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TMI BlogIncome-tax deduction from salaries during the financial year 1992-93 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 ..... ng the tax rate of 20 per cent., 30 per cent., and 40 per cent., respectively, on the portion of the income falling within these slabs. The limit of total income for the purpose of levying surcharge on income-tax has also been raised from Rs. 75,000 to Rs. 1,00,000. The rate of surcharge, however, remains unchanged at 12 per cent. of the income-tax computed on the total income. An extract of sub-paragraph I of Paragraph A of Part Ill of the First Schedule to the Finance Act, 1992, giving the tax-rates applicable, is given at Annexure I. 3. Some of the other important changes brought about by the Finance Act, 1992, are as follows : (i) Insertion of a proviso to clause (1) of section 16 to enhance the standard deduction to fifteen thousand rupees in respect of working women whose total income before making the standard deduction does not exceed seventy-five thousand rupees; (ii) Amendment of clause (2) of section 17 to provide that all payments made by an employer directly to a hospital, approved by the Chief Commissioner of Income-tax, having regard to the prescribed guidelines, in connection with the medical treatment of the employee or any member of his family, shall not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computed before allowing the rebate under Chapter VIII of the Income-tax Act, 1961) payable by individuals, resident in India, who are of the age of sixty-five years or more at any time during the relevant previous year and have a gross total income not exceeding fifty thousand rupees. 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 1992-93 is given hereunder and in the succeeding paragraphs : (i) 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, under this head, of the assessee, for that financial year. The provisions of sub-section (3) of the said section are intended for making adjustment for any excess or shortfall in the deduction of tax made during the financial year. The aggregate tax thus calculated on the estimated income, div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rded as perquisites received by the employee unless the employee's income under the head "Salary" exclusive of the value of any benefit or amenity not provided for by way of monetary payment exceeds Rs. 24,000. (vi) In cases where salary is received from more than one employer, the aggregate salary from these employers will have to be taken into account for the purpose of tax deduction at source. Exemptions/Deductions in computing total income 5. The exemptions/deductions which can be taken into account for computing the total income of an employee are discussed hereunder : (i) The value of any travel concession or assistance received by or due to an employee from his employer or former employer for himself and his family, in connection with his proceeding (a) on leave to any place in India or (b) on retirement from service, or after termination of service to any place in India is exempt under clause (5) of section 10 subject, however, to the conditions prescribed in rule 2B of the Income-tax Rules, 1962. For the purpose of this clause, "family" in relation to an individual means-- (1) The spouse and children of the individual ; and (2) the parents, brothers and sisters ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . These limits shall not apply in a 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. (vi) Hitherto, under section 10(10C) of the Income-tax Act, any payment received by an employee of a public sector company at the time of his voluntary retirement was exempt from tax provided the payment was in accordance with any scheme approved by the Central Government. The Finance Act, 1992, has enlarged the ambit of section 10(10C) to provide that exemption will be available not only to the employees of the public sector companies but also of other companies, if the payment made at the time of voluntary retirement is in accordance with any scheme(s) of voluntary retirement. These schemes will have to be in accordance with the guidelines (see [1992] 197 ITR (St.) 98), prescribed by the Central Government which may, inter alia, include criteria of economic viability of the concerned companies. The only distinction between the voluntary retirement schemes of public sector compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, be noted that this concession is only for the purpose of tax-deduction at source, and, in the regular assessment of the employee, the Assessing Officer will be free to make such enquiry as he deems fit for the purpose of satisfying himself that the employee has incurred actual expenditure on payment of rent. (viii) Clause (14) of section 10 provides for exemption of the following allowances :-- (i) Any special allowance or benefit granted to an employee to meet the expenses incurred in the performance of his duties, which the Central Government may specify by notification in the Official Gazette ; (ii) Any allowance granted to an assessee either to meet his personal expenses at the place of his posting or at the place he ordinarily resides or to compensate him for the increased cost of living, which the Central Government may specify by notification in the Official Gazette. The Direct Tax Laws (Second Amendment) Act, 1989, has inserted the following proviso to the aforesaid clause. "Provided that nothing in sub-clause (ii) shall apply to any allowance in the nature of personal allowance granted to the assessee to remunerate or compensate him for performing duties of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the computation of income for the purpose of deduction of tax at source. The reimbursement of tution fee is also not exempt from tax. (ix) Under section 10(15)(iv)(i) of the Income-tax Act, as amended by the Finance Act, 1990, interest payable by the Government on deposits made by an employee of the Central Government or State Government or a public sector company from out of his retirement benefits, in accordance with such scheme framed in this behalf by the Central Government and notified in the Official Gazette is exempt from income-tax. By Notification No. F. 2/14/89-NS-II, dated 7-6-1989 (see [1990] 182 ITR (St.) 63), as amended by Notification No. 2/14/89-NS-II, dated 12-10-1989 ([1990] 182 ITR (St.) 72), the Central Government has notified a scheme called Deposit Scheme for Retiring Government Employees, 1989, for the purpose of the said clause. (x)(a) Under section 16 of the Income-tax Act, as amended by the Finance Act, 1992, the taxable salary is to be computed after making a standard deduction equal to 33-1/3 per cent. of the salary, subject to the following limits : (1) Rs. 15,000 in the case of working women whose total income, before making the standard deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly 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 ; (c) any sum paid by the employer directly to a hospital, approved by the Chief Commissioner of Income-tax, having regard to the prescribed guidelines for the purposes of medical treatment of the prescribed diseases or ailments, on account of such treatment or any member of his family; (d) premium paid by the employer in respect of medical insurance taken for his employees (under any scheme approved by the Central Government) or reimbursement of insurance premium to the employees who take medical insurance for themselves or for their family members (under any scheme approved by the Central Government) ; (e) reimbursement by the employer, of the amount spent by an employee in obtaining medical treatment for himself or any member of his family from any doctor, not exceeding in the aggregate, Rs. 10,000 in an year; (f) As regards medical treatment abroad, the actual expenditure incurred on medical treatment, including the expenditure on travel or stay abroad of the patient and one attendant, in cases whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly of husband and wife governed by the system of community of property in force in the State of Goa and the Union Territories of Dadra and Nagar Haveli and Daman and Diu, any sum paid to effect or to keep in force an insurance on the health of any member of such association or body or on the health of the dependent children of the members of such an association or body. (xiv) Under section 80DD, as amended by the Finance Act, 1992, a deduction of Rs. 12,000 shall be allowed in the case of resident individuals who incur expenditure on the medical treatment (including nursing), training and rehabilitation of a handicapped dependant relative, 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 all assessees without any restriction with regard to their total income. The permanent physical disability or mental retardation of the dependant relative has to be certified by a physician, surgeon, oculist or a psychiatrist, as the case may be, working in a Government hospital, including a Departmental dispensary or a hospital maintained by a local authority as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 following places, namely :-- (i) Agra, Ahmedabad, Allahabad, Amritsar, Bangalore, Bhopal, Calcutta,Coimbatore, Delhi, Faridabad, Gwalior (Lashkar), Hyderabad, Indore, Jabalpore, jaipur, Kanpur, Lucknow, Ludhiana City, Madurai, Nagpur, Patna, Pune, Srinagar, Surat, Vadodra (Baroda) or Varanasi (Banaras) or the Urban agglomeration of each of such places ; or (ii) Bombay, Calicut, Cochin, Ghaziabad, Hubli-Dharwar, Madras, Solapur, 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 time in this regard. The disbursing authorities should satisfy themselves that all the conditions mentioned above are satisfied before such deduction is allowed by them to the assessees. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ; (b) 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). (xviii) Section 80U allows deduction of a sum of twenty thousand rupees in computing the total income of a resident individual, who at the end of the previous year, is suffering from a permanent physical disability (including blindness) or is subject to mental retardation, being a permanent physical disability, or mental retardation, specified in rule 11D of the Income-tax Rules, 1962, which is certified by a physician, surgeon, oculist or psychiatrist, as the case may be, working in a Government hospital and which has the effect of reducing considerably such individual's capacity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account standing in the name of an individual, or a minor, of whom he is the guardian. (vi) 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 Savings Certificates 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 as investment also qualifies for deduction. (vii) Any sum paid as contribution : (a) for participation in the Unit Linked Insurance Plan, 1971, of the Unit Trust of India ; (b) for participation in any unit-linked insurance plan of the LIC Mutual Fund notified by the Central Government under clause (23D) of section 10. (viii) Any payment made to effect or keep in force a contract for such annuity plan of the Life Insurance Corporation as the Central Government may, by notification in the Official Gazette, specify ; (ix) Any subscription not exceeding rupees ten thousand, made to any units of any Mutual Fund, notified under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urpose 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 which the deduction is allowable under the provisions of section 24 of the Income-tax Act 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 these provisions is transferred by the taxpayer at any time before the expiry of five years from the end of the financial year in which possession of such property is obtained by him or he receives back, by way of refund or otherwise, any sum specified in section 88(2)(xv), no deduction under these provisions shall be allowed in respect of such sums paid in such previous year in which the transfer is made and the aggregate amount of deduction of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment made by the employee, he should not allow the same, and the employee would be free to claim the rebate on such amount by filing his return of income and furnishing the necessary proof etc., therewith, to the satisfaction of the Assessing Officer. It may also be mentioned here that the deposits/ subscriptions/payments towards the items qualifying for the tax rebate should be made out of the employee's income chargeable to tax. Calculation of income-tax and surcharge : 7. (a) The net salary income in the case of each employee, arrived at after allowing the eligible deductions, from the gross salary, is liable to income-tax during the financial year 1992-93, at the rates referred in para 2 above. After calculating the tax liability, the tax rebate provided for in section 88 and section 88B (wherever applicable) should be allowed as a deduction. The balance amount is the tax payable by the employee which is required to be deducted from the monthly salary in equal instalments. It may be noted here that the tax rebate under sections 88 and 88B shall not in any case exceed the amount of income-tax on the total income of the assessee with which he is chargeable. (b) Surcharge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at source may be made after allowing relief under section 89(1), whenever salary, etc., is paid in arrears or in advance. (c) Sub-section (2B) enables a taxpayer to furnish particulars of income under any head other than "Salaries" and of any tax deducted at source thereon in the prescribed form (No. 12C). Such income under any other head should not be a loss. The employer shall take such other income and tax, if any, deducted at source from such income into account for the purpose of computing tax deductible under section 192 of the Income-tax Act. However, if such aggregation results in tax deductible which is less than in the case where income under the head "Salaries" alone is taken into account for computing tax deductible, then such aggregation under sub-section (2B) is not permissible. In other words, a loss from any other source cannot be adjusted by the DDO against salary income. To meet the requirements of these provisions, the Central Government have enacted rule 26B in the Income-tax Rules. Detailed instructions in this regard were issued by the Department vide Circular No. 504 [F. No. 275/138/87-IT(B) (see [1988] 171 ITR (St.) 7), dated 8-2-1988. 8.1 Section 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lays down that such person shall be liable to pay simple interest at 15 per cent. per annum on the amount of such tax from the date on which such tax was deductible to the date on which tax is actually paid. Section 271C lays down that if any person fails to deduct tax at source, he shall be liable to pay. by way of penalty, a sum equal to the amount of tax not deducted by him. Further section 276B lays down that if a person fails to pay to the credit of the Central Government within the prescribed time the tax deducted at source by him, he shall be punishable with rigorous imprisonment for a term which shall be between 3 months and 7 years and with fine. 9.1 While making the payment of tax deducted at source to the credit of the Central Government, it may kindly be ensured that the correct amount of income-tax is recorded in the relevant challan. It may also be ensured that the right type of challan is used. The relevant challan for making payment of tax deducted at source from salaries is No. 9 with "Blue colour Band". Where the amount of tax deducted at source is credited to the Central Government through book adjustment, care should be taken to ensure that the correct amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. This return has to be furnished in Form No. 24. It may be noted that a copy of each of the TDS certificates issued during the financial year should be enclosed with the annual return. If a person fails to furnish in due time the annual return, he shall be liable to pay by way of penalty under section 272A, a sum which shall not be less than Rs. 100 but which may extend to Rs. 200 for every day during which the failure continues, so, however, that this sum shall not exceed the amount of tax which was deductible at source. 10. These Instructions are not exhaustive and are issued only with a view to helping the employers to understand the various provisions relating to deduction of tax from salaries. Wherever there is any doubt, reference may be made to the provisions of the Income-tax Act, 1961, and the Finance Act, 1992. 11. In case any assistance is required, the Assessing Officer/the local Public Relations Officer of the Income-tax Department may be approached. 12. These instructions may please be brought to the notice of all disbursing officers and undertakings under the control of the Central/State Governments, etc. 13. Copies of this Circular are available with the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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