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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 ..... ear 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 employers to their employees shall be determined under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 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. It may be added that a number of public sector undertakings have formulated voluntary retirement s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the employees in actual service. However, the standard deduction will be limited to Rs. 1,000 only in cases— (i) where the employee is provided with any motor car, mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 provident fund 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. Provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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 the new provisions is transferred by the taxpayer at any time before the expiry of five years from the end of the fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 (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; (d) The accommodation occupied by him for the purpose of his own residence is situated in any of the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 profit. (12) 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 or an Indian concern) for any services rendered by him outside India, 50 per cent of such remuneration or more as amended by the Finance Act, 1987, as clarified below in sub-clause (3) will be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Exchange Regulation Act, 1973, and any rules made thereunder, whichever is higher." However, the said exercise of the verification of the excess amount allowable as a deduction under section 80RRA cannot be made by the Drawing and Disbursing Officer. The Drawing and Disbursing Officer should only allow a deduction equal to 50 per cent of the remuneration at source. (13) Under section 80U in computing the total income of a resident individual who is totall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 provisions of sections 192 to 194, section 194A, section 194B, section 194BB, section 194C, section 194D and section 195, if he has not been allotted any tax-deduction account number shall, within such time as may be prescribed apply to the Income-tax Officer for the allotment of a tax-deduction account number. (2) Where a tax-deduction account number has been allotted to a person such person shall quote such number— (a) in all challans for the payment of any sum in accordance with the provisions of section 200; (b) in all cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 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 deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at fifteen per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid. (2) Where the tax has not been paid as aforesaid after it is deducted, the amount of tax together with the amount of simple interest thereon referred to in sub-section (1A) shall be a charge upon all the assets of a person or the company as the case may be, referred to in sub-section (1)". (19) Attention is als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. Rs. 1. Total salary income 36,000 2. Contribution to Government provident fund 7,200 3. Payment towards life insurance premia 1,000 4. Contribution for participation in Unit-linked Insurance Plans, 1971, made under section 19(1)(cc) of the Unit Trust of India Act, 1963 300 10,000 5. Deposits in a 10-year account or 15-year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959 500 6. Subscription to National Saving Certificates 1,000 7. Total salary income 36,000 8. Deduct : Amount of standard deduction under section 16(i) : 30% of the amount subject to maximum of Rs. 10,000 10,000 9. Gross total income (7—8) 26,000 10. Deduct : Amount on account of contribution towards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S.C. of Rs. 30,220 (maximum allowable up to Rs. 40,000) - First Rs. 6,000 (100%) 6,000 - Next Rs. 6,000 (50%) 3,000 - On balance Rs. 18,220 (40%) 7,288 Total deductible 16,288 8. Total income (6-7) (Rs. 55,200-16,288) 38,912 or 38,910 9. Tax payable thereon (Rs. 1,750+30% of excess over Rs. 25,000 i.e., Rs. 13,910, i.e., Rs. 4,173) 5,923 [Rate at which monthly deduction from salary is required to be made works out to Rs. 494 for 11 months and Rs, 489 in the last month] Notes : (1) In the case of Government servants, the value of perquisites of unfurnished accommodation provided free is determined in accordance with the rules framed by the Government for allotment of residence to its employees. For determining the perquisite value of free furniture, it is taken, as in other cases, at 10% per annum of the original cost of the furniture, or if it is hired from a third party, the actual hire charges payable. (2) Where unfurnished accommodation is provided to its employee by the Reserve Bank of India or any other public sector body specified in sub-clause (2) of clause (a) of rule (3) of the Income-tax Rules, say, a nationalised bank, State Trading Corporation, et ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000, whichever is less, i.e., 9,760 - Life insurance premia 1,000 - Contribution to participation in Unit-linked Insurance Plan, 1971, made under section 19(i)(cc) of the Unit Trust of India Act, 1963 1,500 - Deposit in a 10-year account or 15-year account under the Post Office Savings Bank (Cumulative Time Deposit) Rules, 1959 1,000 - Refund of house purchase/construction loan, limited to Rs. 10,000 10,000 23,260 Deduction admissible on Rs. 23,260: - On the first Rs. 6,000 (100%) 6,000 - On the next Rs. 6,000 (50%) 3,000 - 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibution 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 of 1/10th of the salary or 50% of salary, whichever is the least] 4. Less: Standard deduction u/s 16(i) @ 30% subject to a maximum of Rs. 10,000 10,000 5. Gross total income 77,600 6. Less: Deduction under section 80C : GPF, LIC 18,000 Refund of HB loan (limited to Rs. 10,000) 10,000 28,000 - First Rs. 6,000 (100%) 6,000 - Next Rs. 6,000 (50%) 3,000 - On balance of Rs. 16,000 (40%) 6,400 15,400 7. Total income 62,200 8. Tax payable on Rs. 62,200 14,130 9. Surcharge payable @ 5% on the amount of income-tax Rs. 706.50 or 707 10. Total (income-tax and surcharge) 14,837 [Rate at which monthly deduction is to be paid works out to Rs. 1,236 f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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