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TMI BlogIncome-tax deduction from salaries during the financial year 1993-94 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 financial year 1993-94. The rate of surcharge also remains unchanged at 12% of the amount of income-tax computed on a total income exceeding Rs. 1,00,000. An extract of Sub-Paragraph 1 of Paragraph A of Part III of the First Schedule to the Finance Act, 1993, containing the tax rates applicable, is given at annexure I. 3. Some of the other important changes brought about by the Finance Act, 1993, are as follows : (i) Amendment of clause (i) of section 16 so as to raise the limit of standard deduction from Rs. 12,000 to Rs. 15,000. Similarly, the limit applicable in the case of working women, whose total income (before allowing the standard deduction) does not exceed Rs. 75,000 has been raised from Rs. 15,000 to Rs. 18,000. (ii) Amendment of clause (2) of section 17 so as to provide that the expenditure on medical treatment and stay abroad shall be excluded from perquisite only to the extent permitted by the Reserve Bank of India. (iii) Amendment of section 80DD so as to enhance the deduction in respect of medical treatment of handicapped dependents from Rs. 12,000 to Rs. 15,000. (iv) Amendment of section 80G so as to allow deduction, to the extent specified, in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cludes pensions, tax at source would have to be deducted from pension also, if otherwise called for. However, no tax is required to be deducted from the commuted portion of pension as explained in para 5 (iii) of this circular. (iii) The value of perquisites by way of free or concessional residential accommodation, or motor car provided by employers to their employees shall be determined under rule 3 of the Income-tax Rules, 1962. It is, however, clarified that the use of any vehicle provided by a company or an employer for journey by the assessee from his residence to his office or other place of work or from such office or place to his residence shall not be regarded as a benefit or amenity granted or provided to him free of cost or at concessional rate for the purpose. (iv) Other benefits or amenities provided free of cost or at concessional rates to the employees like supply of gas, electric energy, water for household consumption, educational facilities, etc., should also be taken into account for the purpose of computing the estimated salary income of the employees during the current financial year (example III at annexure II illustrates computation of some such perquisit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State or Provincial Act, is exempt under sub-clause (i) of clause (10A) of section 10. As regards payments in commutation of pension received under any scheme of any other employer, exemption will be governed by the provisions of sub-clause (ii) of clause (10A) of section 10. (iv) Any payment received by an employee of the Central Government or a State Government, as cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement on superannuation or otherwise, is exempt under sub-clause (i) of clause (10AA) of section 10. In the case of other employees, this exemption will be determined with reference to the leave to their credit at the time of retirement on superannuation, or otherwise, subject to a maximum of eight month's leave. This exemption will be further limited to the maximum amount specified by the Government of India from time to time. Presently, this limit has been specified in the Government of India Notification No. S. O. 553(E)/(F. No. 142/11/88-TPL), dated June 8, 1988,* at Rs. 79,920. (v) Under section 10(10B), the retrenchment compensation received by a workman is exempt from income-tax subject to cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Where such accommodation is situated in Bombay, Calcutta, Delhi or Madras, 50% of the salary due to the employee for the relevant period ; or (d) Where such accommodation is situated in any other place, 40% of the salary due to the employee for the relevant period, whichever is the least. For this purpose, "Salary" includes dearness allowance, i.e., if the terms of employment so provide, but excludes all other allowances and perquisites. It has to be noted that 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 the house rent allowance or any portion thereof from the total income of the employee. Though incurring actual expenditure on payment of rent is a prerequisite for claiming deduction under section 10(13A), it has been decided as an adminis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en education allowance ; (f) Any allowance granted to an employee to meet the hostel expenditure of his child ; (g) Any allowance granted to meet the expenditure incurred on conveyance in the performance of duties of an office or employment of profit ; (h) Any special compensatory allowance in the nature of composite hill compensatory allowance or high altitude allowance or uncongenial climate allowance or snowbound area allowance or avalanche allowance ; and (i) Any allowance granted to meet the expenditure incurred on a helper where such a helper is engaged for the performance of duties of an office or employment of profit ; any allowance granted for encouraging academic research and any other professional pursuit; any allowance granted to meet the expenses incurred on the purchase or maintenance of uniform for wear during the performance of the duties of an office or employment of profit. It may be noted that the dearness allowance and city compensatory allowance granted to an employee are not covered by the aforesaid notifications ; these allowances will clearly be part of income and will have to be taken into account in the computation of income for the purpose of de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y granted to the assessee by his employer subject to certain limits. In the case of a Government employee, a sum equal to one-fifth of his salary (exclusive of any allowance, benefit or other perquisite) or five thousand rupees or the actual amount of entertainment allowance, whichever is the least, is allowable as deduction. In the case of a non-Government employee, deduction for entertainment allowance to the extent specified in sub-clause (b) of clause (ii) of section 16 will be given only if the allowance is regularly received by him from his present employer from a date prior to 1st April, 1955. (xi) Under section 17, as amended by the Finance Act, 1992, and, further amended by the Finance Act, 1993, exemption from tax will also be available in respect of _ (a) the value of any medical treatment provided to an employee or any member of his family, in any hospital maintained by the employer ; (b) reimbursement, by the employer, of expenditure incurred by an employee on his medical treatment or treatment of any member of his family in any hospital maintained by the Government or any local authority or any other hospital approved by the Government for the purposes of medica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... keep in force an insurance on the health of any member of the family ; (c) where the assessee is an association of persons or a body of individuals consisting in either case, only 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. (xiii) Under section 80DD, as amended by the Finance Act, 1993, a deduction of Rs. 15,000 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, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; or (iii) any association or body established outside India. While allowing the deduction under this section, documentary evidence should be obtained on the following points : (a) 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 ; (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). (xvii) 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, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan ; (v) Any deposit in a ten year account or a fifteen year account under the Post Office Savings Bank (Cumulative Time Deposit) Rules, 1959, as amended from time to time, where such sums are deposited in an 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 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 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c company, public sector company or a university established by law or a college affiliated to such university, or a local authority or a co-operative society. 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sits/subscriptions/payments made by the employees, by calling for such particulars/information as they deem necessary before allowing the aforesaid rebate. In case, the DDO is not satisfied about the genuineness of the employee's claim regarding any deposit/subscription/payment 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. 7. Calculation of income-tax and surcharge : (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 1993-94, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived from the former or other employer). (b) Sub-section (2A) of section 192 provides that in respect of salary payment of employees of the Government, company, co-operative society, local authority, university, institution, association or body deduction of tax 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the payment has to be normally made within one week of the deduction. If a person fails to deduct tax at source, or, after deducting, fails to pay the tax to the credit of the Central Government within the prescribed time, he shall be liable to action in accordance with the provision of section 201. Sub-section (1A) of section 201 lays down that such person 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 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, three months and seven 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 relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of every local authority or other public body or association, every private employer and every other person responsible for deducting tax under section 192, from "salaries", shall, after the end of each financial year, prepare and deliver, by 31st May of the succeeding financial year, an annual return of deduction of tax to the designated/concerned Assessing Officer. 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, the Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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