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TMI BlogInstructions for deduction of tax at source from salary during financial year 1987-88 at the rates specified in Part III of First Schedule to Finance Act, 1987X X X X Extracts X X X X X X X X Extracts X X X X ..... rates in force for the financial year in which the payment is made, on the estimated income of the assessee for the financial year. The provisions of sub-section (3) of said section are intended for making adjustments for excess or short falls of inadvertent nature and/or due to unforeseen circumstances. Thus, the aggregate tax calculated on the estimated income divided by twelve 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 I of Paragraph A of Part III of the First Schedule to the Finance Act, 1987, is at Annex I . 4. The substance of the main provisions of law insofar 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 hereunder : ( 1 ) No tax will be deducted at source in any case unless the estimated salary income for the financial year exceeds Rs. 18,000. Some typical examples of calculations are at Annex II. ( 2 ) The value of perquisites by way of free or concessional residential accommodation, or motor cars provided by empl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance 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-IT(J)], dated 28-10-1975. 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. ( 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 Rs. 50,000, 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 workman in the undertaking to which the scheme applies and other relevant circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sting on production of evidence of actual payment of rent before excluding house rent allowance from the total income of the employee. ( 7 ) ( a ) Under section 16 the taxable salary is to be computed after making standard deduction. The standard deduction is to be allowed of an amount equal to 30 per cent 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. Thus, house rent allowance to the extent exempt under section 10( 13A ) will not be taken into account for the purpose 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 incurred by the employee or not. This deduction will be available also to persons drawing pension during the current financial year at the same rate and subject to the same ceiling as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtificate (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. ( b ) 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, in that the employee's own contribution to the individual account in the fund will not exceed one-fifth 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 ) to mean 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 one-fifth of salary or Rs. 10,000, whichever is less, will not be applicable to the contribution to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 purchase of house property is a composite amount and the cost of land cannot be separately ascertained) or the cost of any addition or alteration. Payments towards any expenditure in respect of which the deduction is allowable under the provisions of section 24 will al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7-88. Deduction will not be admissible where the aggregate of all contributions in the year is less than Rs. 250. ( 10 ) Under section 80GG, 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( 13A ); ( 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessarily 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. 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 deciding whether any expenditure from the special allowance has been actually incurred, and if so, the extent to which it has been incurred to meet the expenses wholly, necessarily and exclusively in the performance of duties of an office or employment of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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]. 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 :— "of an amount equal to :— ( i ) fifty per cent of the remuneration; or ( ii ) seventy-five per cent of such remuneration as is brought into India by, or on behalf of, the assessee in accordance with the Foreign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yer 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), 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. ( 15 ) 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. ( 16 ) The Finance Act, 1987 has inserted a new section 203A in the Income-tax Act, with effect from 1-6-1987. Section 203A reads as under :— "203A. (1) Every person deducting tax in accordance with the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. ( 18 ) 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. (1A) Without prejudice to the provisions of sub-section ( 1 ), if any such person, principal officer of company as is referred to in that sub-section does not deduct or after d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sociation of persons or both of individuals, whether incorporated or not or every artificial juridical person referred to in sub-clause ( vii ) of clause ( 31 ) of section 2 of the Income-tax Act, not being a case to which Sub-Paragraph II of this Paragraph or any other Paragraph of this Part applies. Rates of income-tax (1) Where the total income does not exceed Rs. 18,000 Nil ; (2) Where the total income exceedsRs. 18,000 but does not exceed Rs. 25,000 Rs. 50,000 25 per cent of the amount by which the total income exceeds Rs. 18,000; (3) Where the total income exceeds Rs. 25,000 but does not exceeds Rs. 1,750 plus 30 per cent of the amount by which the total income exceeds Rs. 25,000; (4) Where the total income exceeds Rs. 50,000 but does not exceed Rs. 1,00,000 Rs. 9,250 plus 40 per cent of the amount by which the total income exceeds Rs. 50,000; (5) Where the total income exceeds Rs. 1,00,000. Rs. 29,250 plus 50 per cent of the amount Rs. 1,00,000 by which the total income exceeds ANNEX II - TYPICAL EXAMPLES OF INCOME-TAX CALCULATIONS Example I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the employee for which actual rent paid by the company (actual rent assumed to be equal to the fair rental value) 42,000 ( ii ) Rent recovered from the employee 12,000 Computation of total income Rs. Rs. 1. Salary 48,000 2. Bonus 9,600 3. Valuation of perquisites 57,600 ( a) Furnished flat at concessional rent under section 17( 2 ) read with clauses ( a ) and ( b ) of rule 3 of the Income-tax Rules, 1962, fair rental value (FRV) (assumed to be equal to actual rent Rs. 42,000) 10% of salary including bonus 5,760 Add : Excess of (FRV) over 60% of salary including bonus of Rs. 57,600 ( i.e., Rs. 42,000—Rs. 34,560) 7,440 Add: Perquisite of the furniture (10% of cost i.e., Rs. 40,000) 4,000 17,200 ( b ) L ess: Rent paid by the employee 12,000 5,200 62,8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue to the employee and where the accommodation is furnished as in other cases, an additional 10 per cent of the original cost of furniture, or if it is hired from a third party, the actual hire charges payable therefor. (3) In the case of unfurnished accommodation, where the assessee can satisfy the income-tax authority that the value of the perquisites worked out on the basis laid down in the rules, exceeds the fair rental value of the accommodation, the value of the perqusities of the assessee shall be limited to such fair rental value. (4) In the example given above, the actual rent has been assumed to be equal to the "fair rental value" "Fair value" can, however, be different from the actual rent. It is defined in Explanation 2, below clause ( a ) of rule 3, to mean in the case of an accommodation which is unfurnished. "The rent which a similar accommodation would realise in the same locality or the municipal valuation in respect of the accommodation, whichever is higher." (5) In case the accommodation is situated in Bombay, Calcutta, Delhi and Madras, the excess over 60 per cent of salary over fair rental value, as against 50% in other cases, is required to be added in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000 - On the balance Rs. 11,260 (40%) 4,504 13,504 11. Total income 25,296 or 25,300 12. Income-tax payable : (Rs. 1,750 plus 30% of Rs. 300 i.e., Rs. 90) 1,840 [Rate at which monthly deduction from salary is required to be made works out to Rs. 153 for 11 months and Rs. 157 for the last month] Example IV [Illustrating calculation of house rent allowance under section 10(13A) in respect of residential accommodation situated at Delhi ] Rs. Rs. 1. Salary (excluding allowances perquisites) 40,000 2. House rent allowance received 8,400 3. Actual rent paid 11,400 4. Contribution to recognised provident fund 6,000 5. L.I.P. 3,000 6. Deposits in a 10-year account under the Post Office Savings Bank (Cumulative Time Deposit) Rules, 1959 1,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing and Disbursing Officers and State Undertakings under the control of the State Governments. Circular: No. 499 [F.No. 275/51/87-IT(B)], dated 1-12-1987 . ANNEX I - EXAMPLE OF INCOME-TAX AND SURCHARGE CALCULATION IN THE CASE OF AN EMPLOYEE POSTED IN DELHI Rs. 1. Total salary (including) DA 84,000 2. House rent allowance 12,000 3. City compensatory allowance 1,200 4. Contribution to GPF Payment of LIC premium 18,000 5. Actual rent paid 18,000 6. Refund of loan taken for the construction of house (the construction of which has been completed after 31-3-1987 and before 31-3-1988) 12,000 Computation of total income Rs. Rs. 1. Salary (including DA CCA) 85,200 2. House rent allowance received 12,000 3. Less: Allowance under section 10( 13A ) Actual rent paid 18,000 Less: 10% of salary 8,400 9,600 [Actual amount of HRA received or expenditure on rent in excess o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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