogDeduction of tax at source-Income-tax deduction from salaries during the financial year 1987-88 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 ..... on 192 of the Income-tax Act, 1961, were intimated. 2. Sub-section (1) of section 192 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) of the said section are intended for making adjustment for excess or shortfalls of inadvertent nature and/or due to unforeseen circumstances. Thus aggregate tax calculated on the estimated income divided by 12 and rounded off to the nearest rupee is required to be deducted from the monthly salary. 3. There is no change in the rate of tax for the financial year 1987-88. An extract of sub-paragraph (1) of paragraph 'A' of Part III of the First Schedule to the Finance Act, 1987, 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 1987-88 is given hereu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30,000, whichever is less. Where the cash equivalent of unutilised earned leave is received by employees from two or more employers in the same year, the maximum amount exempt from tax will not exceed Rs. 30,000. (iv) The amount repaid to an employee from the Additional Dearness Allowance Deposit Account under the provisions of the Additional Emoluments (Compulsory Deposit) Act, 1974, shall be liable to be included in his total income of the previous year in which it is repaid as already explained in the Ministry's Circular No. 182 (F. No. 275/12/75-ITJ) dated 28-10-1975 [Printed at (1975) 101 ITR (St.) 130]. The amount repaid will include an element of interest also. While the repayment of the principal sum will be regarded as salary paid during the relevant financial year and assessed to tax accordingly, the interest element qualifies for deduction according to section 80L of the Income-tax Act, 1961. (v) 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. (vii) (a) Under section 16 of the Income-tax Act (hereinafter referred to as the Act), the taxable salary is to be computed after making standard deduction. The standard deduction is to be allowed of an amount equal to 30% of the salary subject to a maximum of Rs. 10,000. 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 payment received by the employees which are specifically exempt from tax under clauses (10), (10A), (10AA), (10B), (10C), (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 purpose of computing the amount of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for participation in the Unit Linked Insurance Plan, 1971, made under section 19(1)(cc) of the Unit Trust Act, 1963, deposits in a 10 year account or 15 year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959, and subscription to the National Savings Certificate (VI Issue) and the National Savings Certificate (VII Issue). The interest on National Savings Certificate (VI Issue) is deemed to be reinvested and, therefore, the holder thereof is entitled to the benefits of section 80C. In respect of contributions to "Recognised Provident Fund", there is another monetary ceiling limit laid down in clause (d) of sub-section (2) of section 80C of the Income-tax Act, 1961, in that the employee's own contribution to the individual account in the fund will not exceed 1/5th of his salary during the financial year or Rs. 10,000, whichever is less. 'Salary' for this purpose would include dearness allowance if the terms of the employment so provide, but will exclude all other allowances and perquisites. The expression "Recognised Provident Fund" has been defined in section 2(38) of the Act to mean provident fund which has been and continues to be recognised by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se property, construction of which is completed after 31st day of March, 1987 and 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, Housing Board etc. the deduction will also be allowable in respect of repayment of loans borrowed by the taxpayer from the Government or any bank or Life Insurance Corporation and certain other categories of institutions engaged in the business of providing long term finance for construction or purchase of house in India. Any repayment of loan borrowed from the employer will also be covered, if the employer happens to be a public company. 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 the land (except where the consideration for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employee. The donation to the Prime Minister's National Relief Fund will be eligible for hundred per cent. deduction. Thus, deduction in this respect may be allowed while computing the total income for the purpose of deduction of income-tax at source for financial year 1987-88. Deduction will not be admissible where the aggregate of all contributions in the year is less than Rs. 250. (x) 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 sec. 10(13A) 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 deductions under section 80GG; (c) the assessee does not own: (i) any residential ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated herein that the employee in receipt of conveyance allowance would have to furnish the necessary certificate before the disbursing authority in support of the fact that the conveyance allowance is only a reimbursement of expenses laid down wholly, necessarily and exclusively in the performance of duties of an office or employment of profit. The satisfaction of the disbursing authorities would still be liable for scrutiny by the Income-tax Officer during regular assessment proceedings before him. The disbursing authority is also required to endorse a certificate in terms of section 10(14) on the tax deduction certificate issued under section 203 of the Act. In this connection, attention is invited to the Explanation to clause (14) of section 10 which clarifies that any allowance granted to the assessee to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at the place where he ordinarily resides shall not be regarded for purposes of that clause as a special allowance granted to meet expenses wholly, necessarily and exclusively incurred in the performance of such duties. This may be kept in view while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he deduction under this section, documentary evidence should be obtained on the following points:- (i) 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; (ii) 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. The fact that deduction is admissible only in relation to the first 36 months of continuous service outside India should also be kept in view). (3) The Finance Act has made the following amendment to section 80RRA with effect from the first day of April, 1988:- In section 80RRA of the Income-tax Act, in sub-section (1), for the words "of an amount equal to fifty per cent. thereof", the following shall be substituted with effect from the first day of April, 1988, namely: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such employee may choose) details of income under the head "Salaries" due or received by him from the employer or employers in the prescribed form duly verified in the prescribed manner and thereupon the employer shall deduct tax at source from the aggregate salary of the employee. (b) Where an employee who receives salary in arrears or in advance is entitled to relief under section 89(1) of the Income-tax Act, he may furnish to the person responsible for making payment referred to in section 192(1) such particulars in the prescribed form and duly verified in the prescribed manner and thereupon the said person shall compute and allow the relief under section 89(1) on the basis of such particulars. (c) New sub-section (2B) in section 192 enables a taxpayer having salary income in addition to other incomes to furnish in the prescribed manner the details of total income to his employer who shall deduct out of salary payment the tax due on the total income subject to the prescribed conditions. (xv) It may be noted that the person responsible for paying to a non-resident any income chargeable under the head "Salaries", shall deduct tax at source under the provisions of section 192. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 192 may be advised to apply to the concerned Income-tax Officer immediately for the allotment of tax deduction account number. (xvii) The total income computed in accordance with the provisions of the Act should be rounded off to the nearest multiple of ten rupees by ignoring the fraction which is less than five rupees and increasing the fraction which amounts to five rupees or more, to ten rupees. The net amount of tax deductible should be similarly rounded off to the nearest rupee. (xviii) 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 principal officer does not deduct or after deducting fails to pay the tax as required by or under this Act, he 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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